The U.S. Supreme Court, in the recent case of Chadbourne & Parke LLP v. Troice, 134 S. Ct. 1058, addressed the question of whether a securities class action based on state law could proceed where the plaintiffs’ claims were based on the purchase of certificates of deposit (CDs), allegedly backed by “covered securities.”
Statutory Framework / Limits on Class-Action Lawsuits
Federal law imposes significant limitations on the scope of securities class-action lawsuits. The Securities Litigation Uniform Standards Act of 1998 (the Litigation Act), 15 U.S.C. § 78bb, and the Private Securities Litigation Reform Act of 1995 (PSLRA), 15 U.S.C. § 77z-1, 78u-4, impose both substantive and procedural limits on securities actions.
The PSLRA requires that plaintiffs meet heightened pleading standards, provides for automatic stays of discovery, limits damages and attorney fees, and provides a safe harbor for forward-looking statements.
The Litigation Act prohibits class-action lawsuits of 50 or more class members based on state law, where the complaint alleges a misrepresentation made in connection with the purchase or sale of a “covered security.” In addition, section 10(b) of the Securities Exchange Act of 1934, 15 U.S.C. § 78j, does not permit private rights of action against aiders and abettors or secondary actors.