Merrill Lynch, Pierce, Fenner & Smith, Inc. v. Dabit

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Merrill Lynch, Pierce, Fenner & Smith, Inc. v. Dabit (2006)

What the case was about
- A Supreme Court case about when state-law securities fraud lawsuits can be blocked by SLUSA (the Securities Litigation Uniform Standards Act of 1998).

The core question
- Does SLUSA preempt state-law “holder” claims—claims by investors who kept (held) stock after alleged fraud—even though they didn’t buy or sell the stock?

What the Court decided
- Yes. SLUSA preempts not only purchaser-seller claims but also holder claims, if the fraud relates to the purchase or sale of securities.
- The Court read the key phrase “in connection with the purchase or sale” broadly, to prevent parallel state suits that would undermine the PSLRA’s goals.
- The decision closed a loophole that could let some state-law claims proceed even when federal law barred them.

How the case got there, in brief
- Dabit, a former Merrill Lynch stockbroker, sued in Oklahoma under state law, alleging the firm harmed investors through misleading research.
- The District Court said SLUSA barred the claims; the Second Circuit agreed that holder claims could be outside SLUSA’s reach, allowing the suit to proceed.
- The Supreme Court vacated the Second Circuit’s ruling and held that the holder claims are preempted by SLUSA.

Who wrote the opinion
- Justice John Paul Stevens wrote the Court’s opinion, joined by the other participating Justices. Justice Alito did not participate.

Why it matters
- The ruling reinforces SLUSA’s goal of preventing state-law securities lawsuits from undermining federal securities law and complicating private litigation.