Chadbourne & Parke LLP v. Troice
United States Supreme Court
134 S. Ct. 1058 (2014)
- Written by Robert Cane, JD
Facts
The Securities Litigation Uniform Standards Act of 1998 (the securities-litigation act) prohibits any class actions based in state law that allege a misrepresentation or omission of material fact related to the purchase or sale of a covered security. A covered security is a security listed on a national securities exchange. Samuel Troice and other investors (plaintiffs) purchased certificates of deposit from Stanford International Bank (Stanford). Stanford marketed its certificates of deposit as extra safe, claiming that the certificates were backed by other securities issued by stable governments and multinational companies (i.e., the types of securities traded on national exchanges). In reality, Stanford had been operating a Ponzi scheme. Troice and other investors brought class actions under Texas law against Chadbourne & Parke LLP and Proskauer Rose (defendants), law firms that allegedly helped Stanford perpetuate or conceal the fraud. Two insurance brokers were also sued in Louisiana state court. All the cases were consolidated and removed to federal court. The federal district court found that the securities-litigation act precluded the state class actions and dismissed them. The district court concluded that although the certificates of deposit were not covered securities, they were sold in connection to covered securities because Stanford induced investors by misrepresenting that it owned significant covered securities to make the certificates appear more secure; it reasoned that this connection was enough to bring the class actions under the purview of the securities-litigation act. The court of appeals reversed the district court, finding that the crux of Stanford’s fraud was the uncovered certificates of deposit. The United States Supreme Court granted certiorari.
Rule of Law
Issue
Holding and Reasoning (Breyer, J.)
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