Securities Transactions • SLUSA Preemption • “In Connection With” Requirement

Taksir v. Vanguard Group, Inc., PICS Case No. 17-0894 (E.D. Pa. May 26, 2017) Rufe, J. (14 pages).

Plaintiffs' claims against the defendant investment company were not preempted by the Securities Litigation Uniform Standards Act of 1998 since they did not assert that defendants' alleged misrepresentations regarding brokerage commissions made a significant difference to their decision to purchase securities. The court denied defendant's motion to dismiss in part.

Plaintiffs held approximately $600,000 in assets with the defendant investment company, The Vanguard Group, Inc. As such, they qualified for Vanguard's “Voyager Select” program available to clients with between $500,000 and $1 million in assets. Plaintiffs filed this proposed class action alleging that under the terms of the program posted on Vanguard's website, they should have been charged a $2 brokerage commission for each securities transaction executed using Vanguard's services. However, according to the suit, when plaintiffs purchased shares of Nokia Corp on May 12, 2016, they were charged a $7 commission. The complaint accused Vanguard of overcharging customers on securities transactions and asserted a breach of contract claim and a violation of Pennsylvania's Unfair Trade Practices and Consumer Protection Law (UTPCPL). Vanguard moved to dismiss the complaint, arguing that plaintiffs' claims were preempted by the Securities Litigation Uniform Standards Act of 1998 (SLUSA). The U.S. District Court for the Eastern District of Pennsylvania explained that SLUSA preempts claims if four requirements are met: the underlying suit is a covered class action; the claim is based on state law; the claim concerns a covered security; and the plaintiff alleges a misrepresentation or omission of material fact or a manipulative or deceptive device or contrivance “in connection with” the purchase or sale of a covered security. The parties disagreed on the proper standard for determining whether SLUSA's “in connection with” requirement was met. Vanguard maintained that fraud or deception is in connection with a covered securities transaction for SLUSA purposes so long as it “coincided” with a covered securities s transaction. According to plaintiffs, the “in connection with” requirement is met only where fraud or deception was “material to” a decision to engage in a covered securities transaction. After considering several cases on the issue, the court found that plaintiffs' claims were not preempted by SLUSA because the “in connection with” requirement was not satisfied. Read together, the U.S. Supreme Court holdings in Merrill Lynch, Pierce, Fenner & Smith Inc. v. Dabit, 547 U.S. 71 (2006), and Chadbourne & Park LLP v. Troice, 134 S. C.t 1058 (2014) made clear that fraudulent or deceptive conduct must be “material,” i.e., make a significant difference, to an individual's decision to purchase or sell a covered security to satisfy SLUSA's “in connection with” requirement, the court observed. Plaintiffs' claims did not satisfy this requirement because they did not assert that Vanguard's alleged misrepresentation regarding brokerage commissions made a significant difference to their decision to purchase Nokia shares or any other securities. Accordingly, the court denied Vanguard's motion to the extent it was based on SLUSA.

Securities Transactions • SLUSA Preemption • “In Connection With” Requirement

Taksir v. Vanguard Group, Inc., PICS Case No. 17-0894 (E.D. Pa. May 26, 2017) Rufe, J. (14 pages).