AIG Dodges Shareholder Class Action Over Value
(CN) - A shareholder class action against AIG for devaluing 78 million equity units cannot proceed in either state or federal court as a class action, the D.C. Circuit ruled.
In 2008, American Insurance Group (AIG) issued 78.4 million "Equity Units," a type of security that includes a stock purchase contract, requiring holders to purchase AIG common stock.
Plaintiff Kathryn Campbell filed a class action against the insurance giant, alleging that AIG unjustly enriched itself by reducing the value the number of common shares each Equity Unit holder received, thereby reducing the value of the securities.
However, the Securities Litigation Uniform Standards Act (SLUSA) of 1998, enacted to curbed the abuses of class action litigation, bars bringing certain securities fraud claims as class actions under state law, including allegations that "defendant used or employed any manipulative or deceptive device or contrivance in connection with the purchase or sale of a covered security."
To avoid this restriction, Campbell attempted to get a federal district court to hear her state law claims, asserting that the SLUSA conferred federal subject matter jurisdiction.
Her argument relies on a section of the Act that states, "Notwithstanding subsection (b) or (c), a covered class action described in subparagraph (B) of this paragraph that is based upon the statutory or common law of the State in which the issuer is incorporated (in the case of a corporation) or organized (in the case of any other entity) may be maintained in a State or Federal court by a private party." (Emphasis in judgment.)
But in a per curiam decision, the D.C. Circuit said, "There is no indication that Congress intended subsection (d)(1)(A) to go substantially further, so as to create federal jurisdiction over a category of state-law securities class actions."
Rather, reading the statute as whole shows that Congress intended no class action to maintained in either state or federal court if it is precluded by the Act.
"Subsection (d)(1)(A)'s use of the term 'preserve,' meaning 'to keep (something) in its original state,' manifests Congress's intent to retain the state-law claims falling within the Delaware carve-out in their pre-SLUSA state - not to inject those claims into federal court for the first time," the court concluded.