LaSala v. Bordier et Cie

Opinions of the United
2008 Decisions States Court of Appeals
for the Third Circuit

3-11-2008

LaSala v. Bordier et Cie
Precedential or Non-Precedential: Precedential

Docket No. 06-4323

Follow this and additional works at: http://digitalcommons.law.villanova.edu/thirdcircuit_2008

Recommended Citation
"LaSala v. Bordier et Cie" (2008). 2008 Decisions. Paper 1350.
http://digitalcommons.law.villanova.edu/thirdcircuit_2008/1350

This decision is brought to you for free and open access by the Opinions of the United States Court of Appeals for the Third Circuit at Villanova
University School of Law Digital Repository. It has been accepted for inclusion in 2008 Decisions by an authorized administrator of Villanova
University School of Law Digital Repository. For more information, please contact Benjamin.Carlson@law.villanova.edu.
 PRECEDENTIAL

UNITED STATES COURT OF APPEALS
FOR THE THIRD CIRCUIT
_______________

No. 06-4323
_______________

JOSEPH P. LASALA and FRED S. ZEIDMAN,
as CO-TRUSTEES
of the AREMISSOFT LIQUIDATING TRUST

Appellants
v.

BORDIER ET CIE and DOMINICK COMPANY, A.G.

_______________

On Appeal from the United States District Court
for the District of New Jersey
(D.C. Civ. No. 05-4520)
Honorable Joel A. Pisano, District Judge
_______________

Argued December 13, 2007

BEFORE: SLOVITER and AMBRO, Circuit Judges,
and POLLAK,* District Judge

Filed: March 11, 2008
_______________

Hal M. Hirsch, Esq.
Greenberg Taurig, LLP
200 Park Avenue

*
Honorable Louis H. Pollak, Senior District Judge of the
United States District Court for the Eastern District of
Pennsylvania, sitting by designation.
Met Life Building
New York, NY 1066

Gary R. Greenberg, Esq. (Argued)
Louis J. Scerra, Jr., Esq.
Peter M. Casey, Esq.
Greenberg Taurig, LLP
One Internaional Place
Boston, MA 02110

Attorneys for Appellants Joseph P. LaSala and Fred S.
Zeidman

Elliot Cohen, Esq. (Argued)
Troutman Sanders, LLP
The Chrysler Building
405 Lexington Avenue
New York, NY 10174

Attorney for Appellee Bordier et Cie

Paul J. Bschorr, Esq. (Argued)
Lawrence J. Reina, Esq.
Casey D. Laffey, Esq.
Reed Smith, LLP
599 Lexington Avenue
New York, NY 10022

Anthony J. Laura, Esq.
John J. Zefutie, Esq.
Reed Smith, LLP
136 Main Street, Suite 250
Princeton, NJ 08540

Charles J. Becker
Reed Smith, LLP
2500 One Liberty Place
1650 Market Street
Philadelphia, PA 19103

Attorneys for Appellee Dominick Company, A.G.

2
 _______________

OPINION OF THE COURT
_______________

POLLAK, District Judge

In this appeal, we are called upon to decide whether state-
law aiding-and-abetting-breach-of-fiduciary duty claims, which
have passed from a corporation to its bankruptcy estate to a trust,
may be brought in federal court by the trustees of the trust
notwithstanding the Securities Litigation Uniform Standards Act
(“SLUSA”), 15 U.S.C. § 78bb. We must further decide whether,
under SLUSA, the trustees, as assignees of individual investors
in the bankrupt enterprise, may assert, in federal court, against
foreign entities, claims characterized as arising under foreign
law for aiding and abetting money laundering. For the reasons
that follow, we hold that SLUSA is no impediment to federal
adjudication of either the state-law or the foreign-law claims.

I. Facts and procedural history

The story begins with AremisSoft, which (prior to its
demise) was a software enterprise incorporated under the laws of
Delaware. Between 1998 and 2001, two of AremisSoft’s
directors and officers, Lycourgos Kyprianou and Roys Poyiadjis
(collectively, the “Directors”), allegedly executed a classic
“pump-and-dump” scheme. According to the complaint, they
artificially inflated AremisSoft’s stock price by representing that
its financial position was far stronger than it really was. Having
“pumped” the stock price, they “dumped” the AremisSoft stock
they had accumulated by selling their shares on the open market
to unsuspecting investors. To cover their tracks, the Directors
allegedly ran these insider-trading transactions through a variety
of sham entities and bank accounts, all, so the complaint alleged,
with the assistance and knowledge of defendants Bordier et Cie
and Dominick Company (collectively, the “Banks”), both
banking institutions organized under the laws of Switzerland. A
few months and some hundreds of millions of dollars later,

3
AremisSoft’s real financial status was discovered, and its stock
price plummeted. AremisSoft’s condition deteriorated to the
point that NASDAQ halted trading of its common stock in July
2001.

The situation continued to worsen and, in March 2002,
AremisSoft petitioned for relief under Chapter 11 of the
Bankruptcy Code in the Bankruptcy Court for the District of
New Jersey. At the time of the bankruptcy petition, a federal
class-action securities suit, in which a group of purchasers of
AremisSoft stock (the “Purchasers”) requested rescission of their
stock-purchase contracts, was pending against AremisSoft. To
settle the Purchasers’ suit, the parties to the bankruptcy
proceeding agreed that the plan of reorganization would assign
to the Purchasers all causes of action owned by AremisSoft. An
agreement of this sort would not seem to be either uncommon or
problematic. While many corporations become insolvent for
reasons that do not render anyone legally at fault, it is also not
unusual for a bankrupt corporation to have viable legal claims
against parties that wrongfully contributed to its demise. These
claims can take myriad forms, from breach-of-contract claims
against suppliers or customers, to tort claims against those who
injured the corporation’s property or economic interests, to, as
here, claims for disloyalty against corporate fiduciaries and those
who, so it is alleged, aided them. In bankruptcy—a process that
seeks to gather and preserve all of the debtor’s assets, and
distribute them to creditors and interest holders in an orderly
fashion—legal claims that belonged to the debtor are often
important assets of the bankruptcy estate, and are fair game for
distribution to the debtor’s creditors and equity holders.

In the case at bar, rather than trying to assign to each of
the Purchasers some portion of the estate’s claims, the plan of
reorganization provided for the creation of a state-law trust (the
“Trust”) to take title to and prosecute the assigned claims for the
Purchasers’ benefit. The Purchasers also assigned to the Trust
any causes of action that they owned individually for activities
related to the purchase of the AremisSoft securities. Assigning
both sets of claims (the debtor corporation’s claims and
individual Purchasers’ claims) to the Trust made logistical sense,
as it rendered one entity responsible for prosecuting and

4
distributing to the Purchasers the proceeds of all of the claims.1

In bringing this lawsuit in the District Court for the
District of New Jersey, plaintiffs Joseph LaSala and Fred
Ziedman, trustees of the Trust, asserted four causes of action:
two counts of aiding and abetting a breach of fiduciary duty, one
against Bordier (Count I), and one against Dominick (Count II);
and two counts of violating Swiss money-laundering laws, one
against Bordier (Count III), and one againt Dominick (Count
IV). All causes of action were allegedly assigned to the Trust by
the AremisSoft bankruptcy estate or by the Purchasers in their
individual capacities.

II. SLUSA and the District Court’s decision

The Banks filed a motion to dismiss, arguing, inter alia,
that the Trust’s lawsuit was preempted 2 by SLUSA. Congress

1
The parties have spent a great deal of (perhaps not
altogether productive) energy fighting over whether the Trust is a
“litigation trust” or a “liquidating trust.” Litigation trusts are
common in securities and bankruptcy litigation: they exist as
vehicles for maintaining suits for the benefit of, and distributing
proceeds to, large numbers of people. Liquidating trusts are
common in bankruptcy as successor entities to Chapter 11 debtors,
and are often tasked with the responsibility of liquidating and
distributing the assets that remain after confirmation of the plan of
reorganization. These are not formal terms of art, and they do not
have hard and fast definitions.
Here, the Trust is a hybrid. It is like a litigation trust
inasmuch as it was assigned a variety of individual claims by the
Purchasers and was tasked with litigating them; it is also like a
liquidating trust inasmuch as it took title to many of the remaining
assets of the bankruptcy estate (including the estate’s causes of
action) and was tasked with liquidating and distributing them. The
hybrid nature of the Trust, far from being suspect, may be seen as
a gratifying testament to the flexibility and creative license that
Chapter 11 accords parties in fashioning plans of reorganization.
2
For ease and consistency with other cases, we refer
throughout this opinion to SLUSA “preemption.” In so doing, we

5
enacted SLUSA in 1998 as a supplement to the Private
Securities Litigation Reform Act (“PSLRA”) of 1995, 15 U.S.C.
§ 77z-1 & 78u-4, so, to understand SLUSA, one must first
understand the PSLRA. Congress enacted the PSLRA because it
determined that securities plaintiffs and their attorneys were
bringing abusive securities class actions that had no legitimate
chance of success, but, because of the expense of discovery,
were enough of a nuisance to force defendants to settle non-
meritorious claims. S. Rep. No. 104-98, at 9, 1995 U.S.S.C.A.N.
679, 688. Moreover, class members typically recovered very
little from those settlements, while class counsel were paid
exorbitant fees. Id. at 6, 685. The PSLRA imposed on securities
plaintiffs a number of requirements designed to deter the filing
of these “strike suits” and to enable district courts more easily to
dismiss frivolous suits on the pleadings. Id. at 35, 714. In
response, plaintiffs began abandoning the federal courts
altogether and bringing suit under state securities laws that did
not impose these additional requirements. S. Rep. No. 105-182,
at 3–6 (1998).

SLUSA undertook to close this perceived loophole by
preventing securities plaintiffs from using the class-action
vehicle to prosecute state-law securities claims. To be
preempted by SLUSA an action must (1) make use of a
procedural vehicle akin to a class action,3 and (2) allege a

caution that SLUSA does not actually “preempt” causes of action,
so much as it prevents causes of action from being asserted through
the vehicle of a class action lawsuit. Merrill Lynch, Pierce, Fenner
& Smith, Inc. v. Dabit, 547 U.S. 71, 87 (2006) (“SLUSA does not
actually pre-empt any state cause of action. It simply denies
plaintiffs 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.”).
3
SLUSA defines an affected “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

6
misrepresentation or deceptive device in connection with a
securities trade.4 15 U.S.C. § 78bb(f)(1). The class-action
ingredient is designed to distinguish between mass actions 5 and

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; 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.
15 U.S.C. § 78bb(f)(5)(B).

4
Under SLUSA, a lawsuit contains the securities-trade
ingredient if the plaintiff alleges:

(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).

5
By “mass actions” we mean actions that operate like class
actions, inasmuch as they seek to impose liability on a defendant
for injuries to many people arising out of a common set of facts,
but are not necessarily brought pursuant to Federal Rule of Civil
Procedure 23 or one of its state-law equivalents.

7
individual actions. S. Rep. No. 105-182, at 7–8. The securities-
trade ingredient is designed to distinguish between state-law-
based suits that, no matter how pleaded, in essence allege
securities fraud, and those that allege other wrongs. See
Rowinski v. Salomon Smith Barney, Inc., 298 F.3d 294, 299–300
(3d Cir. 2005). When a claim contains both the class-action and
the securities-trade ingredients, it must be dismissed.6 15 U.S.C.
§ 78bb(f)(1). A plaintiff may pursue such a claim either (1) as a
federal securities fraud class action, or (2) as a state-law
individual action; she may not pursue such a claim as a state-law
class action.

In the case at bar, the District Court ruled that all four
claims were preempted by SLUSA, and thus dismissed the
action. The court determined that all of the counts involved
substantive allegations of misrepresentations in connection with
securities trades. It further concluded that the lawsuit operated
like a class action, inasmuch as the Trust was asserting claims
for the benefit of some 6000 former shareholders of AremisSoft.
The Trust now appeals that dismissal.7

III. Counts I & II — Aiding and abetting breaches of
fiduciary duty

A. Clarifying the claims pleaded

In their briefs and at oral argument, the parties have
largely talked past one another. This is somewhat

6
SLUSA reaches “covered class actions” brought in state
court by making such claims subject to removal to federal court, 15
U.S.C. § 78bb(f)(2), where they are then subject to dismissal, 15
U.S.C. § 78bb(f)(1).
Whether a single offending claim requires dismissal of the
entire action is an open question, and one we need not reach here.
Another open question is whether any dismissal should be without
prejudice to the reassertion of the claims in individual actions.
7
We have jurisdiction under 28 U.S.C. § 1291. SLUSA
preemption is jurisdictional, and we review dismissals for lack of
subject-matter jurisdiction de novo. Rowinski, 398 F.3d at 298.

8
understandable, as the parties differ in their definition of the
nature of the claims at issue. Therefore, we begin by making
clear what claims are asserted by the Trust, and how the Trust
became the owner of those claims.

Much of the confusion stems from the fact that the nature
of a pump-and-dump scheme perpetrated by corporate directors
and officers is that it typically gives rise to multiple viable
causes of action—causes of action that are owned by different
parties and are assertable against different defendants. For
example, for the offending directors and officers, carrying out a
pump-and-dump scheme almost certainly constitutes a breach of
their duty of loyalty to the corporation they serve. Thus, the
scheme gives the corporation a colorable claim against the
directors and officers (and anyone who knowingly aided them)
for breach of fiduciary duty (and aiding and abetting a breach of
fiduciary duty).8 The remedy for such a breach, under Delaware
law, is that the directors and officers and their abettors become
jointly and severally liable to make good on any loss to the
corporation attributable to the disloyalty. Gotham Partners, L.P.
v. Hallwood Realty Partners, L.P., 817 A.2d 160, 173 (Del.
2002) (affirming Chancellor’s decision to hold abettors of

8
Delaware law has long provided that corporate fiduciaries
who engage in insider trading for personal gain breach the duty of
loyalty. Brophy v. Cities Serv. Co., 70 A.2d 5, 8 (Del. Ch. 1949)
(Harrington, C.). There is some dispute over whether Brophy is
still good law to the extent that it imposed the remedy of
disgorgement of the trader’s profits, rather than limiting the
corporation’s recovery to actual damages, but there is no dispute
that insider trading constitutes a breach of duty. See In re Oracle
Corp., 867 A.2d 904, 928 n.111 (Del. Ch. 2004) (Strine, V.C.)
(“Notably, the abolition of Brophy would not preclude a recovery
by the corporation for actual harm to itself caused by illicit insider
trading by a fiduciary, but the existence and extent of such damage
would have to be proven.” (emphasis in original)), aff’d, 872 A.2d
960 (Del. 2005) (table). As the Vice Chancellor noted, Brophy has
not been overruled, and, as the Vice Chancellor also noted, the
American Law Institute maintains that Brophy’s provision of the
disgorgement remedy is the best approach to corporate-governance
law. 867 A.2d at 929 n.112.

9
fiduciary breach jointly and severally liable for the damage
caused by the breach). If the corporation wrongfully refuses to
pursue these claims, its shareholders may bring them
derivatively.9 See In re First Interstate Bancorp Cons. S’holder
Litig., 729 A.2d 851, 864 (Del. Ch. 1998) (holding that, where
alleged breach of fiduciary duty harmed the corporation, alleged
aiding-and-abetting claim is derivative in nature).

For another relevant example, a pump-and-dump scheme
likely gives rise to a colorable suit by the purchasers of the
“pumped” securities against the directors and officers under
federal securities laws for rescission of their purchases or
damages in the amount of the difference between what they paid
for the pumped securities and what those securities were really
worth.10 A similar suit could also be maintained under federal
securities law against the corporation if the corporation had
made any material misrepresentations as to its financial
condition,11 which is often a part of these schemes. What tends
to make the present case appear somewhat confusing is that both
of these types of claims—securities claims owned by the

9
Delaware law generally does not allow shareholders to
assert breach-of-fiduciary-duty claims directly, unless the
shareholders can show damage distinct from the damage to the
corporation. Tooley v. Donaldson, Lufkin & Jenrette, 845 A.2d
1031, 1034 (Del. 2004) (Veasey, C.J.). As the Tooley Court noted,
for a direct claim to lie,
[t]he stockholder’s claimed direct injury must be
independent of any alleged injury to the corporation. The
stockholder must demonstrate that the duty breached was
owed to the stockholder and that he or she can prevail
without showing an injury to the corporation.
Id. at 1039 (emphasis added).
10
Section 12 of the Securities Act of 1933, 15 U.S.C. § 77l,
and section 29 of the Securities Exchange Act of 1934 (the “1934
Act”), 15 U.S.C. § 78cc, provide these remedies.
11
This remedy is available under Rule 10b-5, 17 C.F.R. §
240.10b-5, promulgated to enforce § 10(b) of the 1934 Act, 15
U.S.C. § 78j.

10
Purchasers and fiduciary-duty claims owned by the
corporation—were assigned to the Trust.

Counts I and II of the complaint plead claims against the
Banks for aiding and abetting the Directors’ breaches of their
fiduciary duty (presumably, the duty of loyalty) to AremisSoft
and its shareholders. While we are not at this time deciding
whether these claims are adequately pleaded, one can only
understand the allegations in light of the elements of the pleaded
cause of action. Under Delaware law, aiding and abetting a
breach of fiduciary duty has three elements: (1) a breach of
fiduciary duty, (2) knowing participation in that breach by the
defendant, and (3) damages. Here, ¶¶ 109 and 114 of the
complaint undertake 12 to allege breaches by the Directors, ¶¶
110–11 and 115–16 undertake to allege participation by the
Banks, and ¶¶ 112 and 117 undertake to allege damages. The
substance of the alleged breach is the pump-and-dump scheme,
by which the Directors allegedly (1) inflated AremisSoft’s stock
price by misrepresenting the company’s finances and then (2)
unloaded overpriced shares on the investing public. This scheme
is perceived to have been disloyal, in the sense that the Directors
allegedly used their positions of trust to pursue personal gain at
the expense of the corporation. The substance of the knowing-
participation contention is that the Banks allegedly knew of the
Directors’ large-scale insider trading activities and provided
material assistance despite this knowledge.

The damages element takes more effort to understand, as
the complaint pleads that the scheme damaged “the Plaintiffs,” a
term the complaint defines as the Trustees. The Trustees,
obviously, are not claiming that they or the Trust were damaged
directly; rather, they are claiming damage in their capacity as
assignees of the true injured parties. This raises a question: who
are the alleged injured parties? The Banks would have us
believe that the injured parties are the Purchasers in their
individual capacities as purchasers of securities. The Trust, on

12
In using the word “undertake,” we remain agnostic as to
whether the pleadings succeed as a matter of law in framing the
intended claims, as that is a Rule 12(b)(6) question that is not
before us.

11
the other hand, would have us believe that the injured party is, at
least in the first instance, AremisSoft.

To better understand the question, we turn again to
Delaware law,13 the substantive backdrop of these causes of
action. As explained in note 9, supra, individual shareholders do
not have standing to assert directly state-law claims alleging
harm to a corporation. See Tooley v. Donaldson, Lufkin &
Jenrette, 845 A.2d 1031, 1034 (Del. 2004) (Veasey, C.J.).
Instead, those claims must be asserted by the corporation itself
or through shareholder derivative litigation. Here, determining
whether the Trust complains of harm to the corporation or to the
Purchasers individually is not entirely straightforward because a
pump-and-dump scheme could be expected to cause two
overlapping types of harm that are treated differently by
Delaware law. On the one hand, the Purchasers allegedly
overpaid for AremisSoft stock, and were thus harmed to the
extent of the value discrepancy between what they paid and what
they received. Delaware law recognizes this as a direct harm,
though the question may be somewhat academic, as Delaware
law seems to provide that the harm is irremediable under state
law (in deference to the remedies provided by the federal
securities laws). See Malone v. Brincat, 722 A.2d 5, 12–13 (Del.
1998) (noting that Delaware does not recognize a state-law cause
of action by purchasers against corporate directors for fraud on
the market). On the other hand, because of the pump-and-dump
scheme, AremisSoft lost its economic viability, as reflected in its
declining stock price and eventual bankruptcy. This is, under
Delaware law, a purely derivative harm, and one that is
remediable if caused by a breach of fiduciary duty. See Metro
Commnc’s Corp. BVI v. Adv. Mobilecomm Techs., Inc., 854
A.2d 121, 168 (Del. Ch. 2004) (Strine, V.C.) (explaining that a
corporation’s loss in value or economic viability is, in the first
instance, a harm to the corporation and, only derivatively, a

13
The parties agree that Delaware law applies to the breach-
of-fiduciary-duty counts. This is clearly correct, as the claims
involve the corporation’s internal affairs, and the state of
incorporation is Delaware. See In re Topps Co. S’holders’ Litig.,
924 A.2d 951, 959 (Del. Ch. 2007) (Strine, V.C.) (explaining
internal affairs doctrine).

12
harm to its shareholders).

Because a pump-and-dump scheme causes both harms,
both harms appear on the face of the complaint. But only the
harm to AremisSoft is relevant to a claim for aiding and abetting
a breach of fiduciary duty because such individual-purchaser
harms are not cognizable under Delaware law. See Malone, 722
A.2d at 12–13. The Banks, however, argue that the complaint
does not allege harm to AremisSoft. They are mistaken. The
complaint revolves around corporate directors and officers
allegedly breaching their duty of loyalty to the corporation by
artificially inflating the stock price and, with the alleged
assistance of the Banks, exploiting the increase for their personal
benefit. See compl. ¶¶ 20–36 (app. 47–54). Given that the
scheme is alleged to have pushed AremisSoft into a liquidating
bankruptcy,14 we conclude that the complaint alleges harm to the
corporation. Moreover, the Purchasers complain that the
declining stock price and subsequent bankruptcy, compl. ¶ 27
(app. 49), ultimately harmed them. By pleading this derivative
harm, the Trust necessarily pleaded the initial harm to the
corporation. The fact that AremisSoft no longer exists does not
convert its corporate claims into direct shareholder claims;
rather, the corporate nature of the claims endures, and ownership
of the claims passes to AremisSoft’s successor. See Landry v.
Fed. Deposit Ins. Corp., 486 F.2d 139, 148 (3d Cir. 1973)
(Rosenn, J.) (holding that failure of bank did not alter
derivative/direct dichotomy, and that shareholders of bank in
FDIC receivership may maintain derivative action after making
demand on the FDIC).

Reading the complaint against the background of
Delaware law, we believe that counts I and II allege aiding-and-
abetting claims that originally belonged to AremisSoft, not to the
purchasers of AremisSoft stock. We also note that, by arguing
only corporate aiding-and-abetting claims before us and before

14
The complaint explains that the stock price was artificially
inflated for a time, compl. ¶ 26 (app. 49), that it then declined,
compl. ¶ 27 (app. 49), that trading was halted in July 2001, id., and
that AremisSoft filed for bankruptcy in March 2002, compl. ¶ 14
(app. 46).

13
the District Court,15 the Trust has abandoned any purchaser-
assigned aiding and abetting claims.

To be clear, we have not yet answered the question
whether SLUSA preempts counts I and II. That is a different
question, and one that arises subsequent to clarifying what
claims these counts have alleged. Having determined that the
complaint has pleaded aiding-and-abetting claims originally
owned by AremisSoft, and assigned to the Trust by the
AremisSoft bankruptcy estate, we are ready to turn to what
effect, if any, SLUSA has on them.

B. Whether counts I and II are brought in the
form of a “covered class action”

SLUSA prevents would-be plaintiffs from bringing
certain claims in the form of a “covered class action.” Under
SLUSA, a covered class action is

any single lawsuit in which 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.

15 U.S.C. § 78bb(f)(5)(B)(i). The statute further provides that,
for purposes of this definition, “a corporation, investment
company, pension plan, partnership, or other entity, shall be
treated as one person or prospective class member, but only if
the entity is not established for the purpose of participating in the
action.” 15 U.S.C. § 78bb(f)(5)(D). This means that the court is
to follow the usual rule of not looking through an entity to its
constituents unless the entity was established for the purpose of

15
In its opposition to the Banks’ motion to dismiss, the
Trust made essentially the same argument it makes here: that
counts I and II are corporate claims, originally owned by
AremisSoft, and assigned to the Trust by the AremisSoft
bankruptcy estate. App. 482–85.

14
bringing the action, i.e., to circumvent SLUSA.

The District Court concluded that counts I and II were
brought “on behalf of” the 6000 beneficiaries of the Trust, and
thus as “covered class actions.” D. Ct. Op. at 12 (app. 14). In
arriving at this conclusion, the District Court ruled that the Trust
should not be counted as a single entity under § 78bb(f)(5)(D)
because it was established for the primary purpose of litigating
shareholder claims. Accordingly, the District Court dismissed
counts I and II.

To evaluate the District Court’s ruling, it is first necessary
to recall the nature and ownership of these claims. As explained
above, counts I and II plead claims that at one time belonged to
AremisSoft, the entity allegedly injured by its Directors’
breaches of duty and the Banks’ aiding those breaches. In
bankruptcy, the claims passed to AremisSoft’s bankruptcy
estate, 11 U.S.C. § 541(a)(1) & Note (explaining that the
debtor’s interest in legal claims passes to its bankruptcy estate),
but the debtor-in-possession did not assert them during the
pendency of the bankruptcy. Rather, the bankruptcy estate
assigned them to the Trust, a state-law entity created in large part
to pursue these and similar claims for the ultimate benefit of the
Purchasers, the only group whose interests were impaired by the
plan of reorganization.16 Thus, the Trust can only bring these
claims as assignee of the bankruptcy estate.

At first glance, one might think that the claims are

16
Though the parties do not go into detail on this point, one
would assume that this deal was struck so that the Purchasers
would vote to approve the plan of reorganization, even though their
interests were impaired. See 11 U.S.C. § 1126 (providing that
impaired claim and interest holders are entitled to vote on plan
approval). For a plan to be approved, either (1) each impaired class
must accept the plan, or (2) the bankruptcy court must approve the
plan as “fair and equitable” despite a class’s disapproval. 11
U.S.C. § 1129(b). To avoid having to obtain the court’s consent to
an unapproved plan (known as a “cramdown”), parties to a
bankruptcy often work hard to negotiate a plan that all impaired
classes will accept.

15
brought “on behalf of” the Purchasers, as they, through the
Trust, are the current beneficial owners of the claims.17 But
examining the whole of the covered-class-action definition is
instructive. The definition is two-pronged: to be a covered class
action, (1) the claim must be brought “on behalf of 50 or more
persons,” and (2) questions of law or fact common to “those
persons” must predominate. 15 U.S.C. § 78bb(f)(5)(B)(i)
(emphasis added). If we read “on behalf of 50 or more persons”
as referring to the Purchasers, the second prong of the definition
would lack any pertinence, because the Purchasers, for purposes
of counts I and II, are merely the beneficial owners of the
claims.18 There are no questions of law or fact that involve
them, much less common ones that predominate over individual
ones. Rather, the relevant issues are (1) whether the Directors
were fiduciaries of AremisSoft, (2) whether the Directors made
misrepresentations or traded on inside information in violation of
their fiduciary duties, (3) whether the Banks provided material
assistance with the requisite knowledge to be liable for aiding
and abetting, and (4) whether AremisSoft was damaged by the
concerted actions of the Directors and Banks.19 Gotham
Partners, 817 A.2d at 172 (setting out elements of aiding and
abetting a breach of fiduciary duty). Neither these elements nor

17
Because common-law trustees carry out all of their duties
in the sole interest of the trust’s beneficiaries, see Restatement
(Third) of Trusts § 78 (2007) (describing the sole-interest rule),
they can be said to act on those beneficiaries’ behalf.
18
AremisSoft’s bankruptcy estate assigned the claims to the
Trust. Thus, legal title to the claims rests in the Trust; beneficial
title rests in the Purchasers (as beneficiaries of the Trust).
19
Delaware courts view aiding-and-abetting-a-breach-of-
fiduciary-duty as a form of civil conspiracy. Allied Capital Corp.
v. GC-Sun Holdings, LP, 910 A.2d 1020, 1038 (Del. Ch. 2006)
(Strine, V.C.). The proper remedy generally is to hold the abettor
jointly and severally liable for whatever remedies are appropriate
to make good on the fiduciary’s breach. See Gotham Partners, 817
A.2d at 173 (affirming Chancellor’s decision to hold abettors
jointly and severally liable for damages caused by breach of
fiduciary duty).

16
the facts underlying them have anything to do with the
Purchasers. The Purchasers need not prove anything regarding
themselves in order to succeed; indeed, they need not even prove
that they were injured, as they are not proceeding as injured
parties, but as persons to whom beneficial ownership of the
claims was assigned by the true injured party, AremisSoft.20

Prong two of § 78bb(f)(5)(B)(i), then, seems to use the
terms “persons” and “members of the prospective class” to refer
to the original owners of the claim—those injured by the
complained-of conduct, as those are the persons who might have
common questions of law or fact related to the claim that
predominate over individual questions of law or fact. Reading
prong one in light of prong two, the phrase “on behalf of 50 or
more persons” seems to refer to someone bringing a claim on
behalf of 50 or more injured persons. In other words, the phrase
refers to the assignors of a claim, not to the assignee (or, if the
assignee is a trust, to its beneficiaries). Under this reading, the
Trust is not bringing its claims “on behalf of” the Purchasers, as
SLUSA uses the term, because the Purchasers are not the injured
parties; rather, the Trust is bringing the claims “on behalf of”
AremisSoft.

Section 78bb(f)(5)(D) buttresses this interpretation by
clarifying that corporations are not to be counted as more than
one person unless established for the purpose of litigation. In
other words, when a corporation decides to bring a state-law

20
In contrast, were the Purchasers bringing a § 10b-5
securities claim, four of the six elements of that claim would
involve them directly. The first two elements—a material
misrepresentation and scienter—would involve only the Directors.
But the Purchasers would also have to prove (1) a connection
between the misrepresentation and their purchase or sale of
securities, (2) that the misrepresentation was a but-for cause of
their purchases (“transaction causation”), (3) their economic loss,
and (4) a connection between the misrepresentation and their loss
(“loss causation”). McCabe v. Ernst & Young, LLP, 494 F.3d 418,
424-25 (3d Cir. 2007) (citing Dura Pharms., Inc. v. Broudo, 544
U.S. 336, 341–42 (2005)); see also Stoneridge Inv. Partners, LLC
v. Scientific-Atlanta, Inc., 552 U.S. ___, 128 S.Ct. 761, 768 (2008).

17
claim—even one alleging misrepresentations in connection with
securities trades—SLUSA does not instruct the court to look
through the corporation to its shareholders to determine the
number of “persons;” instead, the corporation, in keeping with
well-entrenched common-law principles, is counted as the one
juridical person that it is. Cf. In re Owens-Corning, 419 F.3d
195, 211 (3d Cir. 2005) (noting that “courts respect entity
separateness absent compelling circumstances”). SLUSA’s
single exception to this rule is that when the corporation is
established for the purpose of litigation, i.e., when plaintiffs try
to avoid SLUSA by running their securities claims through a
corporate entity, the court should look to the corporation’s
constituents. Here, no one argues that AremisSoft, the original
owner of counts I and II, was established for the purpose of this
(or any other) litigation. Moreover, even if the Trust can be
deemed to have been established for the purpose of litigation, a
question we need not address, looking through it would only get
the court to AremisSoft, the injured party, not to the Purchasers.

Section 78bb(f)(5)(C) also supports this reading. It
provides that exclusively derivative actions are not covered class
actions for SLUSA purposes. Although, as the Banks note, the
claims at issue here are not asserted derivatively, § 78bb(f)(5)(C)
operates to preserve causes of action that belong to corporations,
even if 50 or more shareholders bring such actions derivatively.
What we take from reading § 78bb(f)(5)(C) and (D) together is
that Congress did not intend SLUSA to reach any corporate-
originated claims, whether asserted by the corporation (or its
assignee), as is addressed in § 78bb(f)(5)(D), or asserted
derivatively by shareholders, as is addressed in §
78bb(f)(5)(C).21

21
The derivative-litigation exception to SLUSA preemption
is commonly referred to as one of two “Delaware carve-outs.”
Malone, 722 A.2d at 13. According to the Senate committee, the
purpose of this carve-out was to ensure that shareholders would be
able to bring derivative litigation based on corporate fiduciaries’
breaches of duty. S. Rep. No. 105-182, at *6 (1998). It is referred
to as a “Delaware” carve-out because most such litigation occurs
in Delaware before the Chancery Court.
A key point to remember is that it would make little sense

18
 Further supporting this reading is Congress’s clear intent
not to reach claims asserted by a bankruptcy trustee on behalf of
a bankruptcy estate. That Congress so intended is relevant here
because counts I and II were claims that the debtor-in-possession
once owned and chose to assign to the Trust (under the
assumption that the Trust would be able to bring the claims as
the debtor-in-possession’s assignee). Congress’s intent on this
point is clear from the legislative history, in which the Senate
Banking, Housing, and Urban Affairs Committee reported that,
in the final version of the bill,

[t]he class action definition has been changed from the
original text of S. 1260 to ensure that the legislation does
not cover instances in which a person or entity is duly
authorized by law, other than a provision of state or
federal law governing class action procedures, to seek

for Congress to preserve derivative actions but preempt corporate
direct actions, as doing so would turn our conception of derivative
litigation on its head. Shareholder derivative litigation is a failsafe,
a means of allowing corporate claims to go forward when the
corporation’s board wrongfully refuses to prosecute them. See
Grimes v. Donald, 673 A.2d 1207, 1216 (Del. 1996) (explaining
that derivative litigation may only proceed when the board
wrongfully refuses to pursue the action). It is a limited exception
to the rule that corporations, like natural persons, have the
unfettered discretion to decide whether to take legal action when
they are wronged. See Pogostin v. Rice, 480 A.2d 619, 624 (Del.
1984) (“The bedrock of the General Corporation Law of the State
of Delaware is the rule that the business and affairs of a corporation
are managed by and under the direction of its board. . . . [B]ecause
the derivative action impinges on the managerial freedom of
directors, the law imposes certain prerequisites to the exercise of
this remedy.”). Derivative litigation is premised on the notion that
the corporation could bring the proffered action on its own behalf.
See Grimes, 673 A.2d at 1216 (explaining that if the corporation
deems proposed derivative litigation beneficial, it can take over and
control the litigation). If this premise were not true, the moniker
“derivative” would be inappropriate, as the shareholder litigation
would not be derived from any cause of action the corporation
possessed.

19
 damages on behalf of another person or entity. Thus, a
trustee in bankruptcy, a guardian, a receiver, and other
persons or entities duly authorized by law (other than by a
provision of state or federal law governing class action
procedures) to seek damages on behalf of another person
or entity would not be covered by this provision.

S. Rep. No. 105–182, at 8 (May 4, 1998) (emphasis added). The
original text of the bill would have brought within the definition
of class action any action in which “one or more named parties
seek to recover damages on a representative basis on behalf of
themselves and other unnamed parties similarly situated,” or
“one or more of the parties seeking to recover damages did not
personally authorize the filing of the lawsuit.” S. 1260, 105th
Cong. § 2 (as introduced in the Senate, Oct. 7, 1997). Whether
either of these provisions would have been read to cover a
bankruptcy trustee is unclear; what is clear is that Congress
sought to ensure that no provision of the bill as enacted would do
so. In addition, the caselaw supports the notion that when a
trustee brings a claim belonging to the bankruptcy estate, the
claim is not a covered class action for SLUSA purposes. Smith
v. Arthur Andersen, LLP, 421 F.3d 989, 1007–08 (9th Cir.
2005). Here, as the Trust is merely the assignee of the
AremisSoft bankruptcy estate, it should be treated the same way.

Giving effect to Congress’s desire not to preempt claims
that pass from a debtor corporation to its bankruptcy estate is
important because to do otherwise would work a significant
change in the bankruptcy system that Congress created and,
according to the legislative history cited above, intended to leave
undisturbed. As this case demonstrates, legal claims can be
some of the most important and valuable assets that a bankruptcy
estate has, particularly as respects a debtor’s unsecured creditors
and equity holders, since liquidating such claims may be their
only chance at significant recovery. Chapter 11 is often
described as a process that brings all interested parties to the
bargaining table and encourages them, against the background of
insolvency law, to work out a plan of reorganization with which

20
they all can live.22 For this process to work, the parties must be
able to gather, assess, and freely alienate and distribute the
estate’s assets. Under the Banks’ argument, SLUSA preemption
would prevent the estate from assigning certain legal claims to
any class of creditors or equity holders containing more than 50
persons, but it would allow assignment to classes with fewer
constituents. This result would make little sense, as we see no
indication that Congress’s aim in fashioning the “covered class
action” definition was to control the number of constituents to
whom a bankruptcy estate’s claim is assigned. Rather, the
statutory text and legislative history signal that the definition
was designed to prevent securities-claims owners from bringing
what are, in effect, class actions by assigning claims to a single
entity. See Golub v. Hill, Rogal & Hobbs Co., 379 F. Supp. 2d
639, 643 (D. Del. 2005) (ruling that more than 50 persons could
not circumvent SLUSA by assigning their claims to a trust). Put
simply, Congress’s goal was to prevent a class of securities
plaintiffs from running their claims through a single entity, not
to prevent a single bankruptcy estate from assigning its claims to
an entity capable of acting to protect the common interests of a
class of people.

Moreover, it is difficult to see what purpose would be
served by holding otherwise. If we held that the key issue is to
whom a claim is assigned, then we would likely see two results.
First, we might see parties to bankruptcies engage in some rather
creative class construction to keep numbers below 51. Parties’
ability to do this would not turn on any factor related to
preventing frivolous securities litigation, but on the creativity of
the parties’ lawyers and the particulars of a debtor’s pre-petition
liabilities. Second, in many bankruptcies, treating unliquidated
legal claims as distributable assets would become infeasible.
Rather than assigning unliquidated claims to large classes of

22
See, e.g., A. Mechele Dickerson, The Many Faces of
Chapter 11: A Reply to Professor Baird, 12 Am. Bankr. Inst. L.
Rev. 109, 113, 125 (2004); Select Advisory Comm. on Bus.
Reorganization, First Report of the Select Advisory Comm. on Bus.
Reorganization, 57 Bus. Law. 163, 197 & n.58 (2001); Richard F.
Broude, Cramdown & Chapter 11 of the Bankruptcy Code: The
Settlement Imperative, 39 Bus. Law. 441, 454 (1984).

21
creditors, the debtor-in-possession would have to initiate a
lawsuit, prosecute any claims to their conclusion, and then
distribute the proceeds to the estate’s creditors and interest
holders. We fail to see what salutary effect this would have on
deterring frivolous securities litigation; the only likely result
would appear to be a marked increase in the difficulties attendant
on reorganizing Chapter 11 debtors in a timely fashion, a
consequence we see no indication Congress intended.

The Banks present the curious argument that recognizing
that the claims at issue here are corporate in nature does the
Trust no good, because the claims are still brought on behalf of
the 6000 Purchasers. If the claims are also brought on behalf of
AremisSoft, then, according to the Banks, that brings the grand
total of persons on whose behalf the claims are brought to 6001.
This argument, which neither brief explains in more than two
sentences, see Bordier Br. at 44, Dominick Br. at 54, seems to
misapprehend that the corporate claims are not asserted on
behalf of the corporation and Purchasers (thus, 6001 persons),
but on behalf of the corporation alone. The Banks further note
that all damages will go to the Purchasers. This, however, is
irrelevant because the Purchasers would not recover in their
capacities as individual purchasers of securities, but in their
capacities as beneficial owners of the claims assigned to the
Trust by the AremisSoft bankruptcy estate.

In sum, we conclude that a corporation’s claims do not
take the form of a “covered class action,” irrespective of whether
the claims are asserted by the corporation directly, its
shareholders derivatively, its bankruptcy estate, its bankruptcy
estate’s assignee, or its successor. This conclusion accords with
the text of § 78(f) and with Congress’s intent, as reflected in the
legislative history, not to preempt corporate claims, and to leave
the bankruptcy process undisturbed.

IV. Counts III and IV — Violation of Swiss money-
laundering laws

In addition to pressing aiding-and-abetting claims in
counts I and II, the Trust has alleged in counts III and IV that the
Banks violated Swiss banking regulations by failing properly to

22
investigate and interdict the Directors’ alleged money-laundering
transactions. The Trust has further alleged that it, as assignee of
the Purchasers, is entitled, under Swiss law, to recover damages
for the Banks’ violations.

It is important to recognize that these counts, unlike
counts I and II, are not alleged to have been owned by
AremisSoft or its bankruptcy estate. These Swiss-law claims
are, rather, claims owned by the Purchasers as individual
purchasers of AremisSoft stock. They were assigned by the
Purchasers to the Trust so that they could be prosecuted together
with counts I and II. Thus, in contrast to counts I and II, these
counts likely are brought to recover damages “on behalf of more
than 50 persons,” 15 U.S.C. § 78bb(f)(5)(B)(i)(I), so they would
seem to take the form of a covered class action.

SLUSA, however, only preempts covered class actions
“based upon the statutory or common law of any State,” 15
U.S.C. § 78bb(f)(1) (emphasis added), where “State” is defined
as “any State of the United States, the District of Columbia,
Puerto Rico, the Virgin Islands, or any other possession of the
United States,” id. § 78c(a)(16). Despite this seemingly clear
language, the Banks contend that SLUSA preempts the Trust’s
Swiss-law claims because: (1) Congress intended to preempt
foreign-law claims (though it did not so state in the text of the
statute); (2) the Swiss-law claims are “based upon” state law
because the Banks’ violation of Swiss law is dependent on the
Directors’ breach of their state-law fiduciary duties—that is,
only if the Directors breached their state-law fiduciary duties can
the Banks be liable under Swiss law; (3) the Swiss-law claims
are “based upon” state law because New Jersey’s choice-of-law
rules are “state laws” that trigger application of Swiss law to the
present dispute; (4) the Swiss-law claims incorporate the
allegations of the state-law claims; and (5) the Swiss-law claims
are too closely tied to the state-law claims.

A. Congress’s intent

The Banks argue that the purpose of SLUSA is to create
uniform standards for class-action securities-fraud lawsuits, and
that allowing plaintiffs to avail themselves of different foreign-

23
law standards is inconsistent with that purpose. Thus, they argue
that SLUSA should be read as preempting foreign-law claims
that otherwise contain the class-action and securities-trade
ingredients. Essentially, this is an argument that Congress
implicitly preempted foreign law because allowing more than 50
plaintiffs to initiate a foreign-law-based securities fraud suit in a
state or federal court would impede the federal objective of
providing uniform standards for class-action securities fraud
litigation. Cf. Perez v. Campbell, 402 U.S. 637 (1971) (holding
that federal bankruptcy law preempted a state law that interfered
with federal bankruptcy law’s goal of providing uniform
standards for determining discharge of debt).

In determining legislative purpose, “[i]t is not our job to
speculate upon congressional motives,” Riegel v. Medtronic,
Inc., 552 U.S. ___, 2008 WL 4407744 (Feb. 20, 2008); our job is
to hew as closely as possible to the meaning of the words
Congress enacted. “We have stated time and again that courts
must presume that a legislature says in a statute what it means
and means in a statute what it says there.” Conn. Nat’l Bank v.
Germain, 503 U.S. 249, 253-54 (1992). Here, the difficulty with
divining congressional intent to preempt foreign-law claims is
that Congress specifically described the claims preempted as
those “based upon the law of any State.” SLUSA constitutes an
amendment of the Securities Exchange Act of 1934 (the “1934
Act”), which expressly defines “state” throughout the Act as
“any State of the United States, the District of Columbia, Puerto
Rico, the Virgin Islands, or any other possession of the United
States,” 15 U.S.C. § 78c(a)(16). Though Congress was at pains
to set out separate definitions of various terms used in SLUSA, it
left the 1934 Act definition of “state” intact.

Moreover, Congress has demonstrated its ability to extend
the reach of securities statutes to foreign law when it so desires.
E.g., 15 U.S.C. § 78o(b)(4)(B) (requiring punishment of a broker
or dealer convicted of any “felony or misdemeanor or of a
substantially equivalent crime by a foreign court,” if (among
other things) the offense arises from the conduct of any entity
required to be registered under the Commodity Exchange Act
“or any substantially equivalent foreign statute or regulation”)
(emphasis added). Moreover, SLUSA’s legislative history refers

24
to state, not foreign, law. E.g., S. Rep. No. 105-182, at 1 (1998);
H.R. Rep. No. 105-803, at 1 (1998) (stating that Congress’s
intent is to “limit the conduct of securities class actions under
State law”). Given that Congress made the explicit policy
choice in the 1934 Act of defining “state” so as not to include
foreign countries, and, in SLUSA, chose not to alter that
definition while defining other terms, see 15 U.S.C. § 78bb(f)(5)
(defining terms), we conclude that, when Congress extended
SLUSA preemption to claims “based upon the law of any State,”
it meant just that.

In addition, the notion that allowing the Trust to litigate
counts III and IV would impede a federal objective is
overblown. According to those counts, Switzerland imposes
liability for the complained-of conduct on banking institutions
organized under Swiss law. To state the obvious, Switzerland is
a sovereign nation. It may regulate institutions organized under
its laws in any manner it sees fit. Congress, through 28 U.S.C. §
1332, has instructed United States district courts to entertain “all
civil actions” (provided the matter in controversy is of sufficient
value), as long as there is complete diversity of citizenship. To
be sure, Congress has the authority to counter-instruct district
courts not to entertain particular categories of civil actions
arising under foreign law, but we do not believe that we should
readily imply such a result from statutory text that appears to
direct otherwise.

B. Whether the Swiss-law claims depend on state
law

The Banks argue that the Swiss-law claims are preempted
because they are actually based on Delaware fiduciary-duty law.
Specifically, they argue that only if the Directors breached their
Delaware-law fiduciary duties can the Banks be liable under
Swiss law. This argument appears to be based upon a
misreading of the complaint. The Swiss laws invoked in the
complaint allegedly require that, inter alia, Swiss banks conduct
due diligence (e.g., verify the customer’s identity), investigate
unusual or suspicious transactions, and freeze assets in accounts
whose owner has been concealed. App. at 54–57, 80–81. We
read the complaint as alleging that a bank can violate these

25
Swiss laws regardless whether the account owners in fact
breached a state-law fiduciary duty.23

C. Whether the Swiss-law claims arise under New
Jersey law because of the application of New
Jersey choice-of-law rules

The Banks’ third argument—that New Jersey’s choice-of-
law rules are “state laws” that trigger application of Swiss law to
the present dispute, thus forming the Swiss laws’ basis—is
creative but unpersuasive.24 The Banks point out that the
District Court’s subject matter jurisdiction is based on diversity
of citizenship, which, under Erie R. Co. v. Tompkins, 304 U.S.
64, 78 (1938) and Klaxon Co. v. Stentor Elec. Mfg. Co., 313 U.S.
487, 496 (1941), requires that the forum state’s (here, New
Jersey’s) choice-of-law rules govern the dispute. It is these
choice-of-law rules that, the Trust contends, direct application of
Swiss law. Id. The Banks, invoking Klaxon, argue that, if the
Trust’s characterization of New Jersey’s choice-of-law rules is
correct, those New Jersey choice-of-law rules form the basis of
the Trust’s Swiss-law claims.

The Banks read more into Klaxon than is there. In
Klaxon, a diversity action brought by a New York corporation
against a Delaware corporation in the District Court for the
District of Delaware, plaintiff, having secured a jury verdict in
the amount of $100,000, then moved for an award of pre-
judgment interest covering the years in which the suit was
pending. The District Court granted the motion. This court
affirmed: without addressing Delaware law with respect to
contract damages, this court ruled, in reliance on two provisions

23
Of course, should further examination of the Swiss-law
claims on remand reveal that the Trust’s characterization of Swiss
law is in error, the District Court may reconsider this issue at that
time.
24
This argument emerges from the Banks’ attempt to
characterize the Swiss-law claims as “based upon the statutory or
common law of any State,” see 15 U.S.C. § 78bb(f)(1), here, New
Jersey.

26
of the Restatement of Conflicts, that “[t]he measure of damages
for breach of contract is determined by the law of the place of
performance,” and that interest was an element of damages.
Stentor Elec. Mfg. Co. v. Klaxon Co.,115 F.2d 268, 275 (3d Cir.
1940). The Supreme Court reversed:

The conflict of laws rules to be applied by the federal
court in Delaware must conform to those prevailing in
Delaware’s state courts. Otherwise the accident of
diversity of citizenship would constantly disturb equal
administration of justice in coordinate state and federal
courts sitting side by side. Any other ruling would do
violence to the principle of uniformity within a state upon
which the Tompkins decision is based. Whatever lack of
uniformity this may produce between federal courts in
different states is attributable to our federal system, which
leaves to a state, within the limits permitted by the
Constitution, the right to pursue local policies diverging
from those of its neighbors. It is not for the federal courts
to thwart such local policies by enforcing an independent
‘general law’ of conflict of laws. Subject only to review
by this Court on any federal question that may arise,
Delaware is free to determine whether a given matter is to
be governed by the law of the forum or some other law.

313 U.S. at 496–97.

In the case at bar, the Trust contends that New Jersey’s
choice-of-law rules require that, in a dispute in a New Jersey
court in which Swiss banks are charged with failing to comport
with proper standards of oversight of entities utilizing the
services of Swiss banks, Swiss law, not New Jersey law, should
govern. If the Trust’s formulation of New Jersey’s choice-of-
law rules, as embodied in counts III and IV of it complaint, is
accurate, this would reflect the unsurprising conclusion by New
Jersey’s lawgivers, whether judicial or legislative, that, whatever
New Jersey’s law with respect to bank misconduct may be, when
the allegedly miscreant bank is a Swiss enterprise executing
Swiss banking transactions, Swiss banking law, not New Jersey
banking law, should control. To conclude that, within the
intendment of SLUSA, those claims are “based upon the . . . law

27
of” New Jersey would require attributing to Congress a subtlety
of such exquisite reach as to have no place in the legislative
process.

D. Whether the Swiss-law claims are preempted
because they incorporated the allegations of the
state-law claims

The District Court held, and the Banks argue, that
because counts III and IV “reallege and incorporate by reference
herein in their entirety the allegations” supporting the state-law
claims, App. at 78, 80, and the state-law claims are, as the Banks
contend, preempted, the Swiss-law claims must also be
preempted. Aside from the fact that we are not persuaded that
the state-law claims are preempted, the view advanced by the
District Court and the Banks appears to stem from a
misinterpretation of language in this court’s opinion in Rowinski,
398 F.3d at 305.

In Rowinski, we held that a claim alleges “a
misrepresentation or omission of a material fact in connection
with the purchase or sale of a covered security, ” 15 U.S.C. §
78bb(f)(1)(A), which subjects it to SLUSA preemption, when an
allegation of a misrepresentation in connection with a securities
trade is a “factual predicate” of the claim, even if
misrepresentation is not a legal element of the claim. Rowinski,
398 F.3d at 300. Thus, when, as in Rowinski, a plaintiff alleges
that a misrepresentation made in connection with a securities
trade breaches a contract, the plaintiff cannot avoid SLUSA
preemption by arguing that misrepresentation is not an element
of a breach-of-contract action. In other words, when one of a
plaintiff’s necessary facts is a misrepresentation, the plaintiff
cannot avoid SLUSA by merely altering the legal theory that
makes that misrepresentation actionable.

It is important to recognize that Rowinski did not hold that
any time a misrepresentation is alleged, the misrepresentation-in-
connection-with-a-securities-trade ingredient is present. (Nor
does it follow that failing to make such an allegation explicit
necessarily avoids the ingredient). Rather, the point we made in
Rowinski was that when an allegation of misrepresentation in

28
connection with a securities trade, implicit or explicit, operates
as a factual predicate to a legal claim, that ingredient is met. To
be a factual predicate, the fact of a misrepresentation must be
one that gives rise to liability, not merely an extraneous detail.
This distinction is important because complaints are often filled
with more information than is necessary. While it may be
unwise (and, in some cases, a violation of Rule 8) to set out
extraneous allegations of misrepresentations in a complaint, the
inclusion of such extraneous allegations does not operate to
require that the complaint must be dismissed under SLUSA.

Here, as to the Swiss-law claims, the allegations of
misrepresentation appear to be extraneous. As explained in Part
IV.B, supra, the Swiss-law counts allege that the Banks violated
their Swiss-law duty properly to investigate and freeze the
Directors’ various money-laundering transactions. The
Directors’ prior alleged misrepresentations are not factual
predicates to these claims because, according to the Trust’s
characterization of the Swiss-law claims, they have no bearing
on whether the Banks’ conduct is actionable; rather, they are
merely background details that need not have been alleged, and
need not be proved.25

E. Whether Swiss-law claims are tied so closely to
the state-law claims that they are preempted

The District Court also held, and the Banks argue, that the
Swiss claims are preempted because they are tied so closely to
the state-law claims. This argument is also unpersuasive
because it relies on a readily distinguishable case. The District
Court and the Banks invoke a decision of the District Court for
the District of Delaware, ruling that a particular state-law claim,
though it did not specifically allege conduct that would
constitute fraud “in connection with” a security, was nonetheless
“in connection with” a security (and thus preempted), see 15
U.S.C. § 78bb(f)(1)(A), because it alleged conduct by the
defendant that was part of a “‘unitary scheme of fraud’ which

25
Again, if, on remand, it is revealed that the Trust’s
characterization of Swiss law on this point is inaccurate, the
District Court may reconsider this issue at that time.

29
began before the ‘purchase or sale’ of securities and continued
afterward.” Zoren v. Genesis Energy, L.P., 195 F. Supp. 2d 598,
604–06 (D. Del. 2002). Because the claim was in this sense
“tie[d] . . . so closely” to the other claims that clearly alleged
fraud in connection with securities trading, the claim was itself
deemed a claim of fraud in connection with securities trading
and therefore preempted. Id. Zoren simply involved an
application of SLUSA’s “in connection with” language, 15
U.S.C. § 78bb(f)(1)(A), concluding that the claim in question
alleged fraud in connection with securities trading.

Zoren is distinguishable in two respects. First, unlike the
Banks here, the defendants in Zoren were accused of
orchestrating a “unitary scheme of fraud.” Here, the Banks are
not accused of any misrepresentations or omissions; rather, their
alleged participation in the Directors’ scheme is limited to
participating in insider-trading transactions and assisting in
laundering the proceeds. Second, Zoren involved exclusively
state-law claims and applied the “in connection with” language,
not the ingredient that any preempted claims be based upon
“state” law. It did not address a foreign-law claim or even
purport to address how its analysis would affect foreign-law
claims.

Thus, we conclude that the Banks’ contention that the
Swiss claims are preempted as “closely tied” to the state-law
claims is without merit.

V. Circumventing SLUSA

Permeating the Banks’ briefs is the general argument that
allowing these claims to go forward will re-create a loophole for
abusive securities litigation that Congress intended, through
SLUSA, to close. We find this argument unpersuasive.

As to the state-law claims—counts I and II—our ruling is
that a group of persons may bring a corporation’s claim for
breach of fiduciary duty (or aiding and abetting such a breach) in
two circumstances: (1) when the group has been assigned the
corporation’s claim, or (2) when the group fulfills all applicable
requirements for bringing the claim derivatively. That the latter

30
is no easy task goes without saying; moreover, Congress
explicitly excepted it from SLUSA’s purview. As to the former,
we have difficulty imagining such assignments occurring outside
very special contexts, such as bankruptcy, a context in which
Congress clearly intended fiduciary-duty actions to go forward.

As to the foreign-law claims, notwithstanding our
holding, plaintiffs relying on foreign law must survive two
preliminary challenges: (1) ) they must state validly pleaded
claims which, under applicable choice-of-law principles, govern
their case, and (2) they must show that a United States court is
the most convenient forum, which, particularly for foreign-law
claims asserted against foreign entities, is rarely an easy task. In
other words, foreign-law claims, though not preempted by
SLUSA, are only permissible at the confluence of two rarely
aligned factors: (1) a foreign country has the most significant
interest in having its law apply (the traditional choice-of-law
test), and (2) the United States is the most appropriate forum (the
traditional forum-non-conveniens test). Nothing in our
experience, the legislative history of SLUSA, or the legislative
history of the PSLRA suggests that these are hurdles that
plaintiffs can routinely overcome. Thus, as Congress intended,
manifest strike suits will, expectably, be dismissed on the
pleadings, even if the plaintiffs try to plead foreign claims. Only
quite unusual cases will survive.26

VI. Conclusion

We hold that SLUSA does not prevent the Trust from
bringing AremisSoft’s Delaware-law aiding-and-abetting-
breach-of-fiduciary-duty claims against the Banks. These are
direct corporate claims assigned to the Trust from AremisSoft’s
bankruptcy estate. SLUSA’s text and legislative history yield
the conclusion that Congress did not intend to preempt direct
corporate claims such as these.

We further hold that SLUSA does not prevent the Trust

26
The Banks have not yet raised a failure-to-state-a-claim
or a forum non conveniens challenge to the District Court’s
continued involvement with this case.

31
from asserting Swiss-law claims against the Banks for violating
Swiss money-laundering regulations. This conclusion flows
directly from the text of SLUSA, which by its terms only affects
claims based upon the laws of a state or territory of the United
States.

Therefore, we will vacate the District Court’s order
dismissing the complaint, and remand for further proceedings
consistent with this opinion.

32
33