South-Western Legal Studies in Business

Federal Courts Have Exclusive Jurisdiction for Securities Misrepresentation Suits
Description Appeals court held that an investor could not escape the federal preemption imposed by the Securities Litigation Uniform Standards Act by suing a broker under a claim of breach of contract and violation of state consumer protection laws.
Topic Consumer Protection
Key Words Sale; Misrepresentation; Breach of Contract; Federal Preemption
C A S E   S U M M A R Y
Facts Rowinski sued a stock brokerage firm in a class action suit for "biased investment research" that was a breach of contract that enriched the broker at the client's expense. Rowinski also claimed there were violations of state consumer protection law. The broker moved to dismiss the suit on grounds of federal preemption under the Securities Litigation Uniform Standards Act (SLUSA) of 1998. The district court granted defendant's motion; Rowinski appealed.

Affirmed. SLUSA provides preemption of state law-actions "alleging a misrepresentation or omission of a material fact in connection with the purchase or sale of a covered security." SLUSA preempts state-court action when 1) there is a class action that alleges fraud in securities dealings, 2) the complaint alleges material misrepresentation or omission to the public that would be reasonably relied upon by an investor; 3) the relationship of the parties involved the purchase or sale of securities, and 4) the suit connects state-law claims to the purchase and sale of securities that would be subject to the Securities Exchange Act of 1934.

Citation Rowinski v. Salomon Smith Barney, 398 F.3d 294 (3rd Cir., 2005)

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