(Slip Opinion) OCTOBER TERM, 2005 1
Syllabus
NOTE: Where it is feasible, a syllabus (headnote) will be released, as is
being done in connection with this case, at the time the opinion is issued.
The syllabus constitutes no part of the opinion of the Court but has been
prepared by the Reporter of Decisions for the convenience of the reader.
See United States v. Detroit Timber & Lumber Co., 200 U. S. 321, 337.
SUPREME COURT OF THE UNITED STATES
Syllabus
MERRILL LYNCH, PIERCE, FENNER & SMITH, INC. v.
DABIT
CERTIORARI TO THE UNITED STATES COURT OF APPEALS FOR
THE SECOND CIRCUIT
No. 04–1371. Argued January 18, 2006—Decided March 21, 2006
Respondent Dabit filed a private securities fraud class action in federal
court, invoking diversity jurisdiction to advance his state-law claims
that petitioner, his former employer, fraudulently manipulated stock
prices, causing him and other brokers and their clients to keep their
overvalued securities. The District Court dismissed his amended
complaint, finding his claims pre-empted by title I of the Securities
Litigation Uniform Standards Act of 1998 (SLUSA), which provides
that no “covered class action” based on state law and alleging “a mis-
representation or omission of a material fact in connection with the
purchase or sale of a covered security” “may be maintained in any
State or Federal court by any private party.” 15 U. S. C.
§78bb(f)(1)(A). Vacating the judgment, the Second Circuit concluded
that, to the extent the complaint alleged that brokers were fraudu-
lently induced, not to sell or purchase, but to retain or delay selling,
it fell outside SLUSA’s pre-emptive scope.
Held: The background, text, and purpose of SLUSA’s pre-emption pro-
vision demonstrate that SLUSA pre-empts state-law holder class-
action claims of the kind Dabit alleges. Pp. 5–17.
(a) The magnitude of the federal interest in protecting the integrity
and efficiency of the national securities market cannot be overstated.
The Securities Act of 1933 and the Securities Exchange Act of 1934
(1934 Act) anchor federal regulation of vital elements of this Nation’s
economy. Securities and Exchange Commission (SEC) Rule 10b–5,
which was promulgated pursuant to §10(b) of the 1934 Act, is an im-
portant part of that regulatory scheme, and, like §10(b), prohibits de-
ception, misrepresentation, and fraud “in connection with the pur-
chase or sale” of a security. When, in Blue Chip Stamps v. Manor
2 MERRILL LYNCH, PIERCE, FENNER & SMITH, INC. v.
DABIT
Syllabus
Drug Stores, 421 U. S. 723, this Court limited the Rule 10b–5 private
right of action to plaintiffs who were themselves purchasers or sell-
ers, it relied on the widespread recognition that suits by nonpurchas-
ers and nonsellers present a special risk of vexatious litigation that
could “frustrate or delay normal business activity,” id., at 740. Pp. 5–
8.
(b) Similar policy considerations prompted Congress to adopt legis-
lation (Reform Act) targeted at perceived abuses of class actions—
e.g., nuisance filings and vexatious discovery requests—but this effort
prompted members of the plaintiffs’ bar to avoid the federal forum al-
together. To stem the shift of class actions from federal to state
courts, Congress enacted SLUSA. Pp. 8–10.
(c) Both the class and the securities here are “covered” within
SLUSA’s meaning, and the complaint alleges misrepresentations and
omissions of material facts. The only disputed issue is whether the
alleged wrongdoing was “in connection with the purchase or sale” of
securities. Dabit’s narrow reading would pre-empt only those actions
in which Blue Chip Stamps’ purchaser-seller requirement is met. In-
sofar as that argument assumes that the Blue Chip Stamps rule
stems from Rule 10b–5’s text, it must be rejected, for the Court relied
on “policy considerations” in adopting that limitation, and it pur-
ported to define the scope of a private right of action under Rule 10b–
5, not to define “in connection with the purchase or sale.” When this
Court has sought to give meaning to that phrase in the §10(b) and
Rule 10b–5 context, it has broadly required that the alleged fraud
“coincide” with a securities transaction, an interpretation that com-
ports with the SEC’s longstanding views. Congress can hardly have
been unaware of this broad construction when it imported the phrase
into SLUSA. Where judicial interpretations have settled a statutory
provision’s meaning, repeating the same language in a new statute
indicates the intent to incorporate the judicial interpretations as
well. That presumption is particularly apt here, because Congress
not only used §10(b)’s and Rule 10b–5’s words, but used them in an-
other provision appearing in the same statute as §10(b). The pre-
sumption that Congress envisioned a broad construction also follows
from the particular concerns that culminated in SLUSA’s enactment,
viz., preventing state private securities class-action suits from frus-
trating the Reform Act’s objectives. A narrow construction also
would give rise to wasteful, duplicative litigation in state and federal
courts. The presumption that “Congress does not cavalierly pre-empt
state-law causes of action,” Medtronic, Inc. v. Lohr, 518 U. S. 470,
485, has less force here because SLUSA does not pre-empt any cause
of action. It simply denies the use of the class-action device to vindi-
cate certain claims. Moreover, tailored exceptions to SLUSA’s pre-
Cite as: 547 U. S. ____ (2006) 3
Syllabus
emptive command—for, e.g., state agency enforcement proceedings—
demonstrate that Congress did not act cavalierly. Finally, federal,
not state, law has long been the principal vehicle for asserting class-
action securities fraud claims. Pp. 10–16.
(d) Dabit’s holder class action is distinguishable from a typical Rule
10b–5 class action only in that it is brought by holders rather than
sellers or purchasers. That distinction is irrelevant for SLUSA pre-
emption purposes. The plaintiffs’ identity does not determine
whether the complaint alleges the requisite fraud, and the alleged
misconduct here—fraudulent manipulation of stock prices—
unquestionably qualifies as a fraud “in connection with the purchase
or sale” of securities as the phrase is defined in SEC v. Zandford, 535
U. S. 813, 820, and United States v. O’Hagan, 521 U. S. 642, 651.
Pp. 16–17.
395 F. 3d 25, vacated and remanded.
STEVENS, J., delivered the opinion of the Court, in which all other
Members joined, except ALITO, J., who took no part in the consideration
or decision of the case.
Cite as: 547 U. S. ____ (2006) 1
Opinion of the Court
NOTICE: This opinion is subject to formal revision before publication in the
preliminary print of the United States Reports. Readers are requested to
notify the Reporter of Decisions, Supreme Court of the United States, Wash-
ington, D. C. 20543, of any typographical or other formal errors, in order
that corrections may be made before the preliminary print goes to press.
SUPREME COURT OF THE UNITED STATES
_________________
No. 04–1371
_________________
MERRILL LYNCH, PIERCE, FENNER & SMITH, INC.,
PETITIONER v. SHADI DABIT
ON WRIT OF CERTIORARI TO THE UNITED STATES COURT OF
APPEALS FOR THE SECOND CIRCUIT
[March 21, 2006]
JUSTICE STEVENS delivered the opinion of the Court.
Title I of the Securities Litigation Uniform Standards
Act of 1998 (SLUSA) provides that “[n]o covered class
action” based on state law and alleging “a misrepresenta-
tion or omission of a material fact in connection with the
purchase or sale of a covered security” “may be maintained
in any State or Federal court by any private party.”
§101(b), 112 Stat. 3227 (codified at 15 U. S. C.
§ 78bb(f)(1)(A)). In this case the Second Circuit held that
SLUSA only pre-empts state-law class-action claims
brought by plaintiffs who have a private remedy under
federal law. 395 F. 3d 25 (2005). A few months later, the
Seventh Circuit ruled to the contrary, holding that the
statute also pre-empts state-law class-action claims for
which federal law provides no private remedy. Kircher v.
Putnam Funds Trust, 403 F. 3d 478 (2005). The back-
ground, the text, and the purpose of SLUSA’s pre-emption
provision all support the broader interpretation adopted
by the Seventh Circuit.
I
Petitioner Merrill Lynch, Pierce, Fenner & Smith, Inc.
2 MERRILL LYNCH, PIERCE, FENNER & SMITH, INC. v.
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Opinion of the Court
(Merrill Lynch), is an investment banking firm that offers
research and brokerage services to investors. Suspicious
that the firm’s loyalties to its investment banking clients
had produced biased investment advice, the New York
attorney general in 2002 instituted a formal investigation
into Merrill Lynch’s practices. The investigation sparked
a number of private securities fraud actions, this one
among them.1
Respondent, Shadi Dabit, is a former Merrill Lynch
broker. He filed this class action in the United States
District Court for the Western District of Oklahoma on
behalf of himself and all other former or current brokers
who, while employed by Merrill Lynch, purchased (for
themselves and for their clients) certain stocks between
December 1, 1999, and December 31, 2000. See App. 27a–
46a. Rather than rely on the federal securities laws, Dabit
invoked the District Court’s diversity jurisdiction and
advanced his claims under Oklahoma state law.
The gist of Dabit’s complaint was that Merrill Lynch
breached the fiduciary duty and covenant of good faith and
fair dealing it owed its brokers by disseminating mislead-
ing research and thereby manipulating stock prices.2
Dabit’s theory was that Merrill Lynch used its misin-
formed brokers to enhance the prices of its investment
banking clients’ stocks: The research analysts, under
management’s direction, allegedly issued overly optimistic
appraisals of the stocks’ value; the brokers allegedly relied
on the analysts’ reports in advising their investor clients
——————
1 Merrill
Lynch eventually settled its dispute with the New York at-
torney general.
2 The complaint alleged, for example, that the prices of the subject
stocks were “artificially inflated as a result of the manipulative efforts”
of Merrill Lynch, and that Merrill Lynch, “acting as a central nerve
center in the manipulation of various stocks . . . , perpetrated this stock
manipulation through a variety of deceptive devices, artifices, and
tactics that are the hallmarks of stock manipulation.” App. 28a–29a.
Cite as: 547 U. S. ____ (2006) 3
Opinion of the Court
and in deciding whether or not to sell their own holdings;
and the clients and brokers both continued to hold their
stocks long beyond the point when, had the truth been
known, they would have sold. The complaint further
alleged that when the truth was actually revealed (around
the time the New York attorney general instituted his
investigation), the stocks’ prices plummeted.
Dabit asserted that Merrill Lynch’s actions damaged the
class members in two ways: The misrepresentations and
manipulative tactics caused them to hold onto overvalued
securities, and the brokers lost commission fees when
their clients, now aware that they had made poor invest-
ments, took their business elsewhere.
In July 2002, Merrill Lynch moved to dismiss Dabit’s
complaint. It argued, first, that SLUSA pre-empted the
action and, second, that the claims alleged were not cogni-
zable under Oklahoma law. The District Court indicated
that it was “not impressed by” the state-law argument, but
agreed that the federal statute pre-empted at least some of
Dabit’s claims. Id., at 49a–50a. The court noted that the
complaint alleged both “claims and damages based on
wrongfully-induced purchases” and “claims and damages
based on wrongfully-induced holding.” Ibid. While the
“holding” claims, the court suggested, might not be pre-
empted, the “purchasing” claims certainly were. The court
dismissed the complaint with leave to amend to give Dabit
the opportunity to untangle his “hopeless mélange of
purchase-related and holding-related assertions.” Ibid.
(punctuation added).
Dabit promptly filed an amended complaint that omit-
ted all direct references to purchases. What began as a
class of brokers who “purchased” the subject securities
during the class period became a class of brokers who
“owned and continued to own” those securities. See id., at
52a.
Meanwhile, dozens of other suits, based on allegations
4 MERRILL LYNCH, PIERCE, FENNER & SMITH, INC. v.
DABIT
Opinion of the Court
similar to Dabit’s, had been filed against Merrill Lynch
around the country on both federal- and state-law theories
of liability. The Judicial Panel on Multidistrict Litigation
transferred all of those cases, along with this one, to the
United States District Court for the Southern District of
New York for consolidated pretrial proceedings. Merrill
Lynch then filed its second motion to dismiss Dabit’s
complaint. Senior Judge Milton Pollack granted the mo-
tion on the ground that the claims alleged fell “squarely
within SLUSA’s ambit.” In re Merrill Lynch & Co., Inc.,
2003 WL 1872820, *1 (Apr. 10, 2003).
The Court of Appeals for the Second Circuit, however,
vacated the judgment and remanded for further proceed-
ings. 395 F. 3d, at 51. It concluded that the claims as-
serted by holders did not allege fraud “in connection with
the purchase or sale” of securities under SLUSA. Al-
though the court agreed with Merrill Lynch that that
phrase, as used in other federal securities laws, has been
defined broadly by this Court, it held that Congress none-
theless intended a narrower meaning here—one that
incorporates the “standing” limitation on private federal
securities actions adopted in Blue Chip Stamps v. Manor
Drug Stores, 421 U. S. 723 (1975). Under the Second Cir-
cuit’s analysis, fraud is only “in connection with the pur-
chase or sale” of securities, as used in SLUSA, if it is alleged
by a purchaser or seller of securities. Thus, to the extent
that the complaint in this action alleged that brokers were
fraudulently induced, not to sell or purchase, but to retain
or delay selling their securities, it fell outside SLUSA’s pre-
emptive scope.3
After determining that the class defined in Dabit’s
——————
3 The Court of Appeals also concluded that Dabit’s lost commission
claims escaped pre-emption under SLUSA because they did not “allege
fraud that ‘coincide[s]’ with the sale or purchase of a security.” 395
F. 3d, at 47 (quoting SEC v. Zandford, 535 U. S. 813, 825 (2002)). That
determination is not before this Court for review.
Cite as: 547 U. S. ____ (2006) 5
Opinion of the Court
amended complaint did not necessarily exclude purchas-
ers, the panel remanded with instructions that the plead-
ing be dismissed without prejudice. The court’s order
would permit Dabit to file another amended complaint
that defines the class to exclude “claimants who purchased
in connection with the fraud and who therefore could meet
the standing requirement” for a federal damages action,
and to include only those “who came to hold [a Merrill
Lynch] stock before any relevant misrepresentation.” 395
F. 3d, at 45–46. Under the Second Circuit’s analysis, a
class action so limited could be sustained under state law.
For the reasons that follow, we disagree.
II
The magnitude of the federal interest in protecting the
integrity and efficient operation of the market for nation-
ally traded securities cannot be overstated. In response to
the sudden and disastrous collapse in prices of listed
stocks in 1929, and the Great Depression that followed,
Congress enacted the Securities Act of 1933 (1933 Act), 48
Stat. 74, and the Securities Exchange Act of 1934 (1934
Act), 48 Stat. 881. Since their enactment, these two stat-
utes have anchored federal regulation of vital elements of
our economy.
Securities and Exchange Commission (SEC) Rule 10b–5,
17 CFR §240.10b–5 (2005), promulgated in 1942 pursuant
to §10(b) of the 1934 Act, 15 U. S. C. §78j(b), is an impor-
tant part of that regulatory scheme. The Rule, like §10(b)
itself,4 broadly prohibits deception, misrepresentation, and
——————
4 Section 10(b) provides as follows:
“It shall be unlawful for any person, directly or indirectly, by the use
of any means or instrumentality of interstate commerce or of the mails,
or of any facility of any national securities exchange—
“(b) To use or employ, in connection with the purchase or sale of any
security registered on a national securities exchange or any security not
so registered . . . any manipulative or deceptive device or contrivance in
6 MERRILL LYNCH, PIERCE, FENNER & SMITH, INC. v.
DABIT
Opinion of the Court
fraud “in connection with the purchase or sale of any
security.”5 The SEC has express statutory authority to
enforce the Rule. See 15 U. S. C. §78u (2000 ed. and Supp.
III). Although no such authority is expressly granted to
private individuals injured by securities fraud, in 1946
Judge Kirkpatrick of the United States District Court for
the Eastern District of Pennsylvania, relying on “the
general purpose” of the Rule, recognized an implied right
of action thereunder. Kardon v. National Gypsum Co., 69
F. Supp. 512, 514. His holding was adopted by an “over-
whelming consensus of the District Courts and Courts of
Appeals,” Blue Chip Stamps, 421 U. S., at 730, and en-
dorsed by this Court in Superintendent of Ins. of N. Y. v.
Bankers Life & Casualty Co., 404 U. S. 6 (1971).
A few years after Kardon was decided, the Court of
Appeals for the Second Circuit limited the reach of the
private right of action under Rule 10b–5. In Birnbaum v.
Newport Steel Corp., 193 F. 2d 461 (1952), a panel com-
posed of Chief Judge Swan and Judges Augustus and
Learned Hand upheld the dismissal of a suit brought on
behalf of a corporation and a class of its stockholders
——————
contravention of such rules and regulations as the [SEC] may prescribe
as necessary or appropriate in the public interest or for the protection
of investors.” 15 U. S. C. §78j(b).
5 The text of the Rule is as follows:
“It shall be unlawful for any person, directly or indirectly, by the use
of any means or instrumentality of interstate commerce, or of the mails
or of any facility of any national securities exchange,
“(a) To employ any device, scheme, or artifice to defraud,
“(b) To make any untrue statement of a material fact or to omit to
state a material fact necessary in order to make the statements made,
in the light of the circumstances under which they were made, not
misleading, or
“(c) To engage in any act, practice, or course of business which
operates or would operate as a fraud or deceit upon any person,
“in connection with the purchase or sale of any security.” 17 CFR
§240.10b–5 (2005).
Cite as: 547 U. S. ____ (2006) 7
Opinion of the Court
alleging that fraud “in connection with” a director’s sale of
his controlling block of stock to third parties violated Rule
10b–5. The court held that the Rule could only be invoked
by a purchaser or seller of securities to remedy fraud
associated with his or her own sale or purchase of securi-
ties, and did not protect those who neither purchased nor
sold the securities in question but were instead injured by
corporate insiders’ sales to third parties. Id., at 464.
While the Birnbaum court did not question the plaintiffs’
“standing” to enforce Rule 10b–5, later cases treated its
holding as a standing requirement. See Eason v. General
Motors Acceptance Corp., 490 F. 2d 654, 657 (CA7 1973).
By the time this Court first confronted the question,
literally hundreds of lower court decisions had accepted
“Birnbaum’s conclusion that the plaintiff class for pur-
poses of §10(b) and Rule 10b–5 private damages actions is
limited to purchasers and sellers.” Blue Chip Stamps, 421
U. S., at 731–732. Meanwhile, however, cases like Bank-
ers Life & Casualty Co. had interpreted the coverage of the
Rule more broadly to prohibit, for example, “deceptive
practices touching [a victim’s] sale of securities as an
investor.” 404 U. S., at 12–13 (emphasis added); see
Eason, 490 F. 2d, at 657 (collecting cases). The “judicial
oak which ha[d] grown from little more than a legislative
acorn,” as then-Justice Rehnquist described the rules
governing private Rule 10b–5 actions, Blue Chip Stamps,
421 U. S., at 737, had thus developed differently from the
law defining what constituted a substantive violation of
Rule 10b–5. Ultimately, the Court had to decide whether
to permit private parties to sue for any violation of Rule
10b–5 that caused them harm, or instead to limit the
private remedy to plaintiffs who were themselves pur-
chasers or sellers.
Relying principally on “policy considerations” which the
Court viewed as appropriate in explicating a judicially
crafted remedy, ibid., and following judicial precedent
8 MERRILL LYNCH, PIERCE, FENNER & SMITH, INC. v.
DABIT
Opinion of the Court
rather than “the many commentators” who had criticized
the Birnbaum rule as “an arbitrary restriction which
unreasonably prevents some deserving plaintiffs from
recovering damages,” 421 U. S., at 738, the Court in Blue
Chip Stamps chose to limit the private remedy. The main
policy consideration tipping the scales in favor of prece-
dent was the widespread recognition that “litigation under
Rule 10b–5 presents a danger of vexatiousness different in
degree and in kind from that which accompanies litigation
in general.” Id., at 739. Even weak cases brought under
the Rule may have substantial settlement value, the Court
explained, because “[t]he very pendency of the lawsuit
may frustrate or delay normal business activity.” Id., at
740. Cabining the private cause of action by means of the
purchaser-seller limitation would, in the Court’s view,
minimize these ill effects. The limitation of course had no
application in Government enforcement actions brought
pursuant to Rule 10b–5. See id., at 751, n. 14.
III
Policy considerations similar to those that supported the
Court’s decision in Blue Chip Stamps prompted Congress,
in 1995, to adopt legislation targeted at perceived abuses
of the class-action vehicle in litigation involving nationally
traded securities. While acknowledging that private
securities litigation was “an indispensable tool with which
defrauded investors can recover their losses,” the House
Conference Report accompanying what would later be
enacted as the Private Securities Litigation Reform Act of
1995 (Reform Act), 109 Stat. 737 (codified at 15 U. S. C.
§§77z–1 and 78u–4), identified ways in which the class
action device was being used to injure “the entire U. S.
economy.” H. R. Rep. No. 104–369, p. 31 (1995). Accord-
ing to the Report, nuisance filings, targeting of deep-
pocket defendants, vexatious discovery requests, and
“manipulation by class action lawyers of the clients whom
Cite as: 547 U. S. ____ (2006) 9
Opinion of the Court
they purportedly represent” had become rampant in recent
years. Ibid. Proponents of the Reform Act argued that
these abuses resulted in extortionate settlements, chilled
any discussion of issuers’ future prospects, and deterred
qualified individuals from serving on boards of directors.
Id., at 31–32.
Title I of the Reform Act, captioned “Reduction of Abu-
sive Litigation,” represents Congress’ effort to curb these
perceived abuses. Its provisions limit recoverable dam-
ages and attorney’s fees, provide a “safe harbor” for for-
ward-looking statements, impose new restrictions on the
selection of (and compensation awarded to) lead plaintiffs,
mandate imposition of sanctions for frivolous litigation,
and authorize a stay of discovery pending resolution of any
motion to dismiss. See 15 U. S. C. §78u–4. Title I also
imposes heightened pleading requirements in actions
brought pursuant to §10(b) and Rule 10b–5; it “insists that
securities fraud complaints ‘specify’ each misleading
statement; that they set forth the facts ‘on which [a] belief’
that a statement is misleading was ‘formed’; and that they
‘state with particularity facts giving rise to a strong infer-
ence that the defendant acted with the required state of
mind.’ ” Dura Pharmaceuticals, Inc. v. Broudo, 544 U. S.
336, 345 (2005) (quoting 15 U. S. C. §§78u–4(b)(1), (2)).
The effort to deter or at least quickly dispose of those
suits whose nuisance value outweighs their merits placed
special burdens on plaintiffs seeking to bring federal
securities fraud class actions. But the effort also had an
unintended consequence: It prompted at least some mem-
bers of the plaintiffs’ bar to avoid the federal forum alto-
gether. Rather than face the obstacles set in their path by
the Reform Act, plaintiffs and their representatives began
bringing class actions under state law, often in state court.
The evidence presented to Congress during a 1997 hearing
to evaluate the effects of the Reform Act suggested that
this phenomenon was a novel one; state-court litigation of
10 MERRILL LYNCH, PIERCE, FENNER & SMITH, INC. v.
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Opinion of the Court
class actions involving nationally traded securities had
previously been rare. See H. R. Rep. No. 105–640, p. 10
(1998); S. Rep. No. 105–182, pp. 3–4 (1998). To stem this
“shif[t] from Federal to State courts” and “prevent certain
State private securities class action lawsuits alleging
fraud from being used to frustrate the objectives of” the
Reform Act, SLUSA §§2(2), (5), 112 Stat. 3227, Congress
enacted SLUSA.
IV
The core provision of SLUSA reads as follows:6
“CLASS ACTION LIMITATIONS.—No covered class ac-
tion based upon the statutory or common law of any
State or subdivision thereof may be maintained in any
State or Federal court by any private party alleging—
“(A) a misrepresentation or omission of a material
fact in connection with the purchase or sale of a cov-
ered security; or
“(B) that the defendant used or employed any ma-
nipulative or deceptive device or contrivance in con-
nection with the purchase or sale of a covered secu-
rity.” Id., at 3230 (codified as amended at 15 U. S. C.
§78bb(f)(1)).7
A “covered class action” is a lawsuit in which damages are
sought on behalf of more than 50 people.8 A “covered
——————
6 SLUSA amends the 1933 Act and the 1934 Act in substantially
identical ways. For convenience and because they are more pertinent
here, we quote the amendments to the 1934 Act.
7 Another key provision of the statute makes all “covered class ac-
tions” filed in state court removable to federal court. 112 Stat. 3230
(codified at 15 U. S. C. §78bb(f)(2)).
8 “The term ‘covered class action’ means—
“(i) any single lawsuit in which—
“(I) damages are sought on behalf of more than 50 persons or pro-
spective 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,
Cite as: 547 U. S. ____ (2006) 11
Opinion of the Court
security” is one traded nationally and listed on a regulated
national exchange.9 Respondent does not dispute that
both the class and the securities at issue in this case are
“covered” within the meaning of the statute, or that the
complaint alleges misrepresentations and omissions of
material facts. The only disputed issue is whether the
alleged wrongdoing was “in connection with the purchase
or sale” of securities.
Respondent urges that the operative language must be
read narrowly to encompass (and therefore pre-empt) only
those actions in which the purchaser-seller requirement of
Blue Chip Stamps is met. Such, too, was the Second
Circuit’s view. But insofar as the argument assumes that
the rule adopted in Blue Chip Stamps stems from the text
of Rule 10b–5—specifically, the “in connection with” lan-
guage, it must be rejected. Unlike the Birnbaum court,
which relied on Rule 10b–5’s text in crafting its purchaser-
seller limitation, this Court in Blue Chip Stamps relied
——————
predominate over any questions affecting only individual persons or
members; or
“(II) one or more named parties seek to recover damages on a repre-
sentative basis on behalf of themselves and other unnamed parties
similarly situated, and questions of law or fact common to those per-
sons or members of the prospective class predominate over any ques-
tions affecting only individual persons or members; or
“(ii) any group of lawsuits filed in or pending in the same court and
involving common questions of law or fact, in which—
“(I) damages are sought on behalf of more than 50 persons; and
“(II) the lawsuits are joined, consolidated, or otherwise proceed as a
single action for any purpose.” 112 Stat. 3232 (codified at 15 U. S. C.
§78bb(f)(5)(B)).
9 “The term ‘covered security’ means a security that satisfies the stan-
dards for a covered security specified in paragraph (1) or (2) of section
18(b) of the Securities Act of 1933, at the time during which it is alleged
that the misrepresentation, omission, or manipulative or deceptive
conduct occurred. . . .” 112 Stat. 3232 (codified at 15 U. S. C.
§78bb(f)(5)(E)). Section 18(b) of the 1933 Act in turn defines “covered
security” to include securities traded on a national exchange. §77r(b).
12 MERRILL LYNCH, PIERCE, FENNER & SMITH, INC. v.
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Opinion of the Court
chiefly, and candidly, on “policy considerations” in adopt-
ing that limitation. 421 U. S., at 737. The Blue Chip
Stamps Court purported to define the scope of a private
right of action under Rule 10b–5—not to define the words
“in connection with the purchase or sale.” Id., at 749 (“No
language in either [§10(b) or Rule 10b–5] speaks at all to
the contours of a private cause of action for their viola-
tion”). Any ambiguity on that score had long been re-
solved by the time Congress enacted SLUSA. See United
States v. O’Hagan, 521 U. S. 642, 656, 664 (1997); Holmes
v. Securities Investor Protection Corporation, 503 U. S.
258, 285 (1992) (O’Connor, J., concurring in part and
concurring in judgment); id., at 289–290 (SCALIA, J., con-
curring in judgment); United States v. Naftalin, 441 U. S.
768, 774, n. 6 (1979); see also 395 F. 3d, at 39 (acknowl-
edging that “[t]he limitation on standing to bring [a] pri-
vate suit for damages for fraud in connection with the
purchase or sale of securities is unquestionably a distinct
concept from the general statutory and regulatory prohibi-
tion on fraud in connection with the purchase or sale of
securities”).
Moreover, when this Court has sought to give meaning
to the phrase in the context of §10(b) and Rule 10b–5, it
has espoused a broad interpretation. A narrow construc-
tion would not, as a matter of first impression, have been
unreasonable; one might have concluded that an alleged
fraud is “in connection with” a purchase or sale of securi-
ties only when the plaintiff himself was defrauded into
purchasing or selling particular securities. After all, that
was the interpretation adopted by the panel in the Birn-
baum case. See 193 F. 2d, at 464. But this Court, in early
cases like Superintendent of Ins. of N. Y. v. Bankers Life &
Casualty Co., 404 U. S. 6 (1971), and most recently in SEC
v. Zandford, 535 U. S. 813, 820, 822 (2002), has rejected
that view. Under our precedents, it is enough that the
fraud alleged “coincide” with a securities transaction—
Cite as: 547 U. S. ____ (2006) 13
Opinion of the Court
whether by the plaintiff or by someone else. See O’Hagan,
521 U. S., at 651. The requisite showing, in other words,
is “deception ‘in connection with the purchase or sale of
any security,’ not deception of an identifiable purchaser or
seller.” Id., at 658. Notably, this broader interpretation of
the statutory language comports with the longstanding
views of the SEC. See Zandford, 535 U. S., at 819–820.10
Congress can hardly have been unaware of the broad
construction adopted by both this Court and the SEC
when it imported the key phrase—“in connection with the
purchase or sale”—into SLUSA’s core provision. And
when “judicial interpretations have settled the meaning of
an existing statutory provision, repetition of the same
language in a new statute indicates, as a general matter,
the intent to incorporate its . . . judicial interpretations as
well.” Bragdon v. Abbott, 524 U. S. 624, 645 (1998); see
Cannon v. University of Chicago, 441 U. S. 677, 696–699
(1979). Application of that presumption is particularly apt
here; not only did Congress use the same words as are
used in §10(b) and Rule 10b–5, but it used them in a pro-
vision that appears in the same statute as §10(b). Gener-
ally, “identical words used in different parts of the same
statute are . . . presumed to have the same meaning.”
IBP, Inc. v. Alvarez, 546 U. S. __, __ (2005) (slip op., at 11).
The presumption that Congress envisioned a broad
construction follows not only from ordinary principles of
statutory construction but also from the particular con-
cerns that culminated in SLUSA’s enactment. A narrow
reading of the statute would undercut the effectiveness of
the 1995 Reform Act and thus run contrary to SLUSA’s
——————
10 In Zandford, we observed that the SEC has consistently “main-
tained that a broker who accepts payment for securities that he never
intends to deliver, or who sells customer securities with intent to
misappropriate the proceeds, violates §10(b) and Rule 10b–5.” 535
U. S., at 819. Here, too, the SEC supports a broad reading of the “in
connection with” language.
14 MERRILL LYNCH, PIERCE, FENNER & SMITH, INC. v.
DABIT
Opinion of the Court
stated purpose, viz., “to prevent certain State private
securities class action lawsuits alleging fraud from being
used to frustrate the objectives” of the 1995 Act. SLUSA
§2(5), 112 Stat. 3227. As the Blue Chip Stamps Court
observed, class actions brought by holders pose a special
risk of vexatious litigation. 421 U. S., at 739. It would be
odd, to say the least, if SLUSA exempted that particularly
troublesome subset of class actions from its pre-emptive
sweep. See Kircher, 403 F. 3d, at 484.
Respondent’s preferred construction also would give rise
to wasteful, duplicative litigation. Facts supporting an
action by purchasers under Rule 10b–5 (which must pro-
ceed in federal court if at all) typically support an action
by holders as well, at least in those States that recognize
holder claims. The prospect is raised, then, of parallel
class actions proceeding in state and federal court, with
different standards governing claims asserted on identical
facts. That prospect, which exists to some extent in this
very case,11 squarely conflicts with the congressional
preference for “national standards for securities class
action lawsuits involving nationally traded securities.”
SLUSA §2(5), 112 Stat. 3227.12
In concluding that SLUSA pre-empts state-law holder
class-action claims of the kind alleged in Dabit’s com-
plaint, we do not lose sight of the general “presum[ption]
that Congress does not cavalierly pre-empt state-law
causes of action.” Medtronic, Inc. v. Lohr, 518 U. S. 470,
——————
11 See 2003 WL 1872820, *1 (SDNY, Apr. 10, 2003) (observing that
Dabit’s holder claims rested “on the very same alleged series of transac-
tions and occurrences asserted in the federal securities actions” filed
against Merrill Lynch).
12 See H. R. Rep. No. 105–640, p. 10 (1998) (the “solution” to circum-
vention of the Reform Act “is to make Federal court the exclusive venue
for securities fraud class action litigation”); S. Rep. No. 105–182, p. 3
(1998) (identifying “the danger of maintaining differing federal and
state standards of liability for nationally-traded securities”).
Cite as: 547 U. S. ____ (2006) 15
Opinion of the Court
485 (1996). But that presumption carries less force here
than in other contexts because SLUSA does not actually
pre-empt any state cause of action. It simply denies plain-
tiffs the right to use the class action device to vindicate
certain claims. The Act does not deny any individual
plaintiff, or indeed any group of fewer than 50 plaintiffs,
the right to enforce any state-law cause of action that may
exist.
Moreover, the tailored exceptions to SLUSA’s pre-
emptive command demonstrate that Congress did not by
any means act “cavalierly” here. The statute carefully
exempts from its operation certain class actions based on
the law of the State in which the issuer of the covered
security is incorporated, actions brought by a state agency
or state pension plan, actions under contracts between
issuers and indenture trustees, and derivative actions
brought by shareholders on behalf of a corporation. 15
U. S. C. §§78bb(f)(3)(A)–(C), (f)(5)(C). The statute also
expressly preserves state jurisdiction over state agency
enforcement proceedings. §78bb(f)(4). The existence of
these carve-outs both evinces congressional sensitivity to
state prerogatives in this field and makes it inappropriate
for courts to create additional, implied exceptions.
Finally, federal law, not state law, has long been the
principal vehicle for asserting class-action securities fraud
claims. See, e.g., H. R. Conf. Rep. No. 105–803, p. 14
(1998) (“Prior to the passage of the Reform Act, there was
essentially no significant securities class action litigation
brought in State court”).13 More importantly, while state-
——————
13 Respondent points out that the Court in Blue Chip Stamps v.
Manor Drug Stores, 421 U. S. 723 (1975), identified as a factor mitigat-
ing any unfairness caused by adoption of the purchaser-seller require-
ment that “remedies are available to nonpurchasers and nonsellers
under state law.” Id., at 738, n. 9. He argues that this supports a
narrow construction of SLUSA’s pre-emption provision. But we do not
here revisit the Blue Chip Stamps Court’s understanding of the equities
16 MERRILL LYNCH, PIERCE, FENNER & SMITH, INC. v.
DABIT
Opinion of the Court
law holder claims were theoretically available both before
and after the decision in Blue Chip Stamps, the actual
assertion of such claims by way of class action was virtu-
ally unheard of before SLUSA was enacted; respondent
and his amici have identified only one pre-SLUSA case
involving a state-law class action asserting holder
claims.14 This is hardly a situation, then, in which a
federal statute has eliminated a historically entrenched
state-law remedy. Cf. Bates v. Dow Agrosciences LLC, 544
U. S. 431, 449 (2005) (observing that a “long history” of
state-law tort remedy “add[ed] force” to the presumption
against pre-emption).
V
The holder class action that respondent tried to plead,
and that the Second Circuit envisioned, is distinguishable
from a typical Rule 10b–5 class action in only one respect:
It is brought by holders instead of purchasers or sellers.
For purposes of SLUSA pre-emption, that distinction is
irrelevant; the identity of the plaintiffs does not determine
whether the complaint alleges fraud “in connection with
the purchase or sale” of securities. The misconduct of
which respondent complains here—fraudulent manipula-
tion of stock prices—unquestionably qualifies as fraud “in
connection with the purchase or sale” of securities as the
phrase is defined in Zandford, 535 U. S., at 820, 822, and
O’Hagan, 521 U. S., at 651.
The judgment of the Court of Appeals for the Second
Circuit is vacated, and the case is remanded for further
——————
involved in limiting the availability of private remedies under federal
law; we are concerned instead with Congress’ intent in adopting a pre-
emption provision, the evident purpose of which is to limit the avail-
ability of remedies under state law.
14 See Brief for Respondent 5 (citing Weinberger v. Kendrick, 698
F. 2d 61, 78 (CA2 1982) (approving a settlement that included holder
claims brought pursuant to New York law)); see also Tr. of Oral Arg.
34–35.
Cite as: 547 U. S. ____ (2006) 17
Opinion of the Court
proceedings consistent with this opinion.
It is so ordered.
JUSTICE ALITO took no part in the consideration or
decision of this case.