SECURITIES LITIGATION | 2026-09-30
SLUSA: How Federal Law Blocks Many State-Law Securities Class Actions
To stop plaintiffs from evading the PSLRA by filing in state court, Congress enacted SLUSA — which precludes most securities-fraud class actions brought under state law involving nationally traded securities.
After Congress tightened the rules for federal securities class actions in the Private Securities Litigation Reform Act (PSLRA), some plaintiffs responded by filing securities-fraud class actions under <strong>state law</strong> in state court — sidestepping the new federal requirements. Congress cl
SLUSA is the statute that keeps most securities-fraud class actions in federal court under federal law.
Why Congress Enacted SLUSA
The PSLRA (1995) imposed heightened pleading, a discovery stay, and other reforms on federal securities class actions to curb perceived abuses. Plaintiffs adapted by bringing similar claims under state law in state court, avoiding the PSLRA’s federal requirements. To preserve the uniform national standards Congress intended, SLUSA was enacted in 1998 to preclude certain state-law class actions and keep nationally significant securities-fraud class litigation within the federal framework.
What SLUSA Precludes
In general terms, SLUSA precludes a “covered class action” (broadly, one seeking damages on behalf of more than 50 persons or a class) that is:
- based on state law;
- alleging a misrepresentation or omission of a material fact (or use of a manipulative or deceptive device);
- “in connection with” the purchase or sale of a
- “covered security” — generally a security listed on a national exchange or otherwise nationally traded.
When those elements are present, the state-law class action is precluded — it cannot be maintained, and it is typically removed to federal court and dismissed to the extent it is barred.
“In Connection With”: Merrill Lynch v. Dabit
The scope of SLUSA turns heavily on the phrase “in connection with” the purchase or sale of a covered security. In Merrill Lynch, Pierce, Fenner & Smith Inc. v. Dabit, the Supreme Court read that phrase broadly, consistent with its interpretation under Rule 10b-5. The Court held that SLUSA can preclude class claims even by holders (those who allege they were induced to retain rather than buy or sell securities), so long as the alleged fraud coincides with a securities transaction. Dabit significantly expanded SLUSA’s preclusive reach.
The Limit: Chadbourne & Parke v. Troice
SLUSA is not unlimited. In Chadbourne & Parke LLP v. Troice, the Supreme Court held that SLUSA does not preclude a state-law class action where the alleged misrepresentation was about a security that was not itself a covered security — there, the fraud induced purchases of uncovered instruments (certificates of deposit) that were merely said to be backed by covered securities. The required connection to a covered security transaction was missing. Troice preserves state-law claims where the deception does not have the necessary connection to the trading of nationally traded securities.
What SLUSA Left in State Court: Cyan v. Beaver County
SLUSA’s preclusion of state-law claims is distinct from where federal claims may be heard. In Cyan, Inc. v. Beaver County Employees Retirement Fund, the Supreme Court held that SLUSA did not strip state courts of jurisdiction over class actions alleging only 1933 Securities Act claims, and that such actions generally are not removable to federal court. So while SLUSA bars many state-law securities class actions, certain federal 1933 Act class claims can still be litigated in state court.
Why It Matters
SLUSA is a threshold gatekeeper. For plaintiffs, it can preclude a state-law class action entirely and force reliance on federal claims subject to the PSLRA. For defendants, it is a powerful tool to remove and dismiss state-law class claims involving nationally traded securities. And the interplay of Dabit (broad connection), Troice (its limit), and Cyan (state-court jurisdiction over 1933 Act claims) means the outcome depends on precisely what security and what transaction the alleged fraud concerns.
Frequently Asked Questions
What is SLUSA?
The Securities Litigation Uniform Standards Act of 1998, which precludes many state-law securities-fraud class actions involving nationally traded (“covered”) securities.
Why was it enacted?
To stop plaintiffs from evading the PSLRA’s reforms by filing securities class actions under state law in state court.
What class actions does it preclude?
Covered class actions based on state law alleging a material misrepresentation or deceptive device in connection with the purchase or sale of a covered security.
How broad is “in connection with”?
Broad — under Dabit, it can reach even holder claims where the fraud coincides with a securities transaction.
What did Troice limit?
SLUSA does not preclude claims where the fraud concerned an uncovered security, lacking the required connection to a covered-security transaction.
What did Cyan preserve?
State courts retain jurisdiction over class actions alleging only 1933 Securities Act claims, which generally are not removable.
Related Securities & Governance Guides
Talk to a Securities Attorney About SLUSA
Whether SLUSA precludes a class claim can decide the case. Trembach Law Firm advises California investors and companies on securities class-action gatekeeping. Call (818) 514-7680.
Contact Trembach Law Firm at (818) 514-7680 for a confidential consultation.
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