Federal Court Asserts Jurisdiction over State Securities Case

A U.S. circuit court of appeals has held that state law–based class actions can now proceed in federal court against trustees for imprudent discretionary investment decisions. In a case of first impression, the U.S. Court of Appeals for the Ninth Circuit invoked the premature death of the Night King in the Game of Thrones HBO television series and ruled that the Securities Litigation Uniform Standards Act of 1998 (SLUSA) does not deprive a federal court of jurisdiction over state law–based class actions involving trustee investment decisions.

The U.S. district court in Banks v. Northern Trust Corporation dismissed a putative state law–based class action filed by a beneficiary against a trustee of an irrevocable trust on SLUSA-preclusion grounds. SLUSA precludes plaintiffs from circumventing the stringent pleading requirements of the Private Securities Litigation Reform Act of 1995 (PSLRA) by barring certain types of state law–based securities fraud class actions. The federal district court held that state law class action claims of trustee self-dealing, elder abuse, and excessive fees were covered securities fraud claims made “in connection with” securities transactions, which are barred by SLUSA.