(CN) - A proposed class action against Raymond James & Associates claiming the company kept profits from processing fees is not precluded by federal law, the 11th Circuit ruled.
Lead plaintiff Jyll Brink sued the financial services firm in federal court in Florida, taking issue with its “passport account” program, which charged customers annual fees based on the total value of their accounts’ assets.
Brink claimed the firm did not disclose hidden profits it kept from its processing fees associated with the program, and told customers fees only covered the actual costs of transactions.
Raymond James argued the class claims for breach of contract and negligence were actually “disguised claims for federal securities fraud” that were precluded under federal law.
The district court agreed, concluding that the firm’s alleged actions were based on factual omissions related to the sale of securities, and granted its motion to dismiss for lack of jurisdiction
Brink appealed, and the 11th Circuit panel concluded that the action was not precluded by the Securities Litigation Uniform Standards Act, which prevents parties from bringing class actions using state law claims when they involve allegations of securities fraud.
But it precludes actions that involve misrepresentation of material facts, which the panel found was not the case here.
“[Raymond James’] alleged undisclosed profit on the processing fee for each transaction- a fee for transaction execution and clearing, known and agreed to in advance by passport account customers - objectively could not make a significant difference to a reasonable investor’s decision to purchase or sell a covered security,” Judge Jill Pryor wrote for the panel.
Even though its alleged misrepresentation could have led an investor to pick a different kind of account with Raymond James, it was not a “material” misrepresentation, the panel found.
Reversing the decision, the panel remanded the action back to the district court.
Pryor’s decision was joined by Circuit Judge Adalberto Jordan and U.S. District Judge Danny Reeves, sitting by designation from the Eastern District of Kentucky.
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