SW Legal studies in Business

No Federal Preemption for Breach of Contract Suit Against Brokerage Service
Description Appeals court held that a suit by a brokerage firm subscriber for breach of contract could proceed in state court under state law. The suit was not preempted by the Securities Litigation Uniform Standards Act, which gives federal court jurisdiction over suits involving sales of securities. This suit involved failure to provide promised brokerage service, a matter of contract law.
Topic Securities Law
Key Words Securities Statutes; Breach of Contract; Preemption
C A S E   S U M M A R Y
Facts Green subscribed to Ameritrade's "real time" stock price quote service. Green sued Ameritrade because, he alleged, their price quotes were not real time but often lagged hours behind actual sales. He sued for breach of contract and other claims in violation of Nebraska law. Ameritrade removed the suit from Nebraska state court to federal court and moved to dismiss the suit as preempted by the Securities Litigation Uniform Standards Act of 1998 (SLUSA). The trial court held that SLUSA did not apply, so the suit should be heard in state court under state law. Ameritrade appealed.

Affirmed. SLUSA was designed to curb abuse in securities suits that were filed under state law to evade federal pleading requirements set by the Private Securities Litigation Reform Act. The goal of SLUSA was to curb shareholder derivative suits in which the goal was a windfall of attorney's fees, with no real desire to assist the corporation on whose behalf the suit was brought. SLUSA requires that any action based on an allegation that a "covered security" was sold or purchased through misrepresentation, manipulation, or deception would be removed to federal court. State law claims in such matters are subject to federal preemption. This suit is based on a breach of contract claim in which the subscriber asserts that the brokerage service failed to provide the service promised. There is no allegation that there was a purchase or sale of security based on misrepresentation. Hence the matter is properly tried in state court under state law.

Citation Green v. Ameritrade, Inc., 279 F.3d 590 (8th Cir., 2002)

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