Taksir et al v. The Vanguard Group

First MOTION TO DISMISS FOR FAILURE TO STATE A CLAIM

E.D. Pa.January 13, 2017

IN THE UNITED STATES DISTRICT COURT FOR THE EASTERN DISTRICT OF PENNSYLVANIA ALEX TAKSIR and ORIT TAKSIR, On Behalf ) Of All Others Similarly Situated ) ) Plaintiffs, ) CIVIL ACTION NO. v. ) ) 16-CV-5713 THE VANGUARD GROUP, ) ) CLASS ACTION Defendant. ) ) DEFENDANT THE VANGUARD GROUP, INC.’S MOTION TO DISMISS Defendant The Vanguard Group, Inc., misidentified as The Vanguard Group (“Vanguard”), by its attorneys, Dechert LLP, hereby submits this Motion to Dismiss Plaintiffs’ Complaint pursuant to Rule 12(b)(6) of the Federal Rules of Civil Procedure. For the reasons set forth in the accompanying Memorandum of Law, Vanguard respectfully requests the Court grant this Motion and enter an Order dismissing Plaintiffs’ Complaint with prejudice. Dated: January 13, 2017 /s/ Stuart T. Steinberg _ Stuart T. Steinberg (Pa. ID No. 82196) stuart.steinberg@dechert.com Selby Brown (PA I.D. No. 318687) selby.brown@dechert.com DECHERT LLP Cira Centre 2929 Arch Street Philadelphia, PA 19104-2808 Phone: (215) 994-4000 Fax: (215) 994-2222 Counsel for Defendant The Vanguard Group, Inc. Case 2:16-cv-05713-CMR Document 11 Filed 01/13/17 Page 1 of 1 IN THE UNITED STATES DISTRICT COURT FOR THE EASTERN DISTRICT OF PENNSYLVANIA ALEX TAKSIR and ORIT TAKSIR, On Behalf ) Of All Others Similarly Situated ) ) Plaintiffs, ) CIVIL ACTION NO. v. ) ) 16-CV-5713 THE VANGUARD GROUP, ) ) CLASS ACTION Defendant. ) ) [PROPOSED] ORDER AND NOW, this day of , 2017, upon consideration of Defendant’s Motion to Dismiss and the briefing submitted by the parties, IT IS ORDERED that Defendant’s Motion to Dismiss (ECF 11) is hereby GRANTED and Plaintiffs’ Complaint is DISMISSED with prejudice. _ Cynthia M. Rufe, Judge Case 2:16-cv-05713-CMR Document 11-1 Filed 01/13/17 Page 1 of 1 IN THE UNITED STATES DISTRICT COURT FOR THE EASTERN DISTRICT OF PENNSYLVANIA ALEX TAKSIR and ORIT TAKSIR, On Behalf ) Of All Others Similarly Situated ) ) Plaintiffs, ) CIVIL ACTION NO. v. ) ) 16-CV-5713 THE VANGUARD GROUP, ) ) CLASS ACTION Defendant. ) ) DEFENDANT THE VANGUARD GROUP, INC.’S MEMORANDUM IN SUPPORT OF ITS MOTION TO DISMISS Case 2:16-cv-05713-CMR Document 11-2 Filed 01/13/17 Page 1 of 22 -i- TABLE OF CONTENTS Page(s) INTRODUCTION ......................................................................................................................... 1 FACTUAL BACKGOUND........................................................................................................... 2 ARGUMENT................................................................................................................................. 4 I. PLAINTIFFS’ STATE LAW CLASS ACTION CLAIMS ARE PREEMPTED BY SLUSA AND SHOULD BE DISMISSED ................................................................. 4 A. Congress Enacted SLUSA to Prevent Class Action Claims Like the Ones Asserted Here......................................................................................................... 4 B. Plaintiffs’ State Law Class Action Claims Are Preempted by SLUSA................. 6 1. Plaintiffs’ Suit Is a “Covered Class Action”.............................................. 7 2. Plaintiffs’ Claims Are Based on State Law ............................................... 8 3. Plaintiffs’ Suit Involves “Covered Securities” .......................................... 8 4. Plaintiffs Allege That Vanguard Engaged in Fraudulent or Deceptive Conduct in Connection with the Purchase of a Covered Security ...................................................................................................... 9 a. Plaintiffs Have Alleged Fraudulent or Deceptive Conduct ......... 10 b. Plaintiffs’ Allegations Satisfy the “In Connection With” Requirement................................................................................. 13 II. THE UTPCPL CLAIM SHOULD BE DISMISSED BECAUSE PLAINTIFFS HAVE FAILED TO PLEAD ALL OF THE ELEMENTS OF SUCH A CLAIM.......... 14 CONCLUSION............................................................................................................................ 16 Case 2:16-cv-05713-CMR Document 11-2 Filed 01/13/17 Page 2 of 22 -ii- TABLE OF AUTHORITIES Page(s) Cases Am. Fed’n of State, Cty. and Mun. Emps., Dist. Council 47 Health & Welfare Fund v. Ortho-McNeil-Janssen Pharms., Inc., 857 F. Supp. 2d 510 (E.D. Pa. 2012) .......................................................................................14 Arnold v. Stein Roe & Farnham, No. 06-cv-243, 2006 WL 851303 (E.D. Pa. Mar. 30, 2006) ...................................................10 Behlen v. Merrill Lynch, 311 F.3d 1087 (11th Cir. 2002) .......................................................................................4, 5, 12 Belmont v. MB Inv. Partners, Inc., 708 F.3d 470 (3d Cir. 2013).....................................................................................................10 In re Burlington Coat Factory Sec. Litig., 114 F.3d 1410 (3d Cir. 1997).....................................................................................................2 Chadbourne & Parke LLP v. Troice, 134 S. Ct. 1058 (2014)...........................................................................................................6, 8 Dommert v. Raymond James Fin. Servs., Inc., No. 1:06-CV-102, 2007 WL 1018234 (E.D. Tex. Mar. 29, 2007) ..........................................12 Dudek v. Prudential Secs., Inc., 295 F.3d 875 (8th Cir. 2002) .....................................................................................................5 Gearheart v. Elite Ins. Agency, Inc., No. 15-103, 2016 WL 81766 (E.D. Ky. Jan. 7, 2016)...............................................................8 Gray v. Seaboard Secs., Inc., 126 Fed. App’x 14 (2d Cir. 2005)............................................................................................12 Hunt v. U.S. Tobacco Co., 538 F.3d 217 (3d Cir. 2008)...............................................................................................14, 15 Knopick v. UBS Fin. Servs., Inc., 121 F. Supp. 3d 444 (E.D. Pa. 2015) .......................................................................9, 10, 11, 12 Kutten v. Bank of Am., N.A., 530 F.3d 669 (8th Cir. 2008) .........................................................................................9, 10, 12 Lander v. Hartford Life & Annuity Ins. Co., 251 F.3d 101 (2d Cir. 2001).............................................................................................5, 7, 11 Case 2:16-cv-05713-CMR Document 11-2 Filed 01/13/17 Page 3 of 22 -iii- LaSala v. Bordier et Cie, 519 F.3d 121 (3d Cir. 2008).....................................................................................................12 Lim v. Charles Schwab & Co., Inc., No. 15-cv-02074, 2015 WL 7996475 (N.D. Cal. Dec. 7, 2015)..........................................9, 12 In re Lord Abbett Mutual Funds Fee Litig., 553 F.3d 248 (3d Cir. 2009).......................................................................................................4 Luis v. RBC Capital Mkts., LLC, No. 16-cv-00175, 2016 WL 6022909 (D. Minn. Oct. 13, 2016) ...............................................7 Merrill Lynch, Pierce, Fenner & Smith Inc. v. Dabit, 547 U.S. 71 (2006)...........................................................................................................5, 6, 13 Miller v. Nationwide Life Ins. Co., 391 F.3d 698 (5th Cir. 2004) ...............................................................................................9, 12 In re Nokia Oyj (Nokia Corp.) Sec. Litig., 423 F. Supp.2d 364 (S.D.N.Y. 2006).........................................................................................9 Pinker v. Roche Holdings Ltd., 292 F.3d 361 (3d Cir. 2002).......................................................................................................9 Prager v. Knight/Trimark Grp., Inc., 124 F.Supp.2d 229 (D.N.J. 2000) ............................................................................................11 Richek v. Bank of Am., N.A., No. 10-cv-6779, 2011 WL 3421512 (N.D. Ill. Aug. 4, 2011) .............................................5, 13 Rowinski v. Salomon Smith Barney Inc., 398 F.3d 294 (3d Cir. 2005)............................................................................................. passim Rowinski v. Salomon Smith Barney, Inc., No. 3:02-cv-2014, 2003 WL 22740976 (M.D. Pa. Nov. 20, 2003).......................................6, 7 Segal v. Fifth Third Bank, N.A., 581 F.3d 305 (6th Cir. 2009) .......................................................................................10, 12, 13 Shaw v. Charles Schwab & Co., Inc., No. BC238732, 2003 WL 1463842 (Cal. Super. Ct. Mar. 7, 2003) ........................................14 Walkup v. Santander, 147 F. Supp. 3d 349 (E.D. Pa. 2015) .......................................................................................14 Zola v. TD Ameritrade, Inc., 172 F. Supp.3d 1055 (D. Neb. 2016).......................................................................................11 Case 2:16-cv-05713-CMR Document 11-2 Filed 01/13/17 Page 4 of 22 -iv- Statutes 15 U.S.C. § 78bb(f)(1) .................................................................................................................5, 9 15 U.S.C. § 78bb(f)(5)(B)(i) ............................................................................................................7 15 U.S.C. § 78bb(f)(5)(E) ................................................................................................................8 15 U.S.C. § 78u-4 et seq. .................................................................................................................4 73 Pa. Cons. Stat. § 201-1 et seq......................................................................................................8 73 Pa. Cons. Stat. § 201-2(4)(xxi) .............................................................................................4, 10 Case 2:16-cv-05713-CMR Document 11-2 Filed 01/13/17 Page 5 of 22 1 Defendant The Vanguard Group, Inc., misidentified as The Vanguard Group (“Vanguard”), respectfully submits this Memorandum in support of its Motion to Dismiss the putative class action Complaint filed by Plaintiffs Alex Taksir and Orit Taksir (“Plaintiffs”). INTRODUCTION The crux of Plaintiffs’ Complaint is that Vanguard allegedly engaged in fraudulent or deceptive conduct by charging them brokerage commissions for securities transactions that were higher than the rates set forth on Vanguard’s website. In particular, Plaintiffs contend that Vanguard overcharged them for two online securities trades placed on the same day. Not content to litigate their individual claims, Plaintiffs purport to bring their claims on behalf of a putative class of Vanguard brokerage customers. Plaintiffs fail to plead any particularized facts showing that Vanguard overcharged any putative class member for any specific trade. Instead, Plaintiffs leap to the conclusion—based on unspecified “information and belief”—that they “are not alone” and “Vanguard is overcharging or has overcharged” other customers for securities trades. Knowing that such flimsy and conclusory allegations would never pass muster under the heightened pleading requirements of the federal securities laws, Plaintiffs instead bring only state law claims for: (1) fraudulent or deceptive practices in violation of Pennsylvania’s Unfair Trade Practices and Consumer Protection Law (“UTPCPL”); and (2) breach of contract. But the law does not allow Plaintiffs to end run the securities laws so easily. The Securities Litigation Uniform Standards Act (“SLUSA”) forbids a plaintiff from maintaining a state law class action alleging fraudulent or deceptive conduct in connection with the purchase or sale of a security. In Rowinski v. Salomon Smith Barney Inc., 398 F.3d 294, 267-97 (3d Cir. 2005), the Third Circuit held that SLUSA preempted UTPCPL and breach of contract class action claims against a brokerage firm that similarly were predicated on allegations of fraud. As in Rowinski, Plaintiffs’ claims fall squarely within SLUSA’s prohibitions. They should therefore be dismissed. Case 2:16-cv-05713-CMR Document 11-2 Filed 01/13/17 Page 6 of 22 2 Separate and apart from SLUSA’s bar, Plaintiffs have failed to state a viable claim for violations of the UTPCPL because they have not alleged the critical element of justifiable reliance. This pleading failure provides an independent basis for dismissing the UTPCPL claim. FACTUAL BACKGOUND Vanguard is one the world’s largest investment companies, offering a large selection of low-cost mutual funds, exchange traded funds, advice, and related services. Compl. ¶ 22. Plaintiffs allege that Vanguard also provides traditional brokerage services allowing clients to buy, sell, and hold individual securities in a brokerage account. Id. ¶ 23.1 Plaintiffs further allege that “[a]s part of the process to open an account with Vanguard,” they and all members of the putative class “entered into a contract with Vanguard.” Id. ¶ 39. Plaintiffs fail to identify, attach, or even discuss the terms of any such written agreement. Instead, they base their claims solely on statements made on Vanguard’s website. Specifically, Plaintiffs allege that Vanguard’s website describes a program pursuant to which customers with assets exceeding certain thresholds are eligible for lower brokerage commissions and further states that clients with asset values between $500,000 and $1 million (referred to as Voyager Select) are eligible for two-dollar commissions on stock trades. Id. ¶¶ 24-28. Vanguard’s website contains additional disclosures explaining that “we determine eligibility by aggregating assets of all eligible accounts” and that only “certain small-business 1 The Complaint cites to pages of Vanguard’s website disclosing that “[b]rokerage assets are held by Vanguard Brokerage Services, a division of Vanguard Marketing Corporation.” See Vanguard Brokerage Services commission and fee schedules, https://investor.vanguard.com/investing/trading-fees-commisions (last visited Jan. 11, 2017) (referenced in paragraph 28 of the Complaint and attached hereto as Exhibit A). Accordingly, Plaintiffs have brought their claims against the wrong Vanguard entity. See In re Burlington Coat Factory Sec. Litig., 114 F.3d 1410, 1426 (3d Cir. 1997) (explaining that when ruling on a motion to dismiss, a court may properly consider all documents cited in or integral to the complaint as well as SEC filings). Case 2:16-cv-05713-CMR Document 11-2 Filed 01/13/17 Page 7 of 22 3 accounts” are eligible. Vanguard Brokerage Services commission and fee schedules, https://investor.vanguard.com/investing/trading-fees-commisions (last visited Jan. 11, 2017). The website further explains that “qualification criteria (for example, asset levels) are reviewed periodically” and that “Vanguard reserves the right to amend or cancel selected features and benefits at any time without prior notification.” Investing at Vanguard, https://investor.vanguard.com/investing/benefits/voyager (last visited Jan. 11, 2017). Plaintiffs allege that they placed two trades online to purchase 1,100 and 384 shares, respectively, of Nokia Corporation stock in their SEP IRA brokerage accounts on May 12, 2016 and were charged a commission of seven dollars on each trade. Compl. ¶¶ 4-5, 29-30. Plaintiffs claim that their SEP IRAs, which are small business accounts, “qualified for discounts under the Voyager Select program” and that they should have been charged a commission of only two dollars per trade. Id. ¶¶ 4-5. Plaintiffs do not allege that they received any information from Vanguard indicating or confirming the timing of their enrollment in Voyager Select or that their SEP IRAs were in fact enrolled at the time of these transactions. Nor do Plaintiffs allege that Vanguard has overcharged them for any other brokerage trades in the history of their accounts. Plaintiffs filed this putative class action lawsuit against Vanguard on November 1, 2016. They purport to bring this case on behalf of themselves and “all clients of The Vanguard Group . . . who purchased securities pursuant to Vanguard’s Voyager Select program and/or other Vanguard Enhanced Services . . . from the inception of the Enhanced Services through the present . . . and paid a commission and sales charge greater than the terms prescribed by the respective services.” Id. ¶ 1. Unable to identify a single instance where Vanguard purportedly overcharged anyone else, Plaintiffs instead allege “[u]pon information and belief” and in conclusory terms that they “are not alone” and that Vanguard has overcharged others. Id. ¶ 37. Case 2:16-cv-05713-CMR Document 11-2 Filed 01/13/17 Page 8 of 22 4 Plaintiffs have brought two state law claims on behalf of themselves and the putative class: (1) breach of contract; and (2) fraudulent or deceptive conduct in violation of the UTPCPL’s catchall provision, 73 Pa. Cons. Stat. § 201-2(4)(xxi). Both claims are preempted by SLUSA and should be dismissed with prejudice. In addition, Plaintiffs’ UTPCPL claim fails for the additional reason that Plaintiffs have not alleged the required element of justifiable reliance. ARGUMENT I. PLAINTIFFS’ STATE LAW CLASS ACTION CLAIMS ARE PREEMPTED BY SLUSA AND SHOULD BE DISMISSED SLUSA prohibits a plaintiff from maintaining a state law class action alleging fraudulent or deceptive conduct in connection with the purchase or sale of a security. Congress enacted SLUSA to prevent plaintiffs from evading protections that federal law provides against abusive securities litigation by filing suit under state law. Because this is the type of suit that Congress sought to preempt, the Court should dismiss the action on SLUSA preemption grounds. A. Congress Enacted SLUSA to Prevent Class Action Claims Like the Ones Asserted Here To curb abuses in securities class action litigation, Congress passed the Private Securities Litigation Reform Act of 1995, 15 U.S.C. § 78u-4 et seq. (“PSLRA”). Rowinski v. Salomon Smith Barney Inc., 398 F.3d 294, 298 (3d Cir. 2005). The PSLRA was “intended to prevent plaintiffs from bringing ‘strike suits’ in securities matters.” Behlen v. Merrill Lynch, 311 F.3d 1087, 1090-91 (11th Cir. 2002) (citing H.R. Conf. Rep. No. 105-803, at 13 (1998)).2 Among other things, the PSLRA instituted “heightened pleading requirements for class actions alleging 2 “Strike suits” are “abusive class actions which are brought with the hope that the expense of litigation may force defendants to settle despite the actions’ lack of merit.” In re Lord Abbett Mutual Funds Fee Litig., 553 F.3d 248, 250 (3d Cir. 2009). Case 2:16-cv-05713-CMR Document 11-2 Filed 01/13/17 Page 9 of 22 5 fraud in the sale or purchase of national securities” and a “mandatory stay of discovery until the district court could determine the legal sufficiency of the class action claims.” Id. at 1091. Soon after enacting these reforms, Congress discovered that the PSLRA had an “unintended consequence.” Merrill Lynch, Pierce, Fenner & Smith Inc. v. Dabit, 547 U.S. 71, 82 (2006). “Rather than face the obstacles set in their path by the [PSLRA], plaintiffs and their representatives began bringing class actions under state law, often in state court.” Id. “[B]y simply reformulating their claims as state law causes of action and bringing them in state court,” plaintiffs were able to “avoid the PSLRA’s stringent pleading requirements and other provisions designed to ward off meritless suits.” Richek v. Bank of Am., N.A., No. 10-cv-6779, 2011 WL 3421512, at *2 (N.D. Ill. Aug. 4, 2011). Accordingly, “it became apparent to Congress that the objectives of the PSLRA were being frustrated.” Behlen, 311 F.3d at 1091. Congress enacted SLUSA to “close this loophole.” Lander v. Hartford Life & Annuity Ins. Co., 251 F.3d 101, 108 (2d Cir. 2001). Specifically, “SLUSA amended the Securities Act of 1933 and the Securities Exchange Act of 1934 to preempt certain state law claims and to provide for the removal to federal court of class actions asserting those claims.” Dudek v. Prudential Secs., Inc., 295 F.3d 875, 877 (8th Cir. 2002). SLUSA provides: No covered class action based upon the statutory or common law of any State or subdivision thereof may be maintained in any State or Federal court by any partying alleging— (A) a misrepresentation or omission of a material fact in connection with the purchase or sale of a covered security; or (B) that the defendant used or employed any manipulative or deceptive device or contrivance in connection with the purchase or sale of a covered security 15 U.S.C. § 78bb(f)(1). Case 2:16-cv-05713-CMR Document 11-2 Filed 01/13/17 Page 10 of 22 6 The Supreme Court has explained that SLUSA “forbids the bringing of large securities class actions based upon violations of state law.” Chadbourne & Parke LLP v. Troice, 134 S. Ct. 1058, 1062 (2014). In other words, SLUSA denies plaintiffs the right to use the class action device to bring certain state law claims, while leaving intact the ability to bring such state law claims on an individual basis. Dabit, 547 U.S. at 87. To ensure that SLUSA’s remedial purpose is achieved, the Supreme Court and the Third Circuit both have made clear that the statute should be construed expansively. See id. at 86 (“A narrow reading of the statute would undercut the effectiveness of the [PSLRA] and thus run contrary to SLUSA’s stated purpose, viz., ‘to prevent certain State private securities class action lawsuits alleging fraud from being used to frustrate the objectives’ of the [PSLRA]” (quoting SLUSA § 2(5), 112 Stat. 3227)); Rowinski, 398 F.3d at 299 (“Congress envisioned a broad interpretation of SLUSA to ensure the uniform application of federal fraud standards.”). B. Plaintiffs’ State Law Class Action Claims Are Preempted by SLUSA This is the exact sort of class action case that SLUSA is designed to preempt. Plaintiff has filed a putative class action under state law in the hopes of avoiding the requirements of the PSLRA. Because SLUSA prohibits this type of end run, the Complaint should be dismissed. Courts apply a four-part test to determine whether SLUSA preemption applies to a putative state law class action. Specifically, SLUSA preempts a claim where: (1) the underlying suit is a “covered class action”; (2) the claim is based on state law; (3) the claim concerns a “covered security”; and (4) the plaintiff alleges “a misrepresentation or omission of a material fact,” or “a manipulative or deceptive device or contrivance, in connection with the purchase or sale of a covered security.” Case 2:16-cv-05713-CMR Document 11-2 Filed 01/13/17 Page 11 of 22 7 Rowinski v. Salomon Smith Barney, Inc., No. 3:02-cv-2014, 2003 WL 22740976, at *2 (M.D. Pa. Nov. 20, 2003) (quoting 15 U.S.C. § 78bb(f)(1)), aff’d 398 F.3d 294 (3d Cir. 2005). Plaintiffs’ claims satisfy each of these factors and are barred by SLUSA. 1. Plaintiffs’ Suit Is a “Covered Class Action” Plaintiffs’ allegations satisfy the “covered class action” requirement. SLUSA defines a “covered class action” as: (i) any single lawsuit in which— (I) damages are sought on behalf of more than 50 persons or prospective class members, and questions of law or fact common to those persons or members of the prospective class, without reference to issues of individualized reliance on an alleged misstatement or omission, predominate over any questions affecting only individual persons or members; or (II) one or more named parties seek to recover damages on a representative basis on behalf of themselves and other unnamed parties similarly situated, and questions of law or fact common to those persons or members of the prospective class predominate over any questions affecting only individual persons or members . . . . 15 U.S.C. § 78bb(f)(5)(B)(i). The “covered class action” requirement is typically satisfied by allegations on the face of the complaint. See, e.g., Lander, 251 F.3d at 108-09 (concluding based on allegations in the complaint that lawsuit was “covered class action”); Luis v. RBC Capital Mkts., LLC, No. 16-cv-00175, 2016 WL 6022909, at *3 (D. Minn. Oct. 13, 2016) (same). This action satisfies both definitions of a “covered class action.” Plaintiffs have brought this suit as a putative class action. Compl. ¶¶ 1, 17-21. They specifically allege, on information and belief, “that there are thousands of members in the proposed Class.” Id. ¶ 17. They further allege that “[c]ommon questions of law and fact exist as to all members of the Class and predominate over any questions solely affecting individual members of the Class.” Id. ¶ 20. Case 2:16-cv-05713-CMR Document 11-2 Filed 01/13/17 Page 12 of 22 8 Finally, they seek to recover damages on behalf of a putative class. Id. at “Prayer For Relief.” Based on Plaintiffs’ allegations, this case is a “covered class action.” 2. Plaintiffs’ Claims Are Based on State Law There is likewise no debating that the second SLUSA factor is met. Plaintiffs have asserted claims for breach of contract and violation of Pennsylvania’s Unfair Trade Practices and Consumer Protection Law. Compl. ¶¶ 38-46. Plaintiffs’ breach of contract claim based on an alleged contract between private parties is a matter of state law. See, e.g., Gearheart v. Elite Ins. Agency, Inc., No. 15-103, 2016 WL 81766, at *2 (E.D. Ky. Jan. 7, 2016) (stating that breach of contract claim is “textbook example[]” of a “cause of action[] created by state law”). Plaintiffs’ UTPCPL claim is likewise based on state law, i.e., a Pennsylvania statute. See 73 Pa. Cons. Stat. § 201-1 et seq. Plaintiffs, not surprisingly, concede that they are asserting “state law claims.” Compl. ¶ 11. And the Third Circuit has dismissed similar breach of contract and UTPCPL claims on SLUSA preemption grounds. See Rowinski, 398 F.3d at 296-97. The second SLUSA factor is thus met. 3. Plaintiffs’ Suit Involves “Covered Securities” Plaintiffs also cannot contest that their claims concern “covered securities.” SLUSA defines “covered securities” to include a security traded on a national exchange. See 15 U.S.C. § 78bb(f)(5)(E) (referring to 15 U.S.C. § 77r(b) for definition of “covered security,” which includes a security “listed, or authorized for listing, on the New York Stock Exchange” or “listed, or authorized for listing, on a national securities exchange”); Troice, 134 S. Ct. at 1064. Plaintiffs’ claims relate to commissions they were charged in connection with their purchase of stock in Nokia Corporation. Compl. ¶¶ 29, 30. Nokia Corporation’s stock is (and was at all relevant times) traded on the New York Stock Exchange. See, e.g., Nokia Corp., Annual Report Case 2:16-cv-05713-CMR Document 11-2 Filed 01/13/17 Page 13 of 22 9 (Form 20-F) (April 1, 2016)3; Nokia Corp. ADR stock quote, Market Watch, http://www.marketwatch.com/investing/stock/nok (last visited Jan. 11, 2017).4 Thus, Plaintiffs’ claims concern “covered securities.” See, e.g., Lim v. Charles Schwab & Co., Inc., No. 15-cv- 02074, 2015 WL 7996475, at *1, *5 n.4 (N.D. Cal. Dec. 7, 2015) (finding that covered security requirement was “clearly met” in action against broker related to execution of transactions in nationally traded securities). 4. Plaintiffs Allege That Vanguard Engaged in Fraudulent or Deceptive Conduct in Connection with the Purchase of a Covered Security Finally, the last requirement for SLUSA preemption is satisfied because Plaintiffs allege a misrepresentation or omission of a material fact, or the use or employment of a manipulative or deceptive device or contrivance, in connection with the purchase or sale of a covered security. 15 U.S.C. § 78bb(f)(1). In assessing whether this requirement is met, courts focus on “the content of the allegations—not on the label affixed to the cause of action.” Miller v. Nationwide Life Ins. Co., 391 F.3d 698, 702 (5th Cir. 2004); accord Kutten v. Bank of Am., N.A., 530 F.3d 3 The cover page of Nokia’s Form 20-F is attached as Exhibit B, and a complete copy of this filing is available on the SEC’s website at https://www.sec.gov/Archives/edgar/ data/924613/000119312516526767/d18283d20f.htm. Courts may consider documents outside the pleadings when determining whether SLUSA preemption applies. See, e.g., Knopick v. UBS Fin. Servs., Inc., 121 F. Supp. 3d 444, 457-58 (E.D. Pa. 2015) (reviewing the plaintiff’s account statements and publicly available data to determine the “covered security” requirement was met). 4 Nokia stock trades on the NYSE in the form of American Depository Receipts (“ADRs”). See Nokia Corp., Annual Report (Form 20-F), at 1 (April 1, 2016); see also In re Nokia Oyj (Nokia Corp.) Sec. Litig., 423 F. Supp.2d 364, 369 (S.D.N.Y. 2006) (noting that Nokia stock is traded on the NYSE in the form of ADRs). ADRs “are financial instruments that allow investors in the United States to purchase and sell stock in foreign corporations in a simpler and more secure manner than trading in the underlying security in a foreign market.” Pinker v. Roche Holdings Ltd., 292 F.3d 361, 365 (3d Cir. 2002). “ADRs are tradeable in the same manner as any other registered American security, may be listed on any of the major exchanges in the United States . . . , and are subject to the Securities Act and the Exchange Act.” Id. at 367. Case 2:16-cv-05713-CMR Document 11-2 Filed 01/13/17 Page 14 of 22 10 669, 671 (8th Cir. 2008) (“SLUSA preemption is based on the conduct alleged, not the words used to describe the conduct.”). “Otherwise, SLUSA enforcement would reduce to a formalistic search through the pages of the complaint for magic words—‘untrue statement,’ ‘material omission,’ ‘manipulative or deceptive device’—and nothing more.” Segal v. Fifth Third Bank, N.A., 581 F.3d 305, 310 (6th Cir. 2009). Accordingly, “[i]f through a reasonable reading of the complaint it is evident that the misrepresentations made in connection with a securities trade, implicit or explicit, operates as a factual predicate to a legal claim, then the SLUSA ingredient is met and the class action claim should be dismissed.” Knopick, 121 F. Supp.3d at 459. a. Plaintiffs Have Alleged Fraudulent or Deceptive Conduct Plaintiffs have unequivocally couched their factual allegations in terms of fraudulent and/or deceptive conduct. Specifically, they have asserted a claim under the UTPCPL’s “catchall” provision—which prohibits “[e]ngaging in any other fraudulent or deceptive conduct which creates a likelihood of confusion or misunderstanding.” 73 Pa. Cons. Stat. § 201-2(4)(xxi) (emphasis added). To establish fraudulent conduct under the catchall provision, Plaintiffs must satisfy all of the elements of common law fraud, including showing that Vanguard made a misrepresentation or omission of a material fact. See, e.g., Arnold v. Stein Roe & Farnham, No. 06-cv-243, 2006 WL 851303, at *2 (E.D. Pa. Mar. 30, 2006) (Rufe J.) (dismissing UTPCPL claim). Alternatively, Plaintiffs must show that Vanguard engaged in “deceptive” conduct, which requires “knowledge of the falsity of one’s statements or the misleading quality of one’s conduct.” Belmont v. MB Inv. Partners, Inc., 708 F.3d 470, 498 (3d Cir. 2013). In pleading their claim of fraudulent and/or deceptive conduct under the UTPCPL catchall provision, Plaintiffs have incorporated “all of the allegations in the preceding paragraphs of this Complaint.” Compl. ¶ 44. Those paragraphs identify certain representations that Vanguard made on its website regarding commissions and allege that Vanguard charged Case 2:16-cv-05713-CMR Document 11-2 Filed 01/13/17 Page 15 of 22 11 Plaintiffs commissions exceeding the disclosed rates and then provided a false explanation for the overcharge. See, e.g., id. ¶¶ 27-37. By incorporating these allegations into their UTPCPL claim, Plaintiffs are claiming that Vanguard falsely represented its commission rates and/or knowingly overcharged them. Such claims are squarely preempted by SLUSA. See, e.g., Rowinski, 398 F.3d at 296-97 (affirming dismissal of UTPCPL claim); Lander, 251 F.3d at 106, 120 (affirming dismissal of Connecticut Unfair Trade Practices Act claim); Zola v. TD Ameritrade, Inc., 172 F. Supp.3d 1055, 1073 (D. Neb. 2016) (dismissing Nebraska Consumer Product Act and Nebraska Uniform Deceptive Trade Practice Act claims); Knopick, 121 F. Supp.3d at 453, 459 (dismissing UTPCPL claim); Prager v. Knight/Trimark Grp., Inc., 124 F.Supp.2d 229, 230, 235 (D.N.J. 2000) (dismissing New Jersey Consumer Fraud Act claim). Plaintiffs cannot evade SLUSA’s preemptive force by simply reformulating their allegations of fraudulent and/or deceptive conduct as an alleged breach of contract. The Third Circuit’s decision in Rowinski is directly on point. There, a customer claimed that a brokerage firm provided biased investment research to retail brokerage customers to curry favor with its investment banking clients and sought to recover on behalf of a putative class, among other things, brokerage commissions paid in connection with the biased research. 398 F.3d at 296-97. The Third Circuit affirmed the dismissal of the customer’s breach of contract and UTPCPL claims on SLUSA grounds, and in doing so specifically rejected the customer’s argument that “because ‘misrepresentation’ is not an essential legal element of his claim under Pennsylvania contract law, the factual allegations of misrepresentation included in the complaint are irrelevant to the SLUSA inquiry.” Id. at 300. The Third Circuit explained: Plaintiff’s suggested distinction—between legal and factual allegations in a complaint—is immaterial under the statute. . . . [P]reemption does not turn on whether allegations are characterized as facts or as essential legal elements of a claim, but Case 2:16-cv-05713-CMR Document 11-2 Filed 01/13/17 Page 16 of 22 12 rather on whether the SLUSA prerequisites are ‘alleged’ in one form or another. A contrary approach, under which only essential legal elements of a state law claim trigger preemption, is inconsistent with the plain meaning of the statute. Id.; accord LaSala v. Bordier et Cie, 519 F.3d 121, 141 (3d Cir. 2008) (“[W]hen an allegation of misrepresentation in connection with a securities trade, implicit or explicit, operates as a factual predicate to a legal claim, that ingredient [under SLUSA] is met.”). Many other courts likewise have dismissed on SLUSA grounds breach of contract claims predicated on allegations of fraudulent or deceptive conduct. See, e.g., Gray v. Seaboard Secs., Inc., 126 Fed. App’x 14, 17 (2d Cir. 2005) (breach of contract claim alleging misrepresentations regarding source of investment advice); Segal, 581 F.3d at 310 (breach of contract claim alleging that bank “knowingly overcharged” clients); Kutten, 530 F.3d at 670 (breach of contract claim alleging that bank funneled customer assets to proprietary mutual funds without adequate disclosure); Miller, 391 F.3d at 699 (breach of contract claim alleging misrepresentations and omissions regarding transaction fees); Lim, 2015 WL 7996475, at *1, *8 (breach of contract claim alleging misrepresentations and omissions related to best execution of trades); Behlen, 311 F.3d at 1089, 1094 (breach of contract claim alleging that defendants sold plaintiff wrong mutual fund share class to obtain higher fees); Knopick, 121 F.Supp.3d at 453, 459 (breach of contract claim alleging misrepresentations and omissions related to management of investment account); Dommert v. Raymond James Fin. Servs., Inc., No. 1:06-CV-102, 2007 WL 1018234, at *8 (E.D. Tex. Mar. 29, 2007) (breach of contract claim alleging failure to disclose account fees). Like the breach of contract claims in Rowinski and the other cases discussed above, SLUSA preempts Plaintiffs’ breach of contract claim because it is predicated on allegations of fraudulent or deceptive conduct. Indeed, Plaintiffs’ breach of contract claim incorporates and relies upon the identical allegations as their UTPCPL claim. Compare Complaint ¶ 38, with id. Case 2:16-cv-05713-CMR Document 11-2 Filed 01/13/17 Page 17 of 22 13 ¶ 44. Just as the Third Circuit rejected the plaintiff’s attempt in Rowinski to circumvent SLUSA by “artful pleading,” 398 F.3d at 300, Plaintiffs’ attempted artful pleading here likewise fails. b. Plaintiffs’ Allegations Satisfy the “In Connection With” Requirement Plaintiffs’ allegations also meet the “in connection with” requirement under SLUSA. Construing this language expansively in Dabit, the Supreme Court held that it is enough that the fraud alleged “coincide” with a securities transaction. 547 U.S. at 85-86. In Rowinski, the Third Circuit held that the “in connection with” requirement was met where, among other things, (1) for the “purported scheme [of issuing biased investment research] to work, investors [had to] purchase the misrepresented securities,” i.e., the “scheme, in other words, necessarily ‘coincide[d]’ with the purchase or sale of securities;” (2) the action arose “from the broker/investor relationship, the very purpose of which is trading in securities;” and (3) the prayer for relief included trading fees and commissions—“charges incurred only in connection with the purchase or sale of securities.” 398 F.3d at 302-03 (internal quotations omitted). The same considerations are controlling here. Plaintiffs’ allegations of fraudulent and/or deceptive conduct relate to commissions Vanguard charged to execute securities trades and therefore necessarily “coincide” with the purchase or sale of securities. Further, as in Rowinski, this action arises out of the broker/investor relationship and Plaintiffs are seeking to recover commissions they paid. Finally, Plaintiffs have defined and limited the putative class to Vanguard brokerage customers who “purchased securities” and paid allegedly inflated commissions. Compl. ¶ 1. As in Rowinski, the “in connection requirement” is therefore clearly met. See also Segal, 581 F.3d at 310 (claims alleging that bank overcharged customers satisfied “in connection with” requirement because they “depend” on securities transactions); Richek, 2011 WL 3421512, at *6 (claims seeking to recover undisclosed fees associated with purchase of Case 2:16-cv-05713-CMR Document 11-2 Filed 01/13/17 Page 18 of 22 14 mutual fund shares satisfied “in connection with” requirement because the “fees generated were dependent” on the actual purchase of shares); Shaw v. Charles Schwab & Co., Inc., No. BC238732, 2003 WL 1463842, at *4 (Cal. Super. Ct. Mar. 7, 2003) (claims alleging that online brokerage firm overcharged commissions satisfied “in connection with requirement” because the “triggering event giving rise to the alleged wrongdoing . . . would be the purchase or sale of securities, which in turn would trigger the commissions in dispute”). Because this and each of the other requirements of SLUSA is satisfied, Plaintiffs’ state law class action claims are preempted and the Court should dismiss the Complaint. II. THE UTPCPL CLAIM SHOULD BE DISMISSED BECAUSE PLAINTIFFS HAVE FAILED TO PLEAD ALL OF THE ELEMENTS OF SUCH A CLAIM In addition to being barred by SLUSA, Plaintiffs’ UTPCPL claim is legally flawed and should be dismissed for the independent reason that Plaintiffs have failed to plead all of the elements required for the claim. To state a claim under the catchall provision of the UTPCPL, a plaintiff must allege, among other things, justifiable reliance. Hunt v. U.S. Tobacco Co., 538 F.3d 217, 226-27 (3d Cir. 2008); Walkup v. Santander, 147 F. Supp. 3d 349, 358-59, 362 (E.D. Pa. 2015); Am. Fed’n of State, Cty. and Mun. Emps., Dist. Council 47 Health & Welfare Fund v. Ortho-McNeil-Janssen Pharms., Inc., 857 F. Supp. 2d 510, 514 (E.D. Pa. 2012) (Rufe, J.). In Hunt v. U.S. Tobacco Co., 538 F.3d 217, 229 (3d Cir. 2008), the Third Circuit held that a district court erred by failing to dismiss a UTPCPL claim alleging deceptive conduct under the catchall provision where the plaintiff did not allege that he had justifiably relied on the purported deceptive conduct. The court explained that the Pennsylvania Supreme Court has “categorically and repeatedly stated that . . . a private plaintiff pursuing a claim under the statute must prove justifiable reliance.” Id. at 221. And the court rejected the plaintiff’s argument that reliance could be presumed. Id. at 227-28. Because the plaintiff had not alleged that the Case 2:16-cv-05713-CMR Document 11-2 Filed 01/13/17 Page 19 of 22 15 defendant’s deceptive conduct induced him to purchase the defendant’s product or engage in other detrimental activity, the court held that the claim failed as a matter of law. Id. at 227. Plaintiffs here similarly have failed to allege that they justifiably relied on Vanguard’s alleged fraudulent and/or deceptive conduct. Nowhere in the Complaint do Plaintiffs allege that Vanguard’s commission disclosures induced them to place the securities trades at issue or engage in other alleged detrimental activity. Accordingly, as in Hunt, Plaintiffs have failed to plead a required element of their claim and their UTPCPL claim should be dismissed. Case 2:16-cv-05713-CMR Document 11-2 Filed 01/13/17 Page 20 of 22 16 CONCLUSION For the foregoing reasons, the Court should grant Vanguard’s Motion and dismiss the Complaint with prejudice. Dated: January 13, 2017 /s/ Stuart T. Steinberg _ Stuart T. Steinberg (Pa. ID No. 82196) stuart.steinberg@dechert.com Selby Brown (PA I.D. No. 318687) selby.brown@dechert.com DECHERT LLP Cira Centre 2929 Arch Street Philadelphia, PA 19104-2808 Phone: (215) 994-4000 Fax: (215) 994-2222 Counsel for Defendant The Vanguard Group, Inc. Case 2:16-cv-05713-CMR Document 11-2 Filed 01/13/17 Page 21 of 22 17 CERTIFICATE OF SERVICE I hereby certify that on this, the 13th day of January 2017, the foregoing Motion to Dismiss for Failure to State a Claim, the supporting Memorandum of Law, and the Proposed Order were electronically filed using the CM/ECF system and notice was given electronically to all parties except Samuel L. Rosenberg through the CM/ECF system. A hard copy of the foregoing was mailed to Samuel L. Rosenberg at the following address of record on January 13, 2017: Samuel L. Rosenberg LAW OFFICES OF SAMUEL L. ROSENBERG 15 Astor Place Wesley Hills, NY 10952 (845) 354-1368 Dated: January 13, 2017 /s/ Stuart Steinberg Stuart T. Steinberg (PA I.D. No.82196) stuart.steinberg@dechert.com DECHERT LLP Cira Centre 2929 Arch Street Philadelphia, PA 19104-2808 Telephone: (215) 994-2521 Facsimile: (215) 655-2521 Attorney for Defendant The Vanguard Group, Inc. Case 2:16-cv-05713-CMR Document 11-2 Filed 01/13/17 Page 22 of 22 Exhibit A Case 2:16-cv-05713-CMR Document 11-3 Filed 01/13/17 Page 1 of 5 Case 2:16-cv-05713-CMR Document 11-3 Filed 01/13/17 Page 2 of 5 Case 2:16-cv-05713-CMR Document 11-3 Filed 01/13/17 Page 3 of 5 Case 2:16-cv-05713-CMR Document 11-3 Filed 01/13/17 Page 4 of 5 Case 2:16-cv-05713-CMR Document 11-3 Filed 01/13/17 Page 5 of 5 Exhibit B Case 2:16-cv-05713-CMR Document 11-4 Filed 01/13/17 Page 1 of 2 Case 2:16-cv-05713-CMR Document 11-4 Filed 01/13/17 Page 2 of 2