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APPEAL FROM THE UNITED STATES DISTRICT COURT FOR THE DISTRICT OF PUERTO RICO. Hon. Steven J. McAuliffe, U.S. District Judge[*] Hon. Carmen Consuelo Cerezo, U.S. District Judge.
Luis A. Avilés, with whom Jorge M. Izquierdo-San Miguel and Izquierdo-San Miguel Law Offices, PSC were on brief, for appellants.
Eric Pérez-Ochoa, with whom Adsuar Muñiz Goyco Seda & Pérez-Ochoa, P.S.C. was on brief, for appellees San Juan Asset Management, Inc. and Vizcarrondo-Ramírez de Arellano.
Michael S. Flynn, with whom Francisco G. Bruno-Rovira, Leslie Yvette Flores-Rodriguez, McConnell Valdes LLC, Alicia L. Chang, and Davis Polk & Wardwell LLP were on brief, for appellee PricewaterhouseCoopers, LLP (whose brief was adopted by appellees Puerto Rico & Global Income Target Maturity Fund, Inc., Luis Rivera, Rivera Casiano, Lugo-Rivera, and Colón Ascar).
Before Thompson and Selya, Circuit Judges, and McConnell, District Judge.[**]
SELYA, Circuit Judge.
This case requires us to trace the contours of the " in connection with" element of the Securities Litigation Uniform Standards Act of 1998 (SLUSA), 15 U.S.C. § 78bb(f), in the reflected light of the Supreme Court's recent decision in Chadbourne & Parke LLP v. Troice, 134 S.Ct. 1058, 188 L.Ed.2d 88 (2014). Giving full voice to Troice, we conclude that the district court impermissibly extended the SLUSA's reach. Accordingly, we vacate the judgment below, reverse the denial of the plaintiffs' motion to remand, and remit the case to the district court with directions to return it to the Puerto Rico Court of First Instance.
We begin at the beginning, rehearsing the origin and travel of the case. Because " this appeal follows the granting of a motion to dismiss, we draw the relevant facts from the plaintiff[s'] complaint," supplemented by " documentation incorporated
by reference in the complaint."
Rivera-Díaz v. Humana Ins. of P.R., Inc., 748 F.3d 387, 388 (1st Cir. 2014).
The plaintiffs are mostly investors in the Puerto Rico & Global Income Target Maturity Fund (the Fund), a non-diversified investment company licensed under the Puerto Rico Investment Companies Act, see P.R. Laws Ann. tit. 10, § § 661-683. The Fund solicited investors through a prospectus, which promised that the Fund would invest at least 75% of its assets in notes with an " equally weighted exposure to both European and North American investment grade corporate bond indices." Relatedly, the prospectus promised that the Fund would invest no more than 25% of its assets in securities issued by a single issuer. Consistent with these two promises -- the 75% promise and the 25% promise -- the complaint alleges that the primary purpose of the Fund was to expose its investors to certain specialized notes issued by " different international financial institutions such as Banco Bilbao Vizcaya Argentaria, S.A."
In May of 2008, the Fund spurned these promises and invested more than 75% of its assets in notes sold by a single issuer, Lehman Brothers. The complaint alleges that this lop-sided investment transgressed both the terms of the prospectus and Puerto Rico law.
These transgressions had dire consequences. The Lehman notes soon lost most of their value, and the Fund was forced to adopt a plan of liquidation.
In due course, the plaintiffs, suing on their own behalf and on behalf of all other investors similarly situated, filed a putative class action in a Puerto Rico court. Their complaint asserted both direct claims on behalf of the investors and shareholder derivative claims on behalf of the Fund. The named defendants included the Fund; its officers and directors; its investment advisor, San Juan Asset Management; its sales agent, BBVA Securities of Puerto Rico; and its independent auditor, PricewaterhouseCoopers (PwC). Although the complaint is not a model of clarity, it is clear that its gravamen is that the Fund did not comply with the investment policies promised in the prospectus and that the strategy it did pursue flouted Puerto Rico law.
PwC, later joined by other defendants, removed the action to the federal district court, asserting that it fell within the ambit of the SLUSA. See 15 U.S.C. § 78bb(f)(2); 28 U.S.C. § 1446. The plaintiffs moved to remand. The district court (Cerezo, J.) denied the plaintiffs' motion.
See Hidalgo-Vélez v. San Juan Asset Mgmt., Inc. (Hidalgo-Vélez I), No. 11-2175, 2012 WL 4427077, at *3 (D.P.R. Sept. 24, 2012).
At that point, the plaintiffs asked the district court to certify the jurisdictional question for interlocutory appeal. See 28 U.S.C. § 1292(b). The defendants not only opposed this request but also pressed dismissal motions premised on SLUSA preclusion. See Fed.R.Civ.P. 12(b)(6). The district court (McAuliffe, J.) refused to certify the question and granted ...