Court rules out securities holder suits

Author: | Published: 1 Jul 2005

On April 5 2005, in Kircher v Putnam Funds the US Court of Appeals for the Seventh Circuit issued a far-reaching decision regarding the scope of preemption under the Securities Litigation Uniform Standards Act of 1998 (SLUSA). Following in the footsteps of decisions by other federal appellate courts, Kircher held that SLUSA broadly preempts state court securities claims. The Act requires federal courts to closely parse the allegations of the complaint and the plaintiff's class definition to determine whether the state law complaint in fact alleges a claim for misrepresentation or omission in connection with the sale of covered securities and is, therefore, preempted.

The decision in Kircher extended SLUSA preemption beyond other decisions in one important respect. Confronted with a plaintiffs' class definition that expressly excluded purchasers and sellers of securities, the court held that SLUSA preemption is not limited by the "purchasers and sellers" rule which restricts...