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NY District Court Dismisses Class Action Suit in Fisher v. Kanas
Fisher v. Kanas
07-CV-0302 (ADS) (ETB), 2007 WL 1352713, U.S. District Court for the Eastern District of New York, 05/07/2007
Holding
In this class action suit alleging breach of fiduciary duty supposedly committed by executives of a company incorporated in Delaware, the District Court for the Eastern District of New York directed the dismissal of the suit, stating that four conditions must be satisfied in order to render applicable the Securities Litigation Uniform Standards Act's (SLUSA) provisions on removal and preemption, to wit: (1) the underling suit must be a “covered class action”; (2) the action must be based on state or local law; (3) the action must concern a “covered security”; and (4) the defendant must have misrepresented or omitted a material fact or employed a manipulative device or contrivance “in connection with the purchase or sale” of that security.
Detailed Summary
Former stockholder filed class action in state court against the issuer’s executives, alleging that they disseminated misleading proxy statements misrepresenting executive compensation policies to stockholders in violation of Delaware law, under which state the company was incorporated. Plaintiff contended that the executive compensation pay-out received by the defendants was a violation of their fiduciary duties in violation of Delaware state law.
According to plaintiff, the class was composed of all former non-management North Fork stockholders who received proxy statements, owned stock, and “were deprived of their full equity interest in North Fork as a result of the egregious sum of money paid to defendants.” Plaintiff further claimed that the Defendants’ misrepresentations, although not actionable under federal law, are a violation of Delaware law. After removal pursuant to the Securities Litigation Uniform Standards Act (SLUSA), stockholder filed motion to remand the action to state court.
In opposition to plaintiff’s motion, defendants contended plaintiff’s present complaint alleges the same claims made in her prior complaint, which was dismissed for failure to sufficiently state a claim for breach of fiduciary duty action. Defendants argued that, pursuant to the SLUSA, the action was removable to this Court and subject to dismissal.
Citing the case of Merrill Lynch, Pierce, Fenner & Smith, Inc. v. Dabit [547 U.S. 71, 126 S.Ct. 1503, 1512, 164 L.Ed.2d 179 (2006)], where the Supreme Court had the occasion to apply SLUSA, the district court declared that 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. A covered class action is a lawsuit in which damages are sought on behalf of more than [fifty] people.
The Court found the SLUSA barred the plaintiff’s claims. The court observed that the complaint clearly asserted that the class members “were deprived of their full equity interest in North Fork as a result of the egregious sums of money paid to defendants.” The plaintiff’s own complaint established a connection between the alleged misrepresentations made in the proxy statements, the executive compensation paid and the price of the stock. Although the proxy statements did not make a misrepresentation regarding the purchase or sale of a security, the statute has been interpreted broadly by the Supreme Court in the Dabit case to include any misrepresentation pertaining to the purchase or sale of securities.
On the basis of this reasoning, the district court denied plaintiff’s motion to remand, and ordered the dismissal of the action.
Law Commentary
Read the related Law commentary: Fisher v. Kanas Continues Line of Cases That Puts Limit on the Right to Initiate Class Actio, by Josh Lawler, Esq.
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