William Hampton v. Pacific Investment Management, et al

Filing

FILED OPINION (SIDNEY R. THOMAS, STEPHEN REINHARDT and EDWARD R. KORMAN) AFFIRMED; VACATED; REMANDED, Judge: ERK Authoring. FILED AND ENTERED JUDGMENT. [10556013]

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FOR PUBLICATION

UNITED STATES COURT OF APPEALS
FOR THE NINTH CIRCUIT

WILLIAM T. HAMPTON, individually
and on behalf of all others similarly
situated,
Plaintiff-Appellant,

No. 15-56841
D.C. No.
8:15-cv-00131CJC-JCG

v.
PACIFIC INVESTMENT MANAGEMENT
COMPANY LLC; PIMCO FUNDS; E.
PHILIP CANNON; J. MICHAEL HAGAN;
BRENT R. HARRIS; DOUGLAS M.
HODGE; RONALD C. PARKER; VERN
O. CURTIS; WILLIAM J. POPEJOY,
Defendants-Appellees.

OPINION

Appeal from the United States District Court
for the Central District of California
Cormac J. Carney, District Judge, Presiding
Argued and Submitted June 7, 2017
Pasadena, California
Filed August 24, 2017

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HAMPTON V. PACIFIC INVESTMENT MGMT.
Before: Sidney R. Thomas, Chief Judge, Stephen
Reinhardt, Circuit Judge, and Edward R. Korman, *
District Judge.
Opinion by Judge Korman

SUMMARY **

Securities
The panel affirmed in part and vacated in part the district
court’s judgment dismissing state law claims as barred by
the Securities Litigation Uniform Standards Act.
SLUSA bars private class actions based on state law in
cases where the plaintiff alleges a material falsehood or
omission connected to the purchase or sale of federallyregulated securities. In a separately-filed memorandum
disposition, the panel affirmed the district court’s holding
that the class-action claims in this case were barred by
SLUSA. In its opinion, agreeing with the Third Circuit, the
panel held that dismissals pursuant to SLUSA’s class-action
bar must be for lack of subject-matter jurisdiction, and
therefore without prejudice, rather than on the merits.
The panel affirmed the district court’s judgment to the
extent it concluded that the plaintiff’s claims were barred,
*

The Honorable Edward R. Korman, United States District Judge
for the Eastern District of New York, sitting by designation.
**

This summary constitutes no part of the opinion of the court. It
has been prepared by court staff for the convenience of the reader.

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vacated the judgment to the extent it dismissed the claims
with prejudice, and remanded for further proceedings.

COUNSEL
Nicholas I. Porritt (argued) and Adam M. Apton, Levi &
Korsinsky LLP, Washington, D.C.; Jeff S. Westerman,
Westerman Law Corp., Los Angeles, California; for
Plaintiff-Appellant.
Matthew L. Larrabee (argued) and Joshua D.N. Hess,
Dechert LLP, San Francisco, California; David A. Kotler,
Dechert LLP, Princeton, New Jersey; Frank D. Rorie Jr.,
Law Office of Frank D. Rorie Jr., West Hollywood,
California; John D. Donovan, Robert A. Skinner, and Amy
D. Roy, Ropes & Gray LLP, Boston, Massachusetts; John C.
Ertman, New York, New York; Ronald Rus and Randall A.
Smith, Brown Rudnick LLP, Irvine, California; for
Defendants-Appellees.

OPINION
KORMAN, District Judge:
As a matter of substantive law, a private party injured in
the securities trade can generally seek relief under whatever
laws—federal or state—provide a cause of action. Congress,
however, has significantly narrowed the availability of class
relief based on state-law securities claims. The Securities
Litigation Uniform Standards Act (“SLUSA”), 112 Stat.
3227 (1998) (codified in relevant part at 15 U.S.C.
§§ 77p(b)–(f), 78bb(f)), bars private class actions based on
state law in cases where the plaintiff “alleg[es]” a material

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HAMPTON V. PACIFIC INVESTMENT MGMT.

falsehood or omission connected to the purchase or sale of
most federally-regulated securities.
A note on terminology: Claims subject to SLUSA are
most frequently described as “precluded,” and sometimes as
“preempted” by the statute. But as the Supreme Court has
pointed out, “preemption” is a poor fit for a rule that “does
not itself displace state law with federal law but makes some
state-law claims nonactionable through the class-action
device.” Kircher v. Putnam Funds Trust, 547 U.S. 633, 636
n.1 (2006). By our lights, “preclusion” doesn’t fare much
better: In modern usage, preclusion—as in, issue or claim—
describes something a judgment does. Whether SLUSA
applies to a given claim, however, depends on the facts
alleged in the complaint, not the existence or scope of a prior
judgment. Moreover, this opinion also addresses questions
related to claim preclusion, and we have a measure of “pity
for the tired reader” who would have to see-saw between the
term’s dual meanings. See id. at 647 n.14. We therefore
describe SLUSA as “barring” particular claims rather than
“precluding” them.
Against this backdrop, we begin with a brief review of
the proceedings below. Lead plaintiff William Hampton
sued the defendants in district court, styling his complaint as
one for breach of contract and various fiduciary duties under
Massachusetts law. The district judge held that SLUSA
barred his claims, and dismissed them with prejudice. On
appeal, Hampton challenges the district judge’s
1) conclusion that his claims are barred by SLUSA, and
2) decision to dismiss his claims with prejudice as a result.
In a separately-filed memorandum disposition, we affirm the
district court’s holding that the class-action claims in this
case are indeed barred by SLUSA. In this opinion, we decide
only that dismissals pursuant to SLUSA’s class-action bar

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must be for lack of subject-matter jurisdiction—and
therefore without prejudice—rather than on the merits.
DISCUSSION
Dismissals under Rule 12(b)(6)—the ostensible basis for
the order under review—are judgments on the merits.
Federated Dep’t Stores, Inc. v. Moitie, 452 U.S. 394, 399 n.3
(1981). Such dismissals, unless the court provides otherwise,
will preclude future assertion of claims “aris[ing] out of the
same transactional nucleus of facts.” See Garity v. APWU
Nat’l Labor Org., 828 F.3d 848, 855 (9th Cir. 2016) (citation
omitted). Dismissals for lack of subject-matter jurisdiction,
on the other hand, must be without prejudice, because a lack
of jurisdiction deprives the dismissing court of any power to
adjudicate the merits of the case. Wages v. I.R.S., 915 F.2d
1230, 1234 (9th Cir. 1990). Hampton’s challenge to the
district judge’s decision to dismiss with prejudice therefore
raises the question of whether SLUSA calls for a dismissal
for failure to state a claim, see Fed. R. Civ. P. 12(b)(6), or
one for lack of subject-matter jurisdiction, see Fed. R. Civ.
P. 12(b)(1).
Courts “have not achieved consensus” on which
subsection of Rule 12 is the right vehicle to raise “a motion
seeking SLUSA preclusion—which seeks a ruling, in the
statutory language, that the lawsuit ‘may not be maintained’
as a covered class action.” Joseph M. McLaughlin,
1 McLaughlin on Class Actions § 2.44 (13th ed. Oct. 2016)
(collecting examples). Likewise, this court has not directly
addressed the question. In Freeman Investments, L.P. v.
Pacific Life Insurance Co.—our most recent case addressing
the reach of SLUSA’s class-action bar—we noted in dictum
that the dismissal of a covered class action should be without
prejudice to the plaintiff bringing the same substantive
claims on an individual basis in state court. 704 F.3d 1110,

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HAMPTON V. PACIFIC INVESTMENT MGMT.

1118 (9th Cir. 2013). Since dismissals under Rule 12(b)(6)
operate as judgments on the merits with claim-preclusive
effect, but a dismissal for lack of subject-matter jurisdiction
does not, Freeman’s observation strongly suggests that a
motion invoking SLUSA amounts to a jurisdictional
challenge under Rule 12(b)(1).
To be sure, we have previously affirmed district court
decisions that addressed SLUSA under Rule 12(b)(6), see,
e.g., Proctor v. Vishay Intertechnology Inc., 584 F.3d 1208
(9th Cir. 2009), and dismissals with prejudice of complaints
that were wholly barred by the statute—a result that suggests
a decision on the merits rather than a jurisdictional one, see
U.S. Mortg., Inc. v. Saxton, 494 F.3d 833 (9th Cir. 2009),
abrogated on other grounds by Proctor, 584 F.3d 1208. That
sort of “drive-by jurisdictional ruling[],” however, in which
the “jurisdictional character” of an issue was “assumed by
the parties, and . . . assumed without discussion by the
Court,” carries no precedential weight. Steel Co. v. Citizens
for a Better Env’t, 523 U.S. 83, 91 (1998).
The other circuits are divided on the nature of a dismissal
under SLUSA. The Third Circuit has held, albeit in summary
fashion, that SLUSA dismissals are jurisdictional, LaSala v.
Bordier et Cie, 519 F.3d 121, 129 n.7 (3d Cir. 2008), and the
Second Circuit has suggested it would do likewise if given
the chance, In re Kingate Mgmt. Ltd. Litig., 784 F.3d 128,
135 n.9 (2d Cir. 2015). The Seventh Circuit, however, has
declared, also without in-depth analysis, that “there is no
merit to the suggestion that dismissal . . . on the ground that
the suit is barred by SLUSA is jurisdictional and therefore
without prejudice.” Brown v. Calamos, 664 F.3d 123, 127–
28 (7th Cir. 2011).
We join with the Third Circuit in holding that dismissals
under SLUSA are jurisdictional. With respect to

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jurisdictional questions in particular, the Supreme Court has
instructed courts to review statutory limitations on the
procedures for enforcing federal rights “to determine
whether Congress clearly intended” them to be
jurisdictional. Kwai Fun Wong v. Beebe, 732 F.3d 1030,
1036 (9th Cir. 2013) (en banc). The focus of this analysis is
not on the presence or absence of “magic words,” but the
“language, context, and . . . historical treatment” around the
statute. Id. (citations omitted).
The critical language here is SLUSA’s command,
codified as an amendment to the 1933 Securities Act, that
“[n]o covered class action . . . may be maintained in any
State or Federal court” if it meets the statute’s various
requirements. 15 U.S.C. § 77p(b) (emphasis added). At the
time SLUSA was enacted in 1998, language specifying that
an action could not be “maintained” in federal court had long
been construed as jurisdictional. So in Bob Jones University
v. Simon, the Supreme Court held that the Tax AntiInjunction Act’s provision that “no suit [to restrain tax
collection] . . . shall be maintained in any court” deprived
district courts of subject-matter jurisdiction. 416 U.S. 725,
749 (1974) (discussing 26 U.S.C. § 7421(a)). And in United
States v. Dalm, the Court held that the plaintiff’s failure to
comply with 26 U.S.C. § 7422(a), which provides that “[n]o
suit or proceeding shall be maintained in any court for the
recovery of any internal revenue tax” unless certain
conditions are met, deprived the federal courts of jurisdiction
to hear her claims. 494 U.S. 596, 601–02 (1990).
Where a “long line” of Supreme Court decisions holding
specific language to be jurisdictional has been “left
undisturbed by Congress,” and used in a subsequent statute,
it is difficult to escape the conclusion that when Congress
used the same language, it clearly intended the same result.

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See Reed Elsevier, Inc. v. Muchnick, 559 U.S. 154, 173
(2010) (Ginsburg, J., concurring in the judgment) (quoting
Union Pac. R.R. Co. v. Bhd. of Locomotive Eng’rs &
Trainmen Gen. Comm. of Adjustment, Cent. Region,
558 U.S. 67, 82 (2009)). To the extent that SLUSA bars
Hampton’s suit, it does so by depriving the district court of
jurisdiction to hear his state-law claims on a class-wide
basis, and the district judge erred by dismissing pursuant to
Rule 12(b)(6) rather than 12(b)(1). Because the district judge
had no jurisdiction to reach the merits of Hampton’s claims,
he had no power to dismiss them with prejudice.
We close with a brief word on what comes next:
Hampton has asked for a chance to amend his complaint to
plead claims not barred by SLUSA. The district judge denied
him that opportunity, holding that it would be futile for lack
of a “viable path whereby [Hampton] could plead a state law
claim that does not involve the misrepresentations alleged.”
Hampton v. Pac. Inv. Mgmt. Co., LLC, 146 F. Supp. 3d 1207,
1217 (C.D. Cal. 2015) (emphasis added). We do not upset
the district judge’s narrow decision that Hampton may not
replead state-law claims on a classwide basis. Hampton,
however, has other options.
SLUSA’s jurisdictional bar, which applies in both state
and federal courts, only kicks in when an individual plaintiff
pleads 1) state-law claims as a 2) class action. So, assuming
there are no other jurisdictional barriers, Hampton is free to
return to the district court (or depart for an appropriate state
court) to replead his state-law claims on an individual basis,
or to plead new federal securities claims either as an
individual or as a class representative. On what basis
Hampton seeks to proceed, and in what forum, is up to him,
and the district judge can set an appropriate schedule for that
decision on remand.

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CONCLUSION
For the reasons stated above and in our simultaneouslyfiled memorandum disposition, the judgment of the district
court is AFFIRMED to the extent it concludes that
Hampton’s claims are barred, and VACATED to the extent
it dismissed Hampton’s claims with prejudice. The case is
REMANDED for further proceedings consistent with this
opinion.