Merrill Lynch, Pierce, Fenner & Smith Inc. v. Dabit

(Slip Opinion) OCTOBER TERM, 2005 1

Syllabus

NOTE: Where it is feasible, a syllabus (headnote) will be released, as is

being done in connection with this case, at the time the opinion is issued.

The syllabus constitutes no part of the opinion of the Court but has been

prepared by the Reporter of Decisions for the convenience of the reader.

See United States v. Detroit Timber & Lumber Co., 200 U. S. 321, 337.

SUPREME COURT OF THE UNITED STATES

Syllabus

MERRILL LYNCH, PIERCE, FENNER & SMITH, INC. v.

DABIT

CERTIORARI TO THE UNITED STATES COURT OF APPEALS FOR

THE SECOND CIRCUIT

No. 04–1371. Argued January 18, 2006—Decided March 21, 2006

Respondent Dabit filed a private securities fraud class action in federal

court, invoking diversity jurisdiction to advance his state-law claims

that petitioner, his former employer, fraudulently manipulated stock

prices, causing him and other brokers and their clients to keep their

overvalued securities. The District Court dismissed his amended

complaint, finding his claims pre-empted by title I of the Securities

Litigation Uniform Standards Act of 1998 (SLUSA), which provides

that no “covered class action” based on state law and alleging “a mis-

representation or omission of a material fact in connection with the

purchase or sale of a covered security” “may be maintained in any

State or Federal court by any private party.” 15 U. S. C.

§78bb(f)(1)(A). Vacating the judgment, the Second Circuit concluded

that, to the extent the complaint alleged that brokers were fraudu-

lently induced, not to sell or purchase, but to retain or delay selling,

it fell outside SLUSA’s pre-emptive scope.

Held: The background, text, and purpose of SLUSA’s pre-emption pro-

vision demonstrate that SLUSA pre-empts state-law holder class-

action claims of the kind Dabit alleges. Pp. 5–17.

(a) The magnitude of the federal interest in protecting the integrity

and efficiency of the national securities market cannot be overstated.

The Securities Act of 1933 and the Securities Exchange Act of 1934

(1934 Act) anchor federal regulation of vital elements of this Nation’s

economy. Securities and Exchange Commission (SEC) Rule 10b–5,

which was promulgated pursuant to §10(b) of the 1934 Act, is an im-

portant part of that regulatory scheme, and, like §10(b), prohibits de-

ception, misrepresentation, and fraud “in connection with the pur-

chase or sale” of a security. When, in Blue Chip Stamps v. Manor

2 MERRILL LYNCH, PIERCE, FENNER & SMITH, INC. v.

DABIT

Syllabus

Drug Stores, 421 U. S. 723, this Court limited the Rule 10b–5 private

right of action to plaintiffs who were themselves purchasers or sell-

ers, it relied on the widespread recognition that suits by nonpurchas-

ers and nonsellers present a special risk of vexatious litigation that

could “frustrate or delay normal business activity,” id., at 740. Pp. 5–

8.

(b) Similar policy considerations prompted Congress to adopt legis-

lation (Reform Act) targeted at perceived abuses of class actions—

e.g., nuisance filings and vexatious discovery requests—but this effort

prompted members of the plaintiffs’ bar to avoid the federal forum al-

together. To stem the shift of class actions from federal to state

courts, Congress enacted SLUSA. Pp. 8–10.

(c) Both the class and the securities here are “covered” within

SLUSA’s meaning, and the complaint alleges misrepresentations and

omissions of material facts. The only disputed issue is whether the

alleged wrongdoing was “in connection with the purchase or sale” of

securities. Dabit’s narrow reading would pre-empt only those actions

in which Blue Chip Stamps’ purchaser-seller requirement is met. In-

sofar as that argument assumes that the Blue Chip Stamps rule

stems from Rule 10b–5’s text, it must be rejected, for the Court relied

on “policy considerations” in adopting that limitation, and it pur-

ported to define the scope of a private right of action under Rule 10b–

5, not to define “in connection with the purchase or sale.” When this

Court has sought to give meaning to that phrase in the §10(b) and

Rule 10b–5 context, it has broadly required that the alleged fraud

“coincide” with a securities transaction, an interpretation that com-

ports with the SEC’s longstanding views. Congress can hardly have

been unaware of this broad construction when it imported the phrase

into SLUSA. Where judicial interpretations have settled a statutory

provision’s meaning, repeating the same language in a new statute

indicates the intent to incorporate the judicial interpretations as

well. That presumption is particularly apt here, because Congress

not only used §10(b)’s and Rule 10b–5’s words, but used them in an-

other provision appearing in the same statute as §10(b). The pre-

sumption that Congress envisioned a broad construction also follows

from the particular concerns that culminated in SLUSA’s enactment,

viz., preventing state private securities class-action suits from frus-

trating the Reform Act’s objectives. A narrow construction also

would give rise to wasteful, duplicative litigation in state and federal

courts. The presumption that “Congress does not cavalierly pre-empt

state-law causes of action,” Medtronic, Inc. v. Lohr, 518 U. S. 470,

485, has less force here because SLUSA does not pre-empt any cause

of action. It simply denies the use of the class-action device to vindi-

cate certain claims. Moreover, tailored exceptions to SLUSA’s pre-

Cite as: 547 U. S. ____ (2006) 3

Syllabus

emptive command—for, e.g., state agency enforcement proceedings—

demonstrate that Congress did not act cavalierly. Finally, federal,

not state, law has long been the principal vehicle for asserting class-

action securities fraud claims. Pp. 10–16.

(d) Dabit’s holder class action is distinguishable from a typical Rule

10b–5 class action only in that it is brought by holders rather than

sellers or purchasers. That distinction is irrelevant for SLUSA pre-

emption purposes. The plaintiffs’ identity does not determine

whether the complaint alleges the requisite fraud, and the alleged

misconduct here—fraudulent manipulation of stock prices—

unquestionably qualifies as a fraud “in connection with the purchase

or sale” of securities as the phrase is defined in SEC v. Zandford, 535

U. S. 813, 820, and United States v. O’Hagan, 521 U. S. 642, 651.

Pp. 16–17.

395 F. 3d 25, vacated and remanded.

STEVENS, J., delivered the opinion of the Court, in which all other

Members joined, except ALITO, J., who took no part in the consideration

or decision of the case.

Cite as: 547 U. S. ____ (2006) 1

Opinion of the Court

NOTICE: This opinion is subject to formal revision before publication in the

preliminary print of the United States Reports. Readers are requested to

notify the Reporter of Decisions, Supreme Court of the United States, Wash-

ington, D. C. 20543, of any typographical or other formal errors, in order

that corrections may be made before the preliminary print goes to press.

SUPREME COURT OF THE UNITED STATES

_________________

No. 04–1371

_________________

MERRILL LYNCH, PIERCE, FENNER & SMITH, INC.,

PETITIONER v. SHADI DABIT

ON WRIT OF CERTIORARI TO THE UNITED STATES COURT OF

APPEALS FOR THE SECOND CIRCUIT

[March 21, 2006]

JUSTICE STEVENS delivered the opinion of the Court.

Title I of the Securities Litigation Uniform Standards

Act of 1998 (SLUSA) provides that “[n]o covered class

action” based on state law and alleging “a misrepresenta-

tion or omission of a material fact in connection with the

purchase or sale of a covered security” “may be maintained

in any State or Federal court by any private party.”

§101(b), 112 Stat. 3227 (codified at 15 U. S. C.

§ 78bb(f)(1)(A)). In this case the Second Circuit held that

SLUSA only pre-empts state-law class-action claims

brought by plaintiffs who have a private remedy under

federal law. 395 F. 3d 25 (2005). A few months later, the

Seventh Circuit ruled to the contrary, holding that the

statute also pre-empts state-law class-action claims for

which federal law provides no private remedy. Kircher v.

Putnam Funds Trust, 403 F. 3d 478 (2005). The back-

ground, the text, and the purpose of SLUSA’s pre-emption

provision all support the broader interpretation adopted

by the Seventh Circuit.

I

Petitioner Merrill Lynch, Pierce, Fenner & Smith, Inc.

2 MERRILL LYNCH, PIERCE, FENNER & SMITH, INC. v.

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Opinion of the Court

(Merrill Lynch), is an investment banking firm that offers

research and brokerage services to investors. Suspicious

that the firm’s loyalties to its investment banking clients

had produced biased investment advice, the New York

attorney general in 2002 instituted a formal investigation

into Merrill Lynch’s practices. The investigation sparked

a number of private securities fraud actions, this one

among them.1

Respondent, Shadi Dabit, is a former Merrill Lynch

broker. He filed this class action in the United States

District Court for the Western District of Oklahoma on

behalf of himself and all other former or current brokers

who, while employed by Merrill Lynch, purchased (for

themselves and for their clients) certain stocks between

December 1, 1999, and December 31, 2000. See App. 27a–

46a. Rather than rely on the federal securities laws, Dabit

invoked the District Court’s diversity jurisdiction and

advanced his claims under Oklahoma state law.

The gist of Dabit’s complaint was that Merrill Lynch

breached the fiduciary duty and covenant of good faith and

fair dealing it owed its brokers by disseminating mislead-

ing research and thereby manipulating stock prices.2

Dabit’s theory was that Merrill Lynch used its misin-

formed brokers to enhance the prices of its investment

banking clients’ stocks: The research analysts, under

management’s direction, allegedly issued overly optimistic

appraisals of the stocks’ value; the brokers allegedly relied

on the analysts’ reports in advising their investor clients

——————

1 Merrill

Lynch eventually settled its dispute with the New York at-

torney general.

2 The complaint alleged, for example, that the prices of the subject

stocks were “artificially inflated as a result of the manipulative efforts”

of Merrill Lynch, and that Merrill Lynch, “acting as a central nerve

center in the manipulation of various stocks . . . , perpetrated this stock

manipulation through a variety of deceptive devices, artifices, and

tactics that are the hallmarks of stock manipulation.” App. 28a–29a.

Cite as: 547 U. S. ____ (2006) 3

Opinion of the Court

and in deciding whether or not to sell their own holdings;

and the clients and brokers both continued to hold their

stocks long beyond the point when, had the truth been

known, they would have sold. The complaint further

alleged that when the truth was actually revealed (around

the time the New York attorney general instituted his

investigation), the stocks’ prices plummeted.

Dabit asserted that Merrill Lynch’s actions damaged the

class members in two ways: The misrepresentations and

manipulative tactics caused them to hold onto overvalued

securities, and the brokers lost commission fees when

their clients, now aware that they had made poor invest-

ments, took their business elsewhere.

In July 2002, Merrill Lynch moved to dismiss Dabit’s

complaint. It argued, first, that SLUSA pre-empted the

action and, second, that the claims alleged were not cogni-

zable under Oklahoma law. The District Court indicated

that it was “not impressed by” the state-law argument, but

agreed that the federal statute pre-empted at least some of

Dabit’s claims. Id., at 49a–50a. The court noted that the

complaint alleged both “claims and damages based on

wrongfully-induced purchases” and “claims and damages

based on wrongfully-induced holding.” Ibid. While the

“holding” claims, the court suggested, might not be pre-

empted, the “purchasing” claims certainly were. The court

dismissed the complaint with leave to amend to give Dabit

the opportunity to untangle his “hopeless mélange of

purchase-related and holding-related assertions.” Ibid.

(punctuation added).

Dabit promptly filed an amended complaint that omit-

ted all direct references to purchases. What began as a

class of brokers who “purchased” the subject securities

during the class period became a class of brokers who

“owned and continued to own” those securities. See id., at

52a.

Meanwhile, dozens of other suits, based on allegations

4 MERRILL LYNCH, PIERCE, FENNER & SMITH, INC. v.

DABIT

Opinion of the Court

similar to Dabit’s, had been filed against Merrill Lynch

around the country on both federal- and state-law theories

of liability. The Judicial Panel on Multidistrict Litigation

transferred all of those cases, along with this one, to the

United States District Court for the Southern District of

New York for consolidated pretrial proceedings. Merrill

Lynch then filed its second motion to dismiss Dabit’s

complaint. Senior Judge Milton Pollack granted the mo-

tion on the ground that the claims alleged fell “squarely

within SLUSA’s ambit.” In re Merrill Lynch & Co., Inc.,

2003 WL 1872820, *1 (Apr. 10, 2003).

The Court of Appeals for the Second Circuit, however,

vacated the judgment and remanded for further proceed-

ings. 395 F. 3d, at 51. It concluded that the claims as-

serted by holders did not allege fraud “in connection with

the purchase or sale” of securities under SLUSA. Al-

though the court agreed with Merrill Lynch that that

phrase, as used in other federal securities laws, has been

defined broadly by this Court, it held that Congress none-

theless intended a narrower meaning here—one that

incorporates the “standing” limitation on private federal

securities actions adopted in Blue Chip Stamps v. Manor

Drug Stores, 421 U. S. 723 (1975). Under the Second Cir-

cuit’s analysis, fraud is only “in connection with the pur-

chase or sale” of securities, as used in SLUSA, if it is alleged

by a purchaser or seller of securities. Thus, to the extent

that the complaint in this action alleged that brokers were

fraudulently induced, not to sell or purchase, but to retain

or delay selling their securities, it fell outside SLUSA’s pre-

emptive scope.3

After determining that the class defined in Dabit’s

——————

3 The Court of Appeals also concluded that Dabit’s lost commission

claims escaped pre-emption under SLUSA because they did not “allege

fraud that ‘coincide[s]’ with the sale or purchase of a security.” 395

F. 3d, at 47 (quoting SEC v. Zandford, 535 U. S. 813, 825 (2002)). That

determination is not before this Court for review.

Cite as: 547 U. S. ____ (2006) 5

Opinion of the Court

amended complaint did not necessarily exclude purchas-

ers, the panel remanded with instructions that the plead-

ing be dismissed without prejudice. The court’s order

would permit Dabit to file another amended complaint

that defines the class to exclude “claimants who purchased

in connection with the fraud and who therefore could meet

the standing requirement” for a federal damages action,

and to include only those “who came to hold [a Merrill

Lynch] stock before any relevant misrepresentation.” 395

F. 3d, at 45–46. Under the Second Circuit’s analysis, a

class action so limited could be sustained under state law.

For the reasons that follow, we disagree.

II

The magnitude of the federal interest in protecting the

integrity and efficient operation of the market for nation-

ally traded securities cannot be overstated. In response to

the sudden and disastrous collapse in prices of listed

stocks in 1929, and the Great Depression that followed,

Congress enacted the Securities Act of 1933 (1933 Act), 48

Stat. 74, and the Securities Exchange Act of 1934 (1934

Act), 48 Stat. 881. Since their enactment, these two stat-

utes have anchored federal regulation of vital elements of

our economy.

Securities and Exchange Commission (SEC) Rule 10b–5,

17 CFR §240.10b–5 (2005), promulgated in 1942 pursuant

to §10(b) of the 1934 Act, 15 U. S. C. §78j(b), is an impor-

tant part of that regulatory scheme. The Rule, like §10(b)

itself,4 broadly prohibits deception, misrepresentation, and

——————

4 Section 10(b) provides as follows:

“It shall be unlawful for any person, directly or indirectly, by the use

of any means or instrumentality of interstate commerce or of the mails,

or of any facility of any national securities exchange—

“(b) To use or employ, in connection with the purchase or sale of any

security registered on a national securities exchange or any security not

so registered . . . any manipulative or deceptive device or contrivance in

6 MERRILL LYNCH, PIERCE, FENNER & SMITH, INC. v.

DABIT

Opinion of the Court

fraud “in connection with the purchase or sale of any

security.”5 The SEC has express statutory authority to

enforce the Rule. See 15 U. S. C. §78u (2000 ed. and Supp.

III). Although no such authority is expressly granted to

private individuals injured by securities fraud, in 1946

Judge Kirkpatrick of the United States District Court for

the Eastern District of Pennsylvania, relying on “the

general purpose” of the Rule, recognized an implied right

of action thereunder. Kardon v. National Gypsum Co., 69

F. Supp. 512, 514. His holding was adopted by an “over-

whelming consensus of the District Courts and Courts of

Appeals,” Blue Chip Stamps, 421 U. S., at 730, and en-

dorsed by this Court in Superintendent of Ins. of N. Y. v.

Bankers Life & Casualty Co., 404 U. S. 6 (1971).

A few years after Kardon was decided, the Court of

Appeals for the Second Circuit limited the reach of the

private right of action under Rule 10b–5. In Birnbaum v.

Newport Steel Corp., 193 F. 2d 461 (1952), a panel com-

posed of Chief Judge Swan and Judges Augustus and

Learned Hand upheld the dismissal of a suit brought on

behalf of a corporation and a class of its stockholders

——————

contravention of such rules and regulations as the [SEC] may prescribe

as necessary or appropriate in the public interest or for the protection

of investors.” 15 U. S. C. §78j(b).

5 The text of the Rule is as follows:

“It shall be unlawful for any person, directly or indirectly, by the use

of any means or instrumentality of interstate commerce, or of the mails

or of any facility of any national securities exchange,

“(a) To employ any device, scheme, or artifice to defraud,

“(b) To make any untrue statement of a material fact or to omit to

state a material fact necessary in order to make the statements made,

in the light of the circumstances under which they were made, not

misleading, or

“(c) To engage in any act, practice, or course of business which

operates or would operate as a fraud or deceit upon any person,

“in connection with the purchase or sale of any security.” 17 CFR

§240.10b–5 (2005).

Cite as: 547 U. S. ____ (2006) 7

Opinion of the Court

alleging that fraud “in connection with” a director’s sale of

his controlling block of stock to third parties violated Rule

10b–5. The court held that the Rule could only be invoked

by a purchaser or seller of securities to remedy fraud

associated with his or her own sale or purchase of securi-

ties, and did not protect those who neither purchased nor

sold the securities in question but were instead injured by

corporate insiders’ sales to third parties. Id., at 464.

While the Birnbaum court did not question the plaintiffs’

“standing” to enforce Rule 10b–5, later cases treated its

holding as a standing requirement. See Eason v. General

Motors Acceptance Corp., 490 F. 2d 654, 657 (CA7 1973).

By the time this Court first confronted the question,

literally hundreds of lower court decisions had accepted

“Birnbaum’s conclusion that the plaintiff class for pur-

poses of §10(b) and Rule 10b–5 private damages actions is

limited to purchasers and sellers.” Blue Chip Stamps, 421

U. S., at 731–732. Meanwhile, however, cases like Bank-

ers Life & Casualty Co. had interpreted the coverage of the

Rule more broadly to prohibit, for example, “deceptive

practices touching [a victim’s] sale of securities as an

investor.” 404 U. S., at 12–13 (emphasis added); see

Eason, 490 F. 2d, at 657 (collecting cases). The “judicial

oak which ha[d] grown from little more than a legislative

acorn,” as then-Justice Rehnquist described the rules

governing private Rule 10b–5 actions, Blue Chip Stamps,

421 U. S., at 737, had thus developed differently from the

law defining what constituted a substantive violation of

Rule 10b–5. Ultimately, the Court had to decide whether

to permit private parties to sue for any violation of Rule

10b–5 that caused them harm, or instead to limit the

private remedy to plaintiffs who were themselves pur-

chasers or sellers.

Relying principally on “policy considerations” which the

Court viewed as appropriate in explicating a judicially

crafted remedy, ibid., and following judicial precedent

8 MERRILL LYNCH, PIERCE, FENNER & SMITH, INC. v.

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Opinion of the Court

rather than “the many commentators” who had criticized

the Birnbaum rule as “an arbitrary restriction which

unreasonably prevents some deserving plaintiffs from

recovering damages,” 421 U. S., at 738, the Court in Blue

Chip Stamps chose to limit the private remedy. The main

policy consideration tipping the scales in favor of prece-

dent was the widespread recognition that “litigation under

Rule 10b–5 presents a danger of vexatiousness different in

degree and in kind from that which accompanies litigation

in general.” Id., at 739. Even weak cases brought under

the Rule may have substantial settlement value, the Court

explained, because “[t]he very pendency of the lawsuit

may frustrate or delay normal business activity.” Id., at

740. Cabining the private cause of action by means of the

purchaser-seller limitation would, in the Court’s view,

minimize these ill effects. The limitation of course had no

application in Government enforcement actions brought

pursuant to Rule 10b–5. See id., at 751, n. 14.

III

Policy considerations similar to those that supported the

Court’s decision in Blue Chip Stamps prompted Congress,

in 1995, to adopt legislation targeted at perceived abuses

of the class-action vehicle in litigation involving nationally

traded securities. While acknowledging that private

securities litigation was “an indispensable tool with which

defrauded investors can recover their losses,” the House

Conference Report accompanying what would later be

enacted as the Private Securities Litigation Reform Act of

1995 (Reform Act), 109 Stat. 737 (codified at 15 U. S. C.

§§77z–1 and 78u–4), identified ways in which the class

action device was being used to injure “the entire U. S.

economy.” H. R. Rep. No. 104–369, p. 31 (1995). Accord-

ing to the Report, nuisance filings, targeting of deep-

pocket defendants, vexatious discovery requests, and

“manipulation by class action lawyers of the clients whom

Cite as: 547 U. S. ____ (2006) 9

Opinion of the Court

they purportedly represent” had become rampant in recent

years. Ibid. Proponents of the Reform Act argued that

these abuses resulted in extortionate settlements, chilled

any discussion of issuers’ future prospects, and deterred

qualified individuals from serving on boards of directors.

Id., at 31–32.

Title I of the Reform Act, captioned “Reduction of Abu-

sive Litigation,” represents Congress’ effort to curb these

perceived abuses. Its provisions limit recoverable dam-

ages and attorney’s fees, provide a “safe harbor” for for-

ward-looking statements, impose new restrictions on the

selection of (and compensation awarded to) lead plaintiffs,

mandate imposition of sanctions for frivolous litigation,

and authorize a stay of discovery pending resolution of any

motion to dismiss. See 15 U. S. C. §78u–4. Title I also

imposes heightened pleading requirements in actions

brought pursuant to §10(b) and Rule 10b–5; it “insists that

securities fraud complaints ‘specify’ each misleading

statement; that they set forth the facts ‘on which [a] belief’

that a statement is misleading was ‘formed’; and that they

‘state with particularity facts giving rise to a strong infer-

ence that the defendant acted with the required state of

mind.’ ” Dura Pharmaceuticals, Inc. v. Broudo, 544 U. S.

336, 345 (2005) (quoting 15 U. S. C. §§78u–4(b)(1), (2)).

The effort to deter or at least quickly dispose of those

suits whose nuisance value outweighs their merits placed

special burdens on plaintiffs seeking to bring federal

securities fraud class actions. But the effort also had an

unintended consequence: It prompted at least some mem-

bers of the plaintiffs’ bar to avoid the federal forum alto-

gether. Rather than face the obstacles set in their path by

the Reform Act, plaintiffs and their representatives began

bringing class actions under state law, often in state court.

The evidence presented to Congress during a 1997 hearing

to evaluate the effects of the Reform Act suggested that

this phenomenon was a novel one; state-court litigation of

10 MERRILL LYNCH, PIERCE, FENNER & SMITH, INC. v.

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Opinion of the Court

class actions involving nationally traded securities had

previously been rare. See H. R. Rep. No. 105–640, p. 10

(1998); S. Rep. No. 105–182, pp. 3–4 (1998). To stem this

“shif[t] from Federal to State courts” and “prevent certain

State private securities class action lawsuits alleging

fraud from being used to frustrate the objectives of” the

Reform Act, SLUSA §§2(2), (5), 112 Stat. 3227, Congress

enacted SLUSA.

IV

The core provision of SLUSA reads as follows:6

“CLASS ACTION LIMITATIONS.—No covered class ac-

tion based upon the statutory or common law of any

State or subdivision thereof may be maintained in any

State or Federal court by any private party alleging—

“(A) a misrepresentation or omission of a material

fact in connection with the purchase or sale of a cov-

ered security; or

“(B) that the defendant used or employed any ma-

nipulative or deceptive device or contrivance in con-

nection with the purchase or sale of a covered secu-

rity.” Id., at 3230 (codified as amended at 15 U. S. C.

§78bb(f)(1)).7

A “covered class action” is a lawsuit in which damages are

sought on behalf of more than 50 people.8 A “covered

——————

6 SLUSA amends the 1933 Act and the 1934 Act in substantially

identical ways. For convenience and because they are more pertinent

here, we quote the amendments to the 1934 Act.

7 Another key provision of the statute makes all “covered class ac-

tions” filed in state court removable to federal court. 112 Stat. 3230

(codified at 15 U. S. C. §78bb(f)(2)).

8 “The term ‘covered class action’ means—

“(i) any single lawsuit in which—

“(I) damages are sought on behalf of more than 50 persons or pro-

spective class members, and questions of law or fact common to those

persons or members of the prospective class, without reference to issues

of individualized reliance on an alleged misstatement or omission,

Cite as: 547 U. S. ____ (2006) 11

Opinion of the Court

security” is one traded nationally and listed on a regulated

national exchange.9 Respondent does not dispute that

both the class and the securities at issue in this case are

“covered” within the meaning of the statute, or that the

complaint alleges misrepresentations and omissions of

material facts. The only disputed issue is whether the

alleged wrongdoing was “in connection with the purchase

or sale” of securities.

Respondent urges that the operative language must be

read narrowly to encompass (and therefore pre-empt) only

those actions in which the purchaser-seller requirement of

Blue Chip Stamps is met. Such, too, was the Second

Circuit’s view. But insofar as the argument assumes that

the rule adopted in Blue Chip Stamps stems from the text

of Rule 10b–5—specifically, the “in connection with” lan-

guage, it must be rejected. Unlike the Birnbaum court,

which relied on Rule 10b–5’s text in crafting its purchaser-

seller limitation, this Court in Blue Chip Stamps relied

——————

predominate over any questions affecting only individual persons or

members; or

“(II) one or more named parties seek to recover damages on a repre-

sentative basis on behalf of themselves and other unnamed parties

similarly situated, and questions of law or fact common to those per-

sons or members of the prospective class predominate over any ques-

tions affecting only individual persons or members; or

“(ii) any group of lawsuits filed in or pending in the same court and

involving common questions of law or fact, in which—

“(I) damages are sought on behalf of more than 50 persons; and

“(II) the lawsuits are joined, consolidated, or otherwise proceed as a

single action for any purpose.” 112 Stat. 3232 (codified at 15 U. S. C.

§78bb(f)(5)(B)).

9 “The term ‘covered security’ means a security that satisfies the stan-

dards for a covered security specified in paragraph (1) or (2) of section

18(b) of the Securities Act of 1933, at the time during which it is alleged

that the misrepresentation, omission, or manipulative or deceptive

conduct occurred. . . .” 112 Stat. 3232 (codified at 15 U. S. C.

§78bb(f)(5)(E)). Section 18(b) of the 1933 Act in turn defines “covered

security” to include securities traded on a national exchange. §77r(b).

12 MERRILL LYNCH, PIERCE, FENNER & SMITH, INC. v.

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Opinion of the Court

chiefly, and candidly, on “policy considerations” in adopt-

ing that limitation. 421 U. S., at 737. The Blue Chip

Stamps Court purported to define the scope of a private

right of action under Rule 10b–5—not to define the words

“in connection with the purchase or sale.” Id., at 749 (“No

language in either [§10(b) or Rule 10b–5] speaks at all to

the contours of a private cause of action for their viola-

tion”). Any ambiguity on that score had long been re-

solved by the time Congress enacted SLUSA. See United

States v. O’Hagan, 521 U. S. 642, 656, 664 (1997); Holmes

v. Securities Investor Protection Corporation, 503 U. S.

258, 285 (1992) (O’Connor, J., concurring in part and

concurring in judgment); id., at 289–290 (SCALIA, J., con-

curring in judgment); United States v. Naftalin, 441 U. S.

768, 774, n. 6 (1979); see also 395 F. 3d, at 39 (acknowl-

edging that “[t]he limitation on standing to bring [a] pri-

vate suit for damages for fraud in connection with the

purchase or sale of securities is unquestionably a distinct

concept from the general statutory and regulatory prohibi-

tion on fraud in connection with the purchase or sale of

securities”).

Moreover, when this Court has sought to give meaning

to the phrase in the context of §10(b) and Rule 10b–5, it

has espoused a broad interpretation. A narrow construc-

tion would not, as a matter of first impression, have been

unreasonable; one might have concluded that an alleged

fraud is “in connection with” a purchase or sale of securi-

ties only when the plaintiff himself was defrauded into

purchasing or selling particular securities. After all, that

was the interpretation adopted by the panel in the Birn-

baum case. See 193 F. 2d, at 464. But this Court, in early

cases like Superintendent of Ins. of N. Y. v. Bankers Life &

Casualty Co., 404 U. S. 6 (1971), and most recently in SEC

v. Zandford, 535 U. S. 813, 820, 822 (2002), has rejected

that view. Under our precedents, it is enough that the

fraud alleged “coincide” with a securities transaction—

Cite as: 547 U. S. ____ (2006) 13

Opinion of the Court

whether by the plaintiff or by someone else. See O’Hagan,

521 U. S., at 651. The requisite showing, in other words,

is “deception ‘in connection with the purchase or sale of

any security,’ not deception of an identifiable purchaser or

seller.” Id., at 658. Notably, this broader interpretation of

the statutory language comports with the longstanding

views of the SEC. See Zandford, 535 U. S., at 819–820.10

Congress can hardly have been unaware of the broad

construction adopted by both this Court and the SEC

when it imported the key phrase—“in connection with the

purchase or sale”—into SLUSA’s core provision. And

when “judicial interpretations have settled the meaning of

an existing statutory provision, repetition of the same

language in a new statute indicates, as a general matter,

the intent to incorporate its . . . judicial interpretations as

well.” Bragdon v. Abbott, 524 U. S. 624, 645 (1998); see

Cannon v. University of Chicago, 441 U. S. 677, 696–699

(1979). Application of that presumption is particularly apt

here; not only did Congress use the same words as are

used in §10(b) and Rule 10b–5, but it used them in a pro-

vision that appears in the same statute as §10(b). Gener-

ally, “identical words used in different parts of the same

statute are . . . presumed to have the same meaning.”

IBP, Inc. v. Alvarez, 546 U. S. __, __ (2005) (slip op., at 11).

The presumption that Congress envisioned a broad

construction follows not only from ordinary principles of

statutory construction but also from the particular con-

cerns that culminated in SLUSA’s enactment. A narrow

reading of the statute would undercut the effectiveness of

the 1995 Reform Act and thus run contrary to SLUSA’s

——————

10 In Zandford, we observed that the SEC has consistently “main-

tained that a broker who accepts payment for securities that he never

intends to deliver, or who sells customer securities with intent to

misappropriate the proceeds, violates §10(b) and Rule 10b–5.” 535

U. S., at 819. Here, too, the SEC supports a broad reading of the “in

connection with” language.

14 MERRILL LYNCH, PIERCE, FENNER & SMITH, INC. v.

DABIT

Opinion of the Court

stated purpose, viz., “to prevent certain State private

securities class action lawsuits alleging fraud from being

used to frustrate the objectives” of the 1995 Act. SLUSA

§2(5), 112 Stat. 3227. As the Blue Chip Stamps Court

observed, class actions brought by holders pose a special

risk of vexatious litigation. 421 U. S., at 739. It would be

odd, to say the least, if SLUSA exempted that particularly

troublesome subset of class actions from its pre-emptive

sweep. See Kircher, 403 F. 3d, at 484.

Respondent’s preferred construction also would give rise

to wasteful, duplicative litigation. Facts supporting an

action by purchasers under Rule 10b–5 (which must pro-

ceed in federal court if at all) typically support an action

by holders as well, at least in those States that recognize

holder claims. The prospect is raised, then, of parallel

class actions proceeding in state and federal court, with

different standards governing claims asserted on identical

facts. That prospect, which exists to some extent in this

very case,11 squarely conflicts with the congressional

preference for “national standards for securities class

action lawsuits involving nationally traded securities.”

SLUSA §2(5), 112 Stat. 3227.12

In concluding that SLUSA pre-empts state-law holder

class-action claims of the kind alleged in Dabit’s com-

plaint, we do not lose sight of the general “presum[ption]

that Congress does not cavalierly pre-empt state-law

causes of action.” Medtronic, Inc. v. Lohr, 518 U. S. 470,

——————

11 See 2003 WL 1872820, *1 (SDNY, Apr. 10, 2003) (observing that

Dabit’s holder claims rested “on the very same alleged series of transac-

tions and occurrences asserted in the federal securities actions” filed

against Merrill Lynch).

12 See H. R. Rep. No. 105–640, p. 10 (1998) (the “solution” to circum-

vention of the Reform Act “is to make Federal court the exclusive venue

for securities fraud class action litigation”); S. Rep. No. 105–182, p. 3

(1998) (identifying “the danger of maintaining differing federal and

state standards of liability for nationally-traded securities”).

Cite as: 547 U. S. ____ (2006) 15

Opinion of the Court

485 (1996). But that presumption carries less force here

than in other contexts because SLUSA does not actually

pre-empt any state cause of action. It simply denies plain-

tiffs the right to use the class action device to vindicate

certain claims. The Act does not deny any individual

plaintiff, or indeed any group of fewer than 50 plaintiffs,

the right to enforce any state-law cause of action that may

exist.

Moreover, the tailored exceptions to SLUSA’s pre-

emptive command demonstrate that Congress did not by

any means act “cavalierly” here. The statute carefully

exempts from its operation certain class actions based on

the law of the State in which the issuer of the covered

security is incorporated, actions brought by a state agency

or state pension plan, actions under contracts between

issuers and indenture trustees, and derivative actions

brought by shareholders on behalf of a corporation. 15

U. S. C. §§78bb(f)(3)(A)–(C), (f)(5)(C). The statute also

expressly preserves state jurisdiction over state agency

enforcement proceedings. §78bb(f)(4). The existence of

these carve-outs both evinces congressional sensitivity to

state prerogatives in this field and makes it inappropriate

for courts to create additional, implied exceptions.

Finally, federal law, not state law, has long been the

principal vehicle for asserting class-action securities fraud

claims. See, e.g., H. R. Conf. Rep. No. 105–803, p. 14

(1998) (“Prior to the passage of the Reform Act, there was

essentially no significant securities class action litigation

brought in State court”).13 More importantly, while state-

——————

13 Respondent points out that the Court in Blue Chip Stamps v.

Manor Drug Stores, 421 U. S. 723 (1975), identified as a factor mitigat-

ing any unfairness caused by adoption of the purchaser-seller require-

ment that “remedies are available to nonpurchasers and nonsellers

under state law.” Id., at 738, n. 9. He argues that this supports a

narrow construction of SLUSA’s pre-emption provision. But we do not

here revisit the Blue Chip Stamps Court’s understanding of the equities

16 MERRILL LYNCH, PIERCE, FENNER & SMITH, INC. v.

DABIT

Opinion of the Court

law holder claims were theoretically available both before

and after the decision in Blue Chip Stamps, the actual

assertion of such claims by way of class action was virtu-

ally unheard of before SLUSA was enacted; respondent

and his amici have identified only one pre-SLUSA case

involving a state-law class action asserting holder

claims.14 This is hardly a situation, then, in which a

federal statute has eliminated a historically entrenched

state-law remedy. Cf. Bates v. Dow Agrosciences LLC, 544

U. S. 431, 449 (2005) (observing that a “long history” of

state-law tort remedy “add[ed] force” to the presumption

against pre-emption).

V

The holder class action that respondent tried to plead,

and that the Second Circuit envisioned, is distinguishable

from a typical Rule 10b–5 class action in only one respect:

It is brought by holders instead of purchasers or sellers.

For purposes of SLUSA pre-emption, that distinction is

irrelevant; the identity of the plaintiffs does not determine

whether the complaint alleges fraud “in connection with

the purchase or sale” of securities. The misconduct of

which respondent complains here—fraudulent manipula-

tion of stock prices—unquestionably qualifies as fraud “in

connection with the purchase or sale” of securities as the

phrase is defined in Zandford, 535 U. S., at 820, 822, and

O’Hagan, 521 U. S., at 651.

The judgment of the Court of Appeals for the Second

Circuit is vacated, and the case is remanded for further

——————

involved in limiting the availability of private remedies under federal

law; we are concerned instead with Congress’ intent in adopting a pre-

emption provision, the evident purpose of which is to limit the avail-

ability of remedies under state law.

14 See Brief for Respondent 5 (citing Weinberger v. Kendrick, 698

F. 2d 61, 78 (CA2 1982) (approving a settlement that included holder

claims brought pursuant to New York law)); see also Tr. of Oral Arg.

34–35.

Cite as: 547 U. S. ____ (2006) 17

Opinion of the Court

proceedings consistent with this opinion.

It is so ordered.

JUSTICE ALITO took no part in the consideration or

decision of this case.