547 U.S. 71 (2006) (U.S. Supreme Court)
Merrill Lynch v. Dabit is a cornerstone decision in the architecture of modern securities litigation.
Does SLUSA preclude state-law class actions brought on behalf of securities holders (rather than purchasers or sellers) that allege fraud "in connection with the purchase or sale" of covered securities?
SLUSA precludes any covered class action based on state law alleging a misrepresentation or omission of a material fact, or the use of any manipulative or deceptive device or contrivance, in connection with the purchase or sale of a covered security. The phrase "in connection with" is to be construed broadly, consistent with § 10(b) jurisprudence, and encompasses conduct that coincides with, is material to, or otherwise touches a securities transaction, even if the plaintiff class consists of holders rather than purchasers or sellers.
Yes. SLUSA precludes state-law holder class actions; the statute's "in connection with the purchase or sale" requirement is satisfied where the alleged fraud is material to someone's decision to buy or sell a covered security, not only to the named plaintiffs' transactions.
Dabit solidifies a broad construction of SLUSA, making clear that plaintiffs cannot avoid federal reforms by styling claims as holder-based state-law class actions. After Dabit, courts look to the substance of the allegations—market-affecting misstatements tied to nationally traded securities will generally trigger SLUSA preclusion regardless of how plaintiffs define the class. For law students, the case illustrates how statutory interpretation operates in a highly regulated field: the Court harmonizes language across related statutes, distinguishes between substantive scope and private standing limits (Blue Chip), and reads text in light of congressional purpose to maintain uniform national standards for securities class actions.