Wednesday, August 30, 2017 6:04 PM PT
9th Circuit Tackles Thorny SLUS Act Issues in PIMCO Case

     (CN) - In an investor class action over mutual fund manager PIMCO's asset allocation strategy, the 9th Circuit axed various state-law claims while tackling the contentious legal question of whether a claims-dismissal under the Securities Litigation Uniform Standards Act should be without prejudice.
     The federal appellate panel upheld a decision to toss out plaintiff William Hampton's breach of contract and fiduciary duty claims against PIMCO, but ruled that the lower court should have dismissed the claims on jurisdictional grounds and therefore without prejudice.
     The appellate ruling accordingly revived Hampton's ability to refile the lawsuit.
     In the underlying case, Hampton alleged that PIMCO's Total Return Fund invested too heavily in certain emerging market assets, exceeding the fund's own allocation cap for that category of investments.
     Though Hampton had originally alleged federal securities law violations, he switched to the state law claims, which presented him with a challenge in overcoming the Securities Litigation Uniform Standards Act.
     That law, passed in 1998, limits the ability to bring a class action on state law counts over alleged misrepresentations made in connection with the purchase or sale of securities. The law was enacted in response to class action attorneys' attempts in the mid-1990s to circumvent securities litigation reforms by filing lawsuits in state court rather than federal court.
     Plaintiff Hampton argued that his lawsuit was not subject to dismissal under the SLUS Act because the counts against PIMCO were not dependent on showing false statements or "misrepresentation" per the Act's wording.
     PIMCO contested that Hampton was indeed alleging misrepresentation on the part of PIMCO, and that his pleadings were a ruse designed to sidestep the Act's restrictions.
     A California district court and the now the 9th Circuit on appeal sided with PIMCO on the issue.
     "Although Hampton styles [his] allegations in terms of contractual and fiduciary duties, the complaint unmistakably describes PIMCO Funds telling its investors it would do one thing - limit its exposure to certain risky assets - while it was ... at the same time doing another," the ruling states.
     The appellate panel ruled however that the district court erred in deciding that Hampton's complaint ought to be dismissed with prejudice and without leave to re-plead.
     The Securities Litigation Uniform Standards Act's bar against state-law-based class actions represents a "jurisdictional bar" rather than a bar on the merits, and therefore should not trigger dismissal with prejudice, the panel ruled.
     Writing for the panel, Judge Edward Korman notes that federal appellate courts are not in full agreement on how to treat SLUS Act-based dismissals of state-law class actions.
     A 2008 ruling in the 3rd Circuit indicated that SLUS Act dismissals are indeed jurisdictional. But in a 2011 investor class action against the Calamos Convertible Opportunities and Income Fund, the 7th Circuit rebuffed that notion.
     In accordance with the PIMCO appellate decision, plaintiff Hampton is free to refile his state law claims in an individual (not class action) lawsuit. As Judge Korman indicated, Hampton can also refile his proposed class action using federal securities law claims, which would not be expressly barred under the Securities Litigation Uniform Standards Act.