Proskauer Rose LLP v. Troice

Whether the Securities Litigation Uniform Standards Act (SLUSA) precludes private class actions where the alleged securities transaction is “more than tangentially related” to the “heart, crux or gravamen” of the alleged fraud.

In 1995, Congress enacted the Private Securities Litigation Reform Act (PSLRA) in order to limit frivolous class action litigation targeting “deep-pocket defendants.” While the PSLRA was effective in its purpose, litigants began going around the legislation through state courts, as the PSLRA was only applicable in the Federal Circuits. In reaction to this trend, Congress enacted the Securities Litigation Uniform Standards Act (SLUSA), which applied the PSLRA to the State Courts.

A group of Latin American investors (Respondent) brought a class action against the lawyers of an Antigua-based Stanford International Bank, alleging aiding and abetting in violation of the Texas Securities Act and civil conspiracy.

The district court found that SLUSA precluded Respondent’s state law class action claims because the securities at issue were explicitly covered under SLUSA and granted Petitioner’s motion to dismiss. The Court of Appeals for the Fifth Circuit consolidated the case with several others; applied the test used by the Court of Appeals for the Ninth Circuit which asks whether “there is a relationship in which the fraud and the stock sale . . . are more than tangentially related”; concluded that the purchase of securities was not more than merely tangentially related to the gravamen of the alleged fraud, and reversed.

The Supreme Court granted certiorari and will decide whether SLUSA precludes private class actions where the alleged securities transaction is “more than tangentially related” to the “heart, crux or gravamen” of the alleged fraud.