High Court Won’t Take Up Pleading Dispute Between Investors, Banks

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By Antoinette Gartrell

The U.S. Supreme Court declined Oct. 2 to decide whether state-law breach of fiduciary duty claims against Bank of America and JPMorgan should have been alleged as federal securities law violations.

According to investors, the banks’ brokers were secretly being paid to steer their mutual fund clients into investing in the firms’ own mutual funds, even when they had higher fees and/or lower returns than competing third-party funds ( Holtz v. JPMorgan Bank N.A., U.S., No. 16-1536, denied 10/2/17 ; Goldberg v. Bank of America N.A., U.S., No. 16-1541, denied 10/2/17 ).

The district court dismissed the suit and the U.S. Court of Appeals for the Seventh Circuit affirmed. It said the investors’ state law claims should have been pleaded as failure to disclose material information under federal law.

The issue is important in light of a 1998 statute, the Securities Litigation Uniform Standards Act, intended to force compliance with heightened federal securities-fraud pleading requirements. SLUSA calls for federal preemption—removal followed by dismissal—of state-law class actions alleging “misrepresentations in connection with the purchase or sale of a covered security.”

In other action on the first day of the justices’ new term, the court declined to review a whistle-blower retaliation suit by former Microsemi Corp. employee who unsuccessfully claimed she was fired for complaining that the semiconductor corporation violated affirmative action requirements ( Rocheleau v. Microsemi Corp., U.S., No. 16-1520, denied 10/2/17 ).

Plaintiff Ramona Rocheleau didn’t show she engaged in protected activity because she didn’t have good reason to believe the conduct she reported “approximated the elements of securities fraud,” the Ninth Circuit affirmed. Although the high court passed on this whistle-blower case, it already has agreed to decide in another case this term whether a corporate whistle-blower who didn’t take his concerns to the Securities and Exchange Commission is covered by Dodd-Frank Act anti-retaliation provisions.

The justices also rejected a petition stemming from a Ninth Circuit decision affirming the dismissal of a would-be class securities fraud suit against a UBS unit ( Hsu v. UBS Fin. Serv., Inc., U.S., No. 17-157, denied 10/2/17 ). An investor claimed that UBS deceived clients and violated its fiduciary duty by leading them to believe that they waived certain “unwaivable fiduciary duties” through a series of “hedge clauses” aimed at limiting legal claims. However, the appeals court said the investor didn’t state a claim because he never identified the “unwaivable fiduciary duties” and therefore didn’t give UBS fair notice of the wrongs it allegedly committed.

To contact the reporter on this story: Antoinette Gartrell in Washington at agartrell@bna.com

To contact the editor responsible for this story: Phyllis Diamond at pdiamond@bna.com

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