Hidalgo-Velez et al v. San Juan Asset Management, Inc. et al

Filing 63

OPINION AND ORDER denied 29 Motion to Remand. Signed by Judge Carmen C. Cerezo on 9/24/2012. (mld)

IN THE UNITED STATES DISTRICT COURT
FOR THE DISTRICT OF PUERTO RICO
EDUARDO HIDALGO-VELEZ; ELISA VELEZ
(R.I.P.), represented by her heir EDUARDO
HIDALDO; CANDIDA URRUTIA, ESQ.,
FEDERICO BASORA, ESQ., and their
conjugal partnership; ANA L. LOPEZ,
ROSA M. LOPEZ-VELEZ, JOSE M.
BORRAGEROS, MARIA M. LEZAMA and
JOSE BORRAGEROS-LEZAMA, on their
own and on behalf of the community of
assets and the conjugal partnership;
VICTOR M. CORTES-HERNANDEZ, ESQ.,
VIOLETA CORDERO-YULFO, MANUEL O.
LOPEZ-RODRIGUEZ, MANUEL
LOPEZ-BADILLO and VIVIAN FERRER, on
their own and on behalf of their conjugal
partnership; ROSA BARBERO DE ETJEN,
ELSA UFRET-VALES, MARIA DEL C.
SANCHEZ-BAÑO; MUSIQUE EXPRESS
LIGHT, INC./EDUARDO AVILES,
ELIZABETH MARTINEZ and their conjugal
partnership; ENRIQUE NUÑEZ and ABBIE
SCHMIDT; MANUEL GONZALEZ, NORA
GONZALEZ and their conjugal partnership;
MARIA D. USCINOWICZ, on her own and on
behalf of PETER USCINOWICZ (R.I.P.);
FRANK SAN FILIPPO, on behalf of FRANK
SAN FILIPPO (R.I.P.); TRALL SANJURJO,
ALMA RODRIGUEZ and CRIMAVI, INC., on
behalf of all those shareholders in a similar
situation and derivatively on behalf of
PUERTO RICO & GLOBAL INCOME
TARGET MATURITY FUND, INC.
Plaintiffs
vs
SAN JUAN ASSET MANAGEMENT, INC.;
BBVA SECURITIES OF PUERTO RICO
INC.; PRICEWATERHOUSE COOPERS
LLP; AMAURY LUIS RIVERA; PEDRO
RIVERA-CASIANO; EYCK LUGO-RIVERA;
RAFAEL COLON-ASCAR; FELIX
GONZALEZ; JOSE
VIZCARRONDO-RAMIREZ DE ARELLANO;
JOHN DOE 1 to JOHN DOE 100;
COMPANY ABC to COMPANY XYZ
Defendants

CIVIL 11-2175CCC

CIVIL 11-2175CCC

2

vs
PUERTO RICO & GLOBAL INCOME
TARGET MATURITY FUND, INC.
Nominal Defendant

OPINION AND ORDER
Plaintiffs filed this class action and derivative suit against the directors and officers
of the Puerto Rico Global Income Target Maturity Fund Inc. (the “Fund”), San Juan Asset
Management, Inc. as the Fund’s investment adviser, BBVA Securities Puerto Rico, Inc.
(“BBVA Securities”) as its sales agent, PricewaterhouseCoopers LLP (“PwC”) as its outside
auditor, and various John Does, based on allegedly fraudulent disclosures and omissions
contained in the prospectus on which the plaintiffs relied in purchasing shares of the Fund.
On December 7, 2011, PwC removed the action to this Court asserting that it falls
within the removal provision of the Securities Litigation Uniform Standards Act, Pub. L.
No. 105-353, 112 Stat. 3227 (“SLUSA”). On December 16, 2011, plaintiffs moved for it to
be remanded to the Commonwealth court (docket entry 29). PwC and BBVA Securities
filed separate oppositions (docket entries 41 and 48). Having considered these motions,
and for the reasons stated herein, plaintiffs’ motion for remand is hereby DENIED.
I.

ANALYSIS
SLUSA precludes litigants from bringing a “covered class action” in state court

alleging fraud in connection with the purchase or sale of a “covered security.” 15 U.S.C.
§ 78bb(f)(1). Removal is proper under SLUSA when the suit: “(1) is a ‘covered’ class action,
(2) based on state statutory or common law that (3) alleges that defendants made a
‘misrepresentation or omission of a material fact’ or ‘used or employed any manipulative
device or contrivance in connection with the purchase or sale’ [ ] of a covered security.”
Romano v. Kazacos, 609 F.3d 512, 518 (2d Cir. 2010). If all elements are met, federal

CIVIL 11-2175CCC
courts have jurisdiction.

3
15 U.S.C. § 78bb(f)(1); Segal v. Fifth Third Bank, N.A.,

581 F.3d 305, 312 (6th Cir. 2009); U.S. Mortg., Inc. v. Saxton, 494 F.3d 833, 841
(9th Cir. 2007).
Here, there is no question that two of SLUSA’s prongs are clearly met. Plaintiffs filed
their case as a class action estimated to include “hundreds of members” (docket entry 1-2,
¶¶ 110-11), and alleged violations of the Puerto Rico Investment Companies Act of 1954,
as amended (10 P.R. Laws Ann. §§ 661 et seq.), the Puerto Rico General Corporations Law
(14 P.R. Laws Ann. §§ 3501 et seq.) and the Puerto Rico Civil Code. (docket entry 1-2,
¶¶ 114; docket entry 29 at 2, 4, 6-7, 12).
Plaintiffs do not deny having alleged in their complaint that defendants
misrepresented and omitted material information about the Fund’s investment objectives,
level of diversification and anticipated investments. They, however, challenge the removal
by arguing that the Fund’s common stock is not a “covered security” under SLUSA (docket
entry 29, at 9). The Court is not convinced.
SLUSA defines a “covered security” as any security:
(A)

listed, or authorized for listing, on the New York Stock Exchange or the

American Stock Exchange, or listed, or authorized for listing, on the National Market System
of the Nasdaq Stock Market (or any successor to such entities);
(B)

listed, or authorized for listing, on a national securities exchange (or tier or

segment thereof) that has listing standards that the Commission determines by rule (on its
own initiative or on the basis of a petition) are substantially similar to the listing standards
applicable to securities described in subparagraph (A); or
(C)

a security of the same issuer that is equal in seniority or that is a senior

security to a security described in subparagraph (A) or (B).

CIVIL 11-2175CCC

4

15 U.S.C. § 77r(b)(1)
A vast majority of courts have held that SLUSA applies to cases brought by investors
of a fund that invests, or represents that it will invest, in a covered security, even when the
shares of the fund in which the class invested are not covered securities. See Romano v.
Kazacos, 609 F.3d at 524; Newman v. Family Management Corp., 748 F. Supp. 2d 299,
302-07 (S.D.N.Y. Oct. 20, 2010); In re Beacon Associates Litigation, 745 F. Supp. 2d 386,
430 (S.D.N.Y. 2010); Merkin v. Gabriel Capital, L.P., 2011 U.S. Dist. LEXIS 112931 at *13,
*38-40 (S.D.N.Y. Sept. 23, 2011); In re Herald, Primeo, & Thema Sec. Litig., 2011 U.S. Dist.
LEXIS 137773, at *35 (S.D.N.Y. Nov. 29, 2011); In re Kingate Mgmt. Ltd. Litig.,
2011 U.S. Dist. LEXIS 41598, at *6-9 (S.D.N.Y. Mar. 30, 2011); Wolf Living Trust v.
FM Multi-Strategy Inv. Fund, LP, 2010 U.S. Dist. LEXIS 118169, at *3 (S.D.N.Y. Nov. 2,
2010); Backus v. Conn. Cmty. Bank, N.A., 789 F. Supp. 2d 293 (D. Conn. 2009); Levinson
v. PSCC Servs., Inc., 2009 U.S. Dist. LEXIS 119957, at *1, *9 (D. Conn. Dec. 23, 2009).
These cases are consistent with the Supreme Court’s construction of SLUSA. The
Supreme Court has held that SLUSA’s “in connection with” language is to be “interpreted
broadly” and that under the Court’s precedent the requisite is satisfied when the alleged
fraudulent scheme “coincides” with a securities transaction. Merrill Lynch, Pierce, Fenner
& Smith, Inc. v. Dabit, 547 U.S. 71, 85 (2006); SEC v. Zandford, 535 U.S. 813, 82122 (2002). See also Siepel v. Bank of Am., N.A., 526 F.3d 1122, 1127 (8th Cir. 2008);
Fisher v. Kanas, 487 F. Supp. 2d 270, 277 (E.D.N.Y. 2007) (SLUSA “has been interpreted
broadly by the Supreme Court in Dabit to include any misrepresentation touching upon the
purchase or sale of securities”), aff’d 288 F. App’x 721 (2d Cir. 2008).
A plain reading of the Fund’s Prospectus reveals that the Fund’s anticipated
investments included various covered securities. (docket entry 1-3, at 1, 14, 16, 17, 19)
Therefore, the third SLUSA prong is also met.

CIVIL 11-2175CCC

5

Moreover, the September 30, 2008 Financial Statements attached by PwC to its
Notice of Removal show that the Fund purchased 247,266 shares of Banco Popular Inc.
Preferred Stock Series A and 800,000 shares of Banco Popular Inc. Series B. (docket
entry 1-4, at 2) Banco Popular’s 2008 10-K, which PwC also attached to the Notice of
Removal, establishes that both securities were publicly traded on NASDAQ. (docket
entry 1-5). The referenced stocks clearly constitute covered securities under SLUSA.
15 U.S.C. § 77r(b)(1)(A). Therefore, we find that the Fund did purchase and held covered
securities in the form of its Banco Popular Investment, and the complaint alleges
misrepresentations and omissions in connection with its anticipated and actual investments
in publicly traded securities.
Removal of the entire action was proper because SLUSA precludes actions; not just
claims. See 15 U.S.C. § 78bb(f)(1) (“No covered class action based upon the statutory or
common law of any State . . . may be maintained . . .”) (emphasis added). Based on this
statutory language, many courts have rejected the claim-by-claim analysis advanced by
Plaintiffs. Siepel v. Bank of Am., N.A., 239 F.R.D. 558, 571 (E.D. Mo. 2006) (dismissing the
entire action), aff’d

526 F.3d 1122 (8th Cir. 2008); Superior Partners v. Chang,

471 F. Supp. 2d 750, 757-58 (S.D. Tex. 2007); Schnorr v. Schubert, 2005 U.S. Dist.
LEXIS 45757, at *25 (W.D. Okla. Aug. 18, 2005); G.F. Thomas Invs., L.P. v. Cleco Corp.,
317 F. Supp. 2d 673, 685 (W.D. La. 2004).
II.

CONCLUSION
Accordingly, because all statutory requirements for removal are present, the Court

hereby DENIES plaintiffs’ motion to remand (docket entry 29).
SO ORDERED.
At San Juan, Puerto Rico, on September 24, 2012.

S/CARMEN CONSUELO CEREZO
United States District Judge