Litigation Practice Group Secures Dismissal of Class Action Suit Against Investment Advisor
Tuesday, 10 November 2015
In the class action derivative suit of Hidalgo-Velez et al. v. San Juan Asset Management, Inc. et al., the Chair of the Litigation Department Eric Pérez-Ochoa and Junior Partner Francisco Viejo-López obtained the dismissal of the case on behalf of San Juan Asset Management, Inc., as investment advisor of the Puerto Rico & Global Income Target Maturity Fund (“Fund”).
The class alleged that defendants violated the investment principles contained in the prospectus and incurred in investment practices that resulted in significant losses for investors of the Fund. Defendants removed this action to the federal court alleging jurisdiction under the Securities Litigation Uniform Standards Act (“SLUSA”), a federal legislation regarding private class action lawsuits for securities fraud. SLUSA preempts certain class actions that allege fraud under state law "in connection with the purchase or sale" of securities and consequently proscribes the maintenance of a “covered” class action in state or federal court.
Because the complaint contained claims under Puerto Rico law and SLUSA, the issue at hand was whether the district court should dismiss the entire complaint; or instead, whether it should only dismiss the SLUSA-precluded claims. Up until this date, there was no clear precedent to follow in the First Circuit regarding the disposal of a complaint where allegations of SLUSA violations were combined with state law violations. In an opinion and order issued by Judge McAuliffe (by designation), the U.S. District Court for the District of Puerto Rico held that SLUSA applied to the case and that removal to federal court was proper. In holding that SLUSA applied, all Puerto Rico law claims against San Juan Asset Management, Inc. and the other defendants were deemed inapplicable and, consequently, dismissed. In an unprecedented holding, the federal court established that when a mixed complaint of this nature is filed in federal court, preemption by SLUSA mandates the dismissal of the entire complaint, and not just the SLUSA-precluded claims.