Nielen-Thomas, Susan v. Concorde Investment Services, LLC et al
Filing
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OPINION & ORDER denying 42 Motion to Remand; granting 15 Motion to Dismiss; granting 39 Motion to Dismiss; denying as moot 19 Motion to Dismiss; denying as moot 45 Motion to Dismiss. Signed by District Judge James D. Peterson on 7/26/2018. (kwf)
IN THE UNITED STATES DISTRICT COURT
FOR THE WESTERN DISTRICT OF WISCONSIN
SUSAN NIELEN-THOMAS,
on behalf of herself and all others similarly situated,
Plaintiff,
v.
OPINION & ORDER
CONCORDE INVESTMENT SERVICES, LLC,
FORTUNE FINANCIAL SERVICES, INC.,
TD AMERITRADE, INC.,
WISCONSIN RIVER BANK, and
WISCONSIN INVESTMENT SERVICES, LLC,
18-cv-229-jdp
Defendants.
This is a proposed class action in which plaintiff Susan Nielen-Thomas asserts claims
under federal and state law concerning defendants’ alleged involvement in an investment
advisor’s fraudulent handling of his customers’ investment accounts. Nielen-Thomas and the
unnamed plaintiffs are the defrauded customers. Nielen-Thomas filed the case in state court,
and defendants Fortune Financial Services, Inc., and TD Ameritrade, Inc., removed it under
the Securities Litigation Uniform Standards Act (SLUSA), 15 U.S.C. § 78bb(f)(2). Dkt. 3. A
flurry of motions followed removal, all of which are now ripe for the court’s ruling. Several
defendants move to dismiss Nielen-Thomas’s state-law claims as barred by SLUSA,
see Dkt. 15 and Dkt. 39, and they move to dismiss all of her claims, including the federal-law
claim, for failure to state a claim, see Dkt. 15; Dkt. 19; Dkt. 39; Dkt. 45. Nielen-Thomas
opposes these motions and seeks to remand the case to the Circuit Court for Dane County.
Dkt. 42.
Most of these motions hinge on whether SLUSA applies to Nielen-Thomas’s claims.
Because it does, the court will not remand the case, but it will dismiss the state-law claims
with prejudice. And because Nielen-Thomas fails to state a claim under federal law, the court
will dismiss that claim with prejudice, too. As a result, the court will dismiss defendant
Wisconsin River Bank’s crossclaims without prejudice and close the case.
ANALYSIS
The parties agree that the future of this case hinges on SLUSA’s application: if SLUSA
applies, as defendants contend, then removal is proper and the state-law claims must be
dismissed; if SLUSA does not apply, as Nielen-Thomas contends, then removal was not
proper and the court must remand the case to the state court for further proceedings.
SLUSA is the latest legislation addressing how and where private individuals may
bring litigation involving nationally traded securities. The history of this area of legislation is
recounted in Cyan, Inc. v. Beaver County Employees Retirement Fund, 138 S. Ct. 1061, 1066–67
(2018), but for the purposes of this case, the court need only focus on the statutory
provisions currently in force, which provide that certain securities class actions may be
removed to federal court and then dismissed:
(1) No covered class action based upon the statutory or common
law of any State or subdivision thereof may be maintained in
any State or Federal court by any private party alleging—
(A) a misrepresentation or omission of a material fact in
connection with the purchase or sale of a covered
security; or
(B) that the defendant used or employed any manipulative or
deceptive device or contrivance in connection with the
purchase or sale of a covered security.
(2) Any covered class action brought in any State court
involving a covered security, as set forth in paragraph (1),
shall be removable to the Federal district court for the
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district in which the action is pending, and shall be subject
to paragraph (1).
15 U.S.C. § 78bb(f).
The issue is whether this case is a “covered class action.” (There’s no question that
Nielen-Thomas’s state-law claims meet the other requirements for removal.) Under SLUSA, a
“covered class action” is
any single lawsuit in which—
(I)
damages are sought on behalf of more than 50 persons or
prospective class members, and questions of law or fact
common to those persons or members of the prospective
class, without reference to issues of individualized reliance
on an alleged misstatement or omission, predominate over
any questions affecting only individual persons or
members; or
(II) one or more named parties seek to recover damages on a
representative basis on behalf of themselves and other
unnamed parties similarly situated, and questions of law or
fact common to those persons or members of the
prospective class predominate over any questions affecting
only individual persons or members . . . .
§ 78bb(f)(5)(B)(i).1 Nielen-Thomas attempts to plead around this definition by specifically
alleging in her complaint that “upon information and belief, the putative Class consists of at
least 35, but no more than 49 members.” Dkt. 3-1, ¶ 91. Thus, she does not seek damages on
behalf of “more than 50 persons” and her claims do not fall within subparagraph (I).
But what about subparagraph (II)? It doesn’t include a minimum number of plaintiffs.
At first glance, it appears to simply repeat subparagraph (I)’s definition without the 50plaintiff minimum. But if that were the case, what would be the point of subparagraph (I)?
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The remainder of the statutory definition concerns groups of lawsuits and is inapplicable
here.
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No court has directly addressed the application of subparagraph (II), and courts discussing
SLUSA more generally—including the Supreme Court—appear to have simply ignored it,
describing a “covered class action” simply as one seeking damages on behalf of more than 50
people.2 Nielen-Thomas argues that these descriptions govern, but they appear solely in dicta.
The statutory language is confusing, but we know that each subparagraph must have
some meaning—otherwise, why would Congress have included them both? See Hibbs v. Winn,
542 U.S. 88, 101 (2004) (“A statute should be construed so that effect is given to all its
provisions, so that no part will be inoperative or superfluous, void or insignificant . . . .”
(quoting 2A N. Singer, Statutes and Statutory Construction § 46.06 (rev. 6th ed. 2000)).
SLUSA’s legislative history clears things up: subparagraph (I) was meant to apply to all
actions brought on behalf of more than 50 people, regardless of whether they proceed as class
actions in the Rule 23 sense, whereas subparagraph (II) was meant to apply to all class
actions—that is, actions brought on behalf of one or more unnamed parties—regardless of
how many people might fall within the class definition. See H.R. Rep. No. 105-803, at 13
(1998) (Conf. Rep.); S. Rep. No. 105-182, at 6–7 (1998) (Conf. Rep.). The intent was to
exclude individual state private securities actions from SLUSA’s bar, not class actions with 50
or fewer plaintiffs. S. Rep. No. 105-182, at 6. Nielen-Thomas attempts to bring claims on
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See, e.g., Cyan, 138 S. Ct. at 1067 (“According to SLUSA’s definitions, the term ‘covered
class action’ means a class action in which ‘damages are sought on behalf of more than 50
persons.’”); Chadbourne & Parke LLP v. Troice, 571 U.S. 377, 383 (2014) (“[SLUSA] sets forth
exceptions. It does not apply to class actions with fewer than 51 ‘persons or prospective class
members.’”); Merrill Lynch, Pierce, Fenner & Smith, Inc. v. Dabit, 547 U.S. 71, 87 (2006) (“The
Act does not deny any individual plaintiff, or indeed any group of fewer than 50 plaintiffs,
the right to enforce any state-law cause of action that may exist.”); Brown v. Calamos, 664
F.3d 123, 124 (7th Cir. 2011) (“[SLUSA] prohibits securities class actions if the class has
more than 50 members . . . .”).
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behalf of one or more unnamed parties, so it meets the definition of “covered class action”
under subparagraph (II).
With the meaning of the statutory language resolved, it’s now clear that the other
district court opinions that Nielen-Thomas points to are inapplicable here. Each opinion
states that a plaintiff may successfully avoid SLUSA by strategically pleading fewer than 51
plaintiffs. See Kirschner v. Bennett, No. 07-cv-8165, 2012 WL 13060078, at *16 (S.D.N.Y.
June 18, 2012); Contreras v. Host Am. Corp., 453 F. Supp. 2d 416, 419 (D. Conn. 2006); In re
WorldCom, Inc. Sec. Litig., 308 F. Supp. 2d 236, 244–45 (S.D.N.Y. 2004). But each of those
cases involved named plaintiffs, not a proposed class action with unnamed plaintiffs. In other
words, those cases concerned subparagraph (I), not subparagraph (II). Under subparagraph
(II), any complaint filed as a class action is automatically barred by SLUSA, provided the
other statutory requirements are fulfilled.
Because SLUSA applies to Nielen-Thomas’s class action, the court must deny her
motion to remand, and it must grant defendants’ motion to dismiss her state-law claims. In
accordance with Brown, 664 F.3d at 127–29, the dismissal will be with prejudice.
That leaves Nielen-Thomas’s single federal-law claim, which alleges breach of § 12(2)
of the Securities Act of 1933, 15 U.S.C. § 77l(a)(2). Before addressing the merits of the
claim, a note on the court’s jurisdiction is order. Of course, the court would have subjectmatter jurisdiction over the 1933 Act claim because it arises under federal law—although
defendants didn’t plead that basis for removal; they removed solely under SLUSA. NielenThomas argues in a footnote that this claim is not subject to removal under SLUSA because
it’s not a state-law claim, citing Cyan. But Cyan held that an action alleging only 1933 Act
claims may not be removed to federal court under SLUSA. 138 S. Ct. at 1068. That’s not
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what happened here. By offering no further explanation of her argument against removal of
the 1933 Act claim, Nielen-Thomas has waived it. See Harmon v. Gordon, 712 F.3d 1044,
1053 (7th Cir. 2013) (“We have often said that a party can waive an argument by presenting
it only in an underdeveloped footnote . . . .”). The court is satisfied that it has jurisdiction to
consider this claim and will turn to the merits.
Section 12(2) provides a private right of action against sellers of securities who make
material misstatements or omissions through a prospectus. Gustafson v. Alloyd Co., 513 U.S.
561, 564 (1995); Friedman v. Rayovac Corp., 295 F. Supp. 2d 957, 974 (W.D. Wis. 2003). A
“Prospectus” is a “document that describes a public offering of securities by an issuer or
controlling shareholder.” Gustafson, 513 U.S. at 584; see also Whirlpool Fin. Corp. v. GN
Holdings, Inc., 67 F.3d 605, 609 n.2 (7th Cir. 1995) (“As this case does not concern a public
offering, § 12(2) is inapplicable . . . .”).
In this case, Nielen-Thomas alleges that Jeffrey Butler, an investment advisor, bought
and sold unsuitable investments in his clients’ brokerage accounts. Specifically, Butler bought
and sold Barclays iPath S&P 500 Short Term Futures, an exchange traded note linked to
stock market volatility futures that was unsuitable for Nielen-Thomas and Butler’s other
clients, who were retail investors. According to Nielen-Thomas, Butler “made an implicit
representation that the investments and investment strategy were suitable” and “failed to
disclose material facts that were necessary to make the representations that were made not
misleading.” Dkt. 3-1, ¶¶ 187, 188. Nielen-Thomas alleges that defendant Wisconsin
Investment Services, LLC, (Butler’s company) is directly liable for Butler’s acts and that the
remaining defendants (for whom Butler was a registered representative) are either directly or
vicariously liable.
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The court need not sort through the complexities of vicarious and supervisory liability
because Nielen-Thomas’s allegations fail to state a claim under § 12(2). Butler’s alleged fraud
just isn’t the kind of act that the 1933 Act was meant to address. See Cyan, 138 S. Ct. at
1066 (“The 1933 Act required companies offering securities to the public to make ‘full and fair
disclosure’ of relevant information.” (emphasis added)). Nielen-Thomas does not allege that
Butler was selling securities to the public—his role as an investment advisor is more akin to
that of the public in the framework of the 1933 Act. And the only prospectus mentioned in
Nielen-Thomas’s complaint is Barclays’s prospectus. See Dkt. 3-1, ¶¶ 43, 186. But she does
not allege that the prospectus included a material misstatement or omission—and Butler
didn’t have any control over Barclays’s prospectus anyway. Because Nielen-Thomas fails to
state a claim under § 12(2) of the 1933 Act, the court will dismiss that claim with prejudice.
The court need not reach the merits of the state-law claims because it has dismissed them
under SLUSA, so it will deny defendants’ motions to dismiss the state-law claims under Rule
12(b)(6) as moot.
ORDER
IT IS ORDERED that:
1. Plaintiff Susan Nielen-Thomas’s motion to remand, Dkt. 42, is DENIED.
2. Defendants Fortune Financial Services, Inc., and TD Ameritrade, Inc.’s motion to
dismiss, Dkt. 15, is GRANTED.
3. Defendant Concorde Investment Services, LLC’s motion to dismiss, Dkt. 39, is
GRANTED.
4. Defendant TD Ameritrade, Inc.’s motion to dismiss, Dkt. 19, is DENIED as moot.
5. Defendant Fortune Financial Services, Inc.’s motion to dismiss, Dkt. 45, is
DENIED as moot.
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6. Plaintiff’s claims are DISMISSED with prejudice.
7. Defendant Wisconsin River Bank’s crossclaims are DISMISSED without
prejudice.
8. The clerk of court is directed to enter judgment accordingly and close the case.
Entered July 26, 2018.
BY THE COURT:
/s/
________________________________________
JAMES D. PETERSON
District Judge
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