Ameritrade, Inc. and Ameritrade Holding Corp. appealed a District Court order remanding Mitchell C. Green's amended complaint, which alleged breach of contract, back to the Douglas County District Court in Nebraska. Green's original complaint was removed to federal court under the Securities Litigation Uniform Standards Act of 1998 (SLUSA), but after he amended his complaint, the District Court determined that SLUSA no longer applied. Consequently, the court chose not to exercise supplemental jurisdiction over Green's state-law claims.
Green had subscribed to Ameritrade’s real-time quote service for $20 monthly, alleging that it did not provide actual real-time last sales information for options, resulting in delays of up to hours. He claimed Ameritrade misled subscribers about the sourcing of its quotes, which led them to make investment decisions based on outdated information. His amended complaint included claims for breach of contract, fraud (both intentional and negligent), deceptive trade practices, and violations of the Nebraska Consumer Protection Act.
Although Ameritrade sought to dismiss the complaint as preempted by SLUSA, the District Court initially acknowledged SLUSA's applicability due to Green's allegations concerning securities transactions. However, after Green amended his complaint to focus solely on breach of contract under Nebraska law, the court deemed SLUSA no longer relevant, leading to the remand, which Ameritrade subsequently appealed. The Circuit Court affirmed the District Court's decision.
Green alleges that Ameritrade breached the "Real-Time Quote Agreement" by failing to provide promised stock and option last-sale information to subscribers, including Green, without claiming any false representation or reliance on investment decisions. Ameritrade moved to dismiss this amended complaint, arguing it was preempted by the Securities Litigation Uniform Standards Act (SLUSA). Green sought to remand the case to state court, asserting a lack of subject matter jurisdiction. The District Court found that Green's complaint did not indicate any misrepresentation or deceptive conduct by Ameritrade, concluding that SLUSA did not apply. Even with the removal of federal claims, the court maintained supplemental jurisdiction over the state-law breach of contract claim and opted to remand the case to state court.
The appeal’s jurisdiction was tested, revealing that while 28 U.S.C. 1447(d) generally prohibits review of remand orders, exceptions exist—particularly when a remand is based on supplemental jurisdiction under 28 U.S.C. 1367(c), which applies here. The District Court possessed jurisdiction over the original complaint due to SLUSA preemption, and it retained jurisdiction over the state-law claim post-amendment. The court's authority to review the remand order was validated, allowing consideration of Ameritrade's appeal. The passage also references the legislative context of SLUSA and the Private Securities Litigation Reform Act (PSLRA), highlighting Congress's intent to address issues surrounding class action lawsuits and tighten pleading requirements.
Congress enacted the Securities Litigation Uniform Standards Act (SLUSA) to ensure that class actions related to securities transactions are primarily heard in federal court, preventing plaintiffs from circumventing federal protections by filing in state courts. SLUSA designates federal courts as the exclusive venue for most class actions involving "covered securities" when claims involve allegations of misrepresentation, manipulation, or deception. Ameritrade contends that SLUSA completely preempts Green's breach of contract claim, necessitating its retention in federal court. A district court lacks the discretion to remand a case posing a federal question. The opposing party carries the burden of proving federal subject-matter jurisdiction, which can arise through the complete-preemption doctrine, where a state claim is transformed into a federal question by congressional intent. To establish SLUSA preemption, a claim must meet four criteria: it must be a "covered class action," based on state law, include allegations of misrepresentation or omission, and connect those allegations to the purchase or sale of a covered security. A "covered class action" involves more than 50 individuals or representatives where common legal or factual questions predominate. A "covered security" is defined as one listed on major stock exchanges. The District Court determined that Green's amended complaint failed to satisfy the third criterion. The appeal centers on whether it meets the third and fourth criteria. Ameritrade argues that Green's lawsuit exemplifies the type of litigation Congress aimed to preempt, asserting that Green's claims involve misrepresentation related to the sale or purchase of a covered security. However, the analysis concludes that Ameritrade has not demonstrated that Green's claims involve conduct linked to the actual purchase or sale of a covered security, as it merely claims that consumers generally utilize the information provided, without direct allegations from Green's amended complaint regarding such usage.
Ameritrade's argument demonstrates a misunderstanding of the necessary criteria under the Securities Litigation Uniform Standards Act (SLUSA) regarding transactions involving "covered securities." The interpretation of this language is guided by precedents from SEC Rule 10b-5 and Section 10(b) of the Securities Exchange Act of 1934. In *Blue Chip Stamps v. Manor Drug Stores*, the Supreme Court ruled that parties who neither purchased nor sold securities lacked standing to sue for violations of Rule 10b-5, emphasizing that Congress did not intend to broaden the statute's scope to include mere attempts to buy or sell. This interpretation was echoed in *Brannan v. Eisenstein*, which reinforced that standing is limited to actual purchasers or sellers.
Ameritrade's position to interpret the "in connection with" requirement more flexibly is rejected, as the court maintains that the plain language of the statute and related case law cannot be overlooked. Consequently, the court concludes that individuals who are neither sellers nor purchasers of securities are not protected under SLUSA’s preemption provisions. It asserts that Congress, when enacting SLUSA, did not intend for class actions on behalf of nonsellers or nonpurchasers to be removable to federal court.
The critical issue is whether Green's amended complaint can be interpreted as alleging a sale or purchase of a covered security based on allegedly misleading information from Ameritrade. While Green's initial complaint referenced such transactions, the amended complaint fails to mention them and instead claims a lack of received information based on a contractual agreement for services. The court finds that the amended complaint does not suggest a cause of action related to the sale or purchase of securities, thus failing to meet the SLUSA preemption criteria. Ameritrade's assertion that Green is attempting to evade preemption through clever wording is dismissed, as the amended complaint explicitly omits references to any sale or purchase.
Ameritrade contends that Green's request for attorney fees under Nebraska statutes hinges on a showing of misrepresentation or fraud, arguing that this implicates federal jurisdiction under SLUSA. However, the requirement for attorney fees does not necessitate meeting SLUSA's "in connection with" criterion. Ameritrade asserts that Green's amended complaint implicitly pleads a misrepresentation claim, which should preclude him from evading federal jurisdiction. Despite this, the court finds that Green's complaint does not satisfy SLUSA's criteria, as misrepresentation claims can exist independently of any securities transaction. Consequently, Green could assert such a claim without triggering SLUSA preemption, provided it does not require proof of a sale or purchase of a covered security. The District Court, exercising its discretion, chose not to take supplemental jurisdiction over the case, a decision Ameritrade does not contest. The court ultimately affirms the District Court's order to remand the amended complaint to state court.
