state claims do not involve fraud in connection with the purchase or sale of a security and thus survive SLUSA preemption.
Whether SLUSA Preempts the Claims of Holder Class
Courts have held that state law claims that plaintiffs were induced, by misrepresentations or omissions, to hold a stock can proceed "consistent with SLUSA." See Hardy v. Merrill Lynch Pierce Fenner & Smith, 189 F. Supp.2d 14, 18 (S.D.N.Y. 2001) (citing Spielman v. Merrill Lynch Pierce Fenner & Smith Inc., 2001 WL 1182927 at *2); see also Gordon v. Buntrock, No. 00 CV 303, 2000 WL 556763 at *3 (N.D.Ill. April 28, 2000) (remanding claim on the basis that the complaint explicitly limited the class to persons holding shares before alleged misrepresentations occurred). Moreover, in the context of claims asserted under section 10(b) of the Securities Exchange Act of 1934 and Rule 10b-5 promulgated thereunder, "[i]t is well established that mere retention of securities in reliance on material misrepresentations or omissions does not form the basis for a § 10(b) or Rule 10b-5 claim." See Lowe v. Salomon Smith Barney, 206 F. Supp.2d 442, 445-446 (W.D.N.Y. 2002) (collecting cases).
The Holder Class is identified in the Complaint as: "[a]ll customers of Dean Witter who (i) purchased shares of any of the companies identified on Exhibit A from Dean Witter, (ii) held those shares after the date on which Dean Witter issued a post-purchase analyst report that contained a positive recommendation and (iii) were damaged thereby." (Complaint, ¶ 32.)
Defendant contends that this subclass definition does not distinguish completely between customers purchasing stock before and those who purchased after Defendant's analysts issued their allegedly inaccurate ratings. (See Defendant's Reply Memorandum, at 4.) Because some members of the Holder Class could have purchased shares "in reliance on the alleged misstatements,"*fn2 Defendant argues, the claims of the Holder Class are preempted by SLUSA in their entirety. Both parties focus in this connection on Gordon v. Buntrock, where an Illinois district court held that SLUSA did not preempt the claims of a class of investors who had purchased securities before the defendant made misrepresentations, where the complaint specifically excluded "injury resulting from the purchase or sale of securities." Gordon, 2000 WL 556763 at *3. In Hardy, a decision from this District, the complaint described a single potential class consisting of the defendant's "customers who purchased before and after the stock rating allegedly became inaccurate." Hardy, at *18. The Hardy Court dismissed that complaint on the ground that it was impossible to distinguish mere holders from purchasers on the basis of the class definition in the complaint, but gave the plaintiffs leave to "recommence an action in state court limited to issues of state law." Id. at *19.
Here, the Complaint purports to separate purchasers and holders into two classes.
The Holder Class consists of persons holding the "shares after the date on which Dean Witter issued a post-purchase analyst report . . . and were damaged thereby." (Complaint, ¶ 32 (emphasis added)). Although this definition could conceivably be read to include holders who purchased on the basis of a faulty report and managed to hold through the issuance of another, the Court finds that the better reading excludes such holders, and encompasses only those holders whose purchases preceded the issuance of any relevant report that is the subject of the misrepresentation claims. Thus construed, the claims of the "Holder Class" do not fall within the scope of SLUSA preemption because they do not arise from the purchase or sale of a covered security, and the claims asserted by the Holder Class will therefore be remanded to state court to that extent.
Defendant's motion to dismiss the remaining elements of the Complaint as preempted is granted.
Plaintiff asserts that he is entitled to an award of attorneys' fees, costs and expenses incurred in connection with Defendant's removal of this case. Under 28 U.S.C. § 1447(c), an order remanding a case to state court "may require payment of just costs and any actual expenses, including attorneys' fees, incurred as a result of the removal." 28 U.S.C.A. § 1447(c) (West 2002). The Court has broad discretion in determining whether to award costs and attorney fees under section 1447(c). See Morgan Guaranty Trust Co. of New York v. Republic of Palau, 971 F.2d 917, 923-24 (2d Cir. 1992). In making this determination, courts apply a test of "overall fairness given the nature of the case, the circumstances of the remand, and the effect on the parties." Id. at 924. Plaintiff contends that Defendant's removal was wrong as a matter of law. The Court, having granted, in part, Defendants' motion to dismiss, the relevant factors militate against any award. Accordingly, Plaintiff's request for attorneys' fees, costs and expenses is denied.
For the foregoing reasons, Defendants' motion to dismiss the Complaint as preempted by SLUSA is granted except to the extent the claims of the Holder Class are asserted on behalf of persons who purchased affected securities prior to the issuance of any of the reports complained of, held the securities following the issuance of one or more such reports, and were allegedly damaged thereby. The action, insofar as it asserts claims on behalf of such Holder Class members is hereby remanded to state court. The pending motions, including Plaintiff's request for attorneys' fees, costs and expenses, are denied in all other respects.
IT IS SO ORDERED.