Anderson v. Edward D. Jones & Co., LP, No. 19-17520 (9th Cir. 2021)
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The Ninth Circuit reversed the district court's dismissal of a class action brought by investors with a financial services firm. Plaintiffs alleged that Edward Jones breached its fiduciary duties under Missouri and California law, but the district court concluded that it did not have subject matter jurisdiction because the Securities Litigation Uniform Standards Act (SLUSA) prevents plaintiffs from bringing their claims as a class action consisting of fifty or more persons.
The panel concluded that SLUSA does not bar plaintiffs' state law fiduciary duty claims because Edward Jones's alleged misrepresentation or omission that forms the basis for plaintiffs' fiduciary duty claims is not "in connection with the purchase or sale of a covered security." In this case, plaintiffs claim that Edward Jones breached its fiduciary duties under Missouri and California law by failing to conduct a suitability analysis, and they allege that this lack of suitability analysis caused them to move their assets from commission-based accounts to fee-based accounts, which was not in their best financial interest as low-volume traders. The panel explained that the alleged failure to conduct a suitability analysis was not material to the decision to buy or sell any covered securities. Accordingly, the panel remanded for further proceedings.
Court Description: Securities Law. The panel reversed the district court’s dismissal of a class action brought by investors with a financial services firm, alleging breach of fiduciary duties under Missouri and California law when the investors moved their assets from commission-based to fee-based accounts. The district court concluded that it lacked subject matter jurisdiction over the state law claims because the Securities Litigation Uniform Standards Act (SLUSA) prevented plaintiffs from bringing their claims as a class action consisting of fifty or more persons. The district court also dismissed plaintiffs’ securities fraud claim under § 10(b) of the Securities Exchange Act of 1934. Plaintiffs appealed dismissal of their state law claims only. Reversing, the panel held that SLUSA did not bar plaintiffs’ state law fiduciary duty claims because the alleged misrepresentation or omission that formed the basis for the claims was not “in connection with the purchase or sale of a covered security.” Following Chadbourne & Parks LLP v. Troice, 571 U.S. 377 (2014), the panel held that the phrase “in connection with” requires a showing that the misrepresentation or omission was material to a decision to buy or sell a security. The panel concluded that defendants’ alleged failure to conduct a suitability analysis before inviting plaintiffs to switch to fee-based accounts was not ANDERSON V. EDWARD D. JONES & CO. 3 material because plaintiffs did not allege that they would have purchased or sold different covered securities had defendants conducted such an analysis.
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