NEW YORK, June 18, 2008 – The Litigation Department recently achieved yet another major victory for Fidelity Management and Research Company (“Fidelity” or “Defendants”), securing dismissal of a class action complaint filed in August 2007 on behalf of mutual fund shareholders and other Fidelity clients. In Kurz v. Fidelity Management & Research Co., plaintiff alleged that certain Fidelity traders improperly directed securities transactions for Fidelity’s mutual funds and other investment products to unaffiliated broker-dealers in exchange for improper gifts and gratuities. According to the complaint, these unaffiliated broker-dealers did not achieve best execution and caused the funds to incur increased execution costs. The complaint, styled as a contract claim to avoid prohibitive federal securities law provisions, alleged these actions breached the trade confirmations required under Rule 10b-10 under the Securities Exchange Act.
The Milbank litigation team removed the action from Illinois state court to the Southern District of Illinois pursuant to, inter alia, the Securities Litigation Uniform Standards Act of 1998 (“SLUSA”), which precludes class actions asserting state-law claims involving allegations of securities fraud. Focusing on the bases of federal jurisdiction as asserted by Fidelity in its removal petition, Judge Gilbert issued an order to show cause requiring plaintiff to show why the complaint should not be dismissed pursuant to SLUSA. In response, the Milbank team submitted a memorandum in support of dismissal.
On June 10, 2008, the Court dismissed the complaint in toto. In dismissing the action, Judge Gilbert adopted the arguments set forth in Fidelity’s written submissions, and held that plaintiff’s claim was precluded by SLUSA. Judge Gilbert rejected plaintiff’s argument that the claim was purely contractual in nature, stating that the substance of the claim, rather than the mere label plaintiff assigns to it, governs for purposes of SLUSA. Judge Gilbert also adopted Fidelity’s argument that the alleged fraud was in connection with the purchase and sale of securities, which is a required element for preclusion under SLUSA.