MEMPHIS, Tenn., Sept. 12, 2011 /PRNewswire/ -- On September 8, 2011, the U.S. Court of Appeals for the Sixth Circuit ruled in favor of Morgan Keegan & Co., a Memphis, Tennessee-based financial services firm, upholding the dismissal of a class action fraud suit brought by a group of mutual fund investors, who claimed their investments lost value in the wake of the 2007 financial crisis.
In a decision that will have a wide-reaching impact on federal/state jurisdictional issues in securities litigation generally and the mutual fund industry in particular, the appellate court agreed that the Securities Litigation Uniform Standards Act of 1998 (SLUSA) barred all state law claims asserted by the investors. "The Sixth Circuit's opinion will make it much more difficult for plaintiffs hoping to avoid federal jurisdiction in class actions alleging securities fraud," said Matthew M. Curley, a partner at Bass, Berry & Sims PLC who represented Morgan Keegan in this matter.
The Sixth Circuit upheld the 2009 decision by Judge Samuel H. Mays of the U.S. District Court for the Western District of Tennessee, which dismissed with prejudice all claims in the case, including the investors' claims for fraud, negligence and breach of contract.
The plaintiffs argued that SLUSA did not apply based on an exception in the statute called the "Delaware carve-out." The Sixth Circuit disagreed, holding that the exception could not save the plaintiffs' claims from dismissal. Not until this case has any district court or appellate court considered whether claims asserted on behalf of holders of mutual funds fit within the Delaware carve-out exception to SLUSA.
"We are certainly pleased with the Sixth Circuit's opinion affirming the dismissal of this action with prejudice," said Bass, Berry & Sims' Curley. "It provides important guidance on the broad scope of SLUSA's preclusive reach and how narrowly its Delaware carve-out should be interpreted."
The appellate court also rejected the plaintiffs' argument that nine of their 13 claims in the suit were not precluded by SLUSA because they were not pleaded as fraud claims. Again, the Sixth Circuit disagreed, finding that "[b]ecause all of plaintiffs' claims include allegations of fraud, SLUSA damns each one."
The appeal is styled Atkinson v. Morgan Asset Management Inc., No. 09-6265, in the U.S. Court of Appeals for the Sixth Circuit. Morgan Keegan & Co. was represented by Matthew M. Curley of Bass Berry & Sims PLC. Regions Bank was represented by David Bruce Tulchin of Sullivan & Cromwell LLP, and PricewaterhouseCoopers was represented by Timothy A. Duffy of Kirkland & Ellis LLP. The plaintiffs were represented by Vernon Jay Vander Weide of Head Seifert & Vander Weide PA and Jerome A. Broadhurst of Apperson, Crump & Maxwell, PLC.
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SOURCE Bass, Berry & Sims PLC