Back in October, this blog speculated that the Supreme Court might grant cert in three related cases that raised an issue related to the Securities Litigation Uniform Standards Act (“SLUSA”). The Court had asked for the government to weigh in on the cert petition, which can be an indicator that the Court is inclined to take the case. The government has finally expressed its view and it is a frustrating one for the defendants: the lower court’s decision was wrong, but the Court should not grant cert.
SLUSA precludes certain class actions based upon state law that allege a misrepresentation in connection with the purchase or sale of nationally traded securities. In the three related cases, the Fifth Circuit held that the “best articulation of the ‘coincide’ requirement” is that the fraud allegations must be “more than tangentially related to (real or purported) transactions in covered securities.” The Fifth Circuit concluded that the relationship between the alleged fraud, which centered around the sale of certificates of deposit, and any transactions in covered securities was too attenuated to trigger SLUSA preclusion. The defendants moved for certification on the grounds that the Fifth Circuit’s “more than tangentially related” standard was in conflict with the standards articulated by other circuits.
In its amicus brief, the government concluded that the Fifth Circuit had reached the wrong result because “the purported existence of covered securities transactions was far from ‘tangential’ to the fraudulent scheme and the misrepresentations that supported it.” Nevertheless, it urged the Court to deny cert for two reasons. First, the Fifth Circuit’s “more than tangentially related” standard is substantially similar to those used by other circuits and any variation in word choice “does not mean that the courts of appeals have applied substantively different understandings of the “in connection with” requirement.” Second, the unusual fact pattern in these cases would render any holding that SLUSA applies (or does not apply) of little assistance to lower courts in future cases.
Does this mean that the Supreme Court will deny cert? More likely than not, but stay tuned.