Lindie Banks v. Northern Trust Corp.

FOR PUBLICATION
UNITED STATES COURT OF APPEALS
FOR THE NINTH CIRCUIT
LINDIE L. BANKS, individually and No. 17-56025
on behalf of all others similarly
situated; ERICA LEBLANC, D.C. No.
Plaintiffs-Appellants, 2:16-cv-09141-
JFW-JC
v.
NORTHERN TRUST CORPORATION; OPINION
NORTHERN TRUST COMPANY,
Defendants-Appellees.
Appeal from the United States District Court
for the Central District of California
John F. Walter, District Judge, Presiding
Argued and Submitted May 15, 2019
Pasadena, California
Filed July 5, 2019
Before: Jacqueline H. Nguyen and John B. Owens, Circuit
Judges, and John Antoon II, * District Judge.
Opinion by Judge Owens
*
The Honorable John Antoon II, United States District Judge for the
Middle District of Florida, sitting by designation.
2 BANKS V. NORTHERN TRUST
SUMMARY **
Securities Litigation Uniform Standards Act of 1998
The panel reversed the district court’s dismissal, as
barred by the Securities Litigation Uniform Standards Act of
1998 (“SLUSA”), of a putative class action brought against
Northern Trust alleging violations of state law involving
breaches of fiduciary duty by a trustee.
SLUSA deprives a federal court of jurisdiction to hear
certain state-law class actions.
The panel held that SLUSA did not preclude plaintiffs’
imprudent investment claims. Specifically, the panel held
that SLUSA’s “in connection” requirement did not preclude
claims brought by an irrevocable trust beneficiary – who has
no control over the trustee – alleging imprudent investments
by that trustee. Here, the district court’s dismissal relied
entirely on its conclusion that Northern was an agent of the
trusts’ beneficiaries, a conclusion unsupported by the
moving papers and First Amended Complaint.
The panel held that the district court erred in dismissing
plaintiffs’ fee-related tax preparation and overcharging
claims on SLUSA-preclusion grounds. The panel also held
that plaintiffs’ fee-related claims survive a Fed. R. Civ. P.
12(b)(6) motion to dismiss.
**
This summary constitutes no part of the opinion of the court. It
has been prepared by court staff for the convenience of the reader.
BANKS V. NORTHERN TRUST 3
Finally, the panel held that because plaintiffs’ elder
abuse claims and the claims against Northern’s corporate
parent were not precluded by SLUSA, and because the
briefing provided no other basis for dismissal, the dismissal
of those claims were reversed.
COUNSEL
Brian J. Malloy (argued) and Thomas J. Brandi, The Brandi
Law Firm, San Francisco, California; Derek G. Howard,
Derek G. Howard Law Firm, Mill Valley, California; for
Plaintiffs-Appellants.
Craig C. Martin (argued), Brienne M. Letourneau, Amanda
S. Amert, Daniel J. Weiss, and Craig C. Martin, Jenner &
Block LLP, Chicago, Illinois; for Defendants-Appellees.
OPINION
OWENS, Circuit Judge:
Lindie Banks and her daughter Erica LeBlanc (“Banks”),
hoping to represent a class of plaintiffs, appeal from the
dismissal of their putative class action lawsuit against
Northern Trust Company and Northern Trust Corporation
(“Northern”) for violations of state law involving breaches
of fiduciary duty by a trustee. The district court interpreted
the Securities Litigation Uniform Standards Act of 1998
(“SLUSA”) to bar the case from proceeding in federal court.
We have jurisdiction under 28 U.S.C. § 1291, and we reverse
and remand.
4 BANKS V. NORTHERN TRUST
I. FACTUAL AND PROCEDURAL BACKGROUND
Banks is the beneficiary of the irrevocable Lindstrom
Trust, created under California law. As trustee, Northern has
sole discretion on how to manage the trust’s assets; Banks
cannot participate in, direct, or be involved in those
decisions.
According to the First Amended Complaint (“FAC”),
Northern invested the trust’s assets in Northern’s own
affiliated “Funds Portfolio,” rather than seeking superior
investments outside its financial umbrella. This practice
allegedly led to the trust suffering suboptimal returns, which
would not have happened if Northern prioritized the interests
of the trust beneficiaries (and not merely its own). Banks
argues that favoring these inferior affiliated funds – over
better-performing non-Northern funds – put money in the
pockets of Northern, which thereby violated its duties of
prudent investment and loyalty to Banks.
The FAC also alleges that Northern, as part of an
“undisclosed internal decision to create a new profit center,”
charged improper and excessive fees for “routine
preparation of fiduciary tax returns” and failed to maintain
records to justify these expenses. These new fees, which
previously were “part of the base fee and a fundamental duty
for a trustee,” allegedly breached Northern’s duty of prudent
administration.
In addition, the FAC alleges elder abuse and unfair
competition claims under California law, both premised on
the same factual allegations underlying the investment and
fee-related claims.
Northern filed a Rule 12(b)(6) motion to dismiss,
contending that SLUSA prohibited these state-law claims
BANKS V. NORTHERN TRUST 5
from proceeding in federal court. Over Banks’ objection, the
district court agreed with Northern and dismissed the FAC
without leave to amend. The court reasoned that the
allegedly imprudent investments were in connection with the
purchase or sale of covered securities and featured material
misrepresentations or omissions. The court concluded that
SLUSA precluded Banks from bringing state-law fiduciary
duty claims as a class action in federal court.
The district court dismissed the fee, elder law, and unfair
competition claims without directly addressing them.
II. DISCUSSION
Although Northern moved to dismiss for failure to state
a claim under Federal Rule of Civil Procedure 12(b)(6), the
parties now agree that Rule 12(b)(1) – lack of subject matter
jurisdiction – is the proper rule to challenge a complaint
under SLUSA. See Hampton v. Pac. Inv. Mgmt. Co.,
869 F.3d 844, 846–47 (9th Cir. 2017) (holding that Rule
12(b)(1), and not Rule 12(b)(6), governs SLUSA motions to
dismiss).
We review de novo whether the district court should
have dismissed this case under Rule 12(b)(1). See U.S. ex
rel. Hartpence v. Kinetic Concepts, Inc., 792 F.3d 1121,
1126 (9th Cir. 2015) (en banc).
A. SLUSA does not preclude Banks’ imprudent
investment claims.
1. SLUSA
In 1995, Congress passed the Private Securities
Litigation Reform Act (“PSLRA”), which limited the filing
of federal securities class actions in federal court. Pub. L.
6 BANKS V. NORTHERN TRUST
No. 104-67, 109 Stat. 737. “[T]o avoid PSLRA’s heightened
pleading requirements for class-action securities lawsuits,
plaintiffs began asserting what were essentially federal
securities law claims as state law causes of action in state
courts. Congress sought to end this practice by enacting
SLUSA.” Northstar Fin. Advisors, Inc. v. Schwab Invs.,
904 F.3d 821, 828 (9th Cir. 2018) (citation omitted).
SLUSA prohibits certain state-law class actions:
(1) Class action limitations.
No covered class action 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 covered security; or
(B) that the defendant used or employed
any manipulative or deceptive device or
contrivance in connection with the
purchase or sale of a covered security.
15 U.S.C. § 78bb(f)(1).
To simplify, SLUSA deprives a federal court of
jurisdiction to hear “(1) a covered class action (2) based on
state law claims (3) alleging that the defendants made a
misrepresentation or omission or employed any
manipulative or deceptive device (4) in connection with the
BANKS V. NORTHERN TRUST 7
purchase or sale of (5) a covered security.” Northstar,
904 F.3d at 828. 1
When applying SLUSA to a complaint, courts must
“look to the substance of the allegations” to ensure that
“artful pleading” does not “remove[] the covered words . . .
but leave[] in the covered concepts.” Freeman Invs., L.P. v.
Pac. Life Ins. Co., 704 F.3d 1110, 1115 (9th Cir. 2013)
(second alteration in original) (quoting Segal v. Fifth Third
Bank N.A., 581 F.3d 305, 311 (6th Cir. 2009)). With that
important principle in mind, we recognize that this case turns
primarily on the “in connection with” requirement. 2 Even
assuming Banks adequately alleged that Northern made a
misrepresentation or omission or employed a manipulative
device or contrivance, we must decide if Northern’s alleged
activity was in connection with the purchase or sale of a
covered security.
2. The “in connection with” requirement
The Supreme Court twice has spoken about SLUSA and
its “in connection with” requirement. In Merrill Lynch,
Pierce, Fenner & Smith Inc. v. Dabit, 547 U.S. 71 (2006),
the Court stressed that the “in connection with” requirement
should be interpreted broadly, as “[a] narrow reading of the
statute would undercut the effectiveness of the [PSLRA] and
thus run contrary to SLUSA’s stated purpose,” which is to
prevent state-law class actions from end-running the
PSLRA. Id. at 86. The Court explained that “it is enough
1
SLUSA does not preclude a plaintiff from filing an individual (i.e.,
non-class action) state-law securities claim in state court.
2
Northern’s attempt to differentiate between subsections A and B
of SLUSA is unpersuasive because the “in connection with” requirement
is an element of both. See 15 U.S.C. § 78bb(f)(1)(A), (B).
8 BANKS V. NORTHERN TRUST
that the fraud alleged ‘coincide’ with a securities transaction
– whether by the plaintiff or by someone else” – to meet the
“in connection with” requirement. Id. at 85.
In Chadbourne & Parke LLP v. Troice, 571 U.S. 377(2014), the Court revisited the “in connection with”
requirement. The plaintiffs in Troice alleged that the
defendants induced victims to purchase uncovered securities
(certificates of deposit that are not traded on any national
exchange) by falsely stating that covered securities
(securities traded on a national exchange) backed the
uncovered securities. Id. at 380. The Court held that
SLUSA did not preclude the claims because the statute
required “misrepresentations that are material to the
purchase or sale of a covered security.” Id. at 387. In
discussing materiality, the Court addressed the “in
connection with” requirement, which demands “a
connection . . . where the misrepresentation makes a
significant difference to someone’s decision to purchase or
to sell a covered security.” Id. at 387 (citing Matrixx
Initiatives, Inc. v. Siracusano, 563 U.S. 27, 36–40 (2011)
(stating that a misrepresentation or omission is “material” if
a reasonable investor would have considered the information
significant when contemplating a statutorily relevant
investment decision)).
The Court also held that, under SLUSA, “[a] fraudulent
misrepresentation or omission is not made ‘in connection
with’ . . . a ‘purchase or sale of a covered security’” unless
that fraudulent conduct “is material to a decision by one or
more individuals (other than the fraudster) to buy or sell a
‘covered security.’” Id. at 387 (emphasis added). The Court
stressed that “the ‘someone’ making that decision to
purchase or sell must be a party other than the fraudster.” Id.
at 388. “If the only party who decides to buy or sell a
BANKS V. NORTHERN TRUST 9
covered security as a result of a lie is the liar, that is not a
‘connection’ that matters.” Id.
The Court was careful to state that Troice did not
overrule Dabit, noting:
[I]n Dabit, we held that [SLUSA] precluded
a suit where the plaintiffs alleged a
“fraudulent manipulation of stock prices”
that was material to and “‘coincide[d]’ with”
third-party securities transactions, while also
inducing the plaintiffs to “hold their stocks
long beyond the point when, had the truth
been known, they would have sold.” We do
not here modify Dabit.
Id. at 387 (citations omitted). Nevertheless, the Court
distinguished Dabit and other dissimilar cases because they
“involved a victim who took, tried to take, or maintained an
ownership position in the statutorily relevant securities
through ‘purchases’ or ‘sales’ induced by the fraud.” Id. at
389. The Court emphasized that “[e]very one of these cases
. . . concerned a false statement (or the like) that was material
to another individual’s decision to purchase or sell a
statutorily defined security.” Id. at 393 (emphasis added)
(internal quotation marks and alteration omitted).
This case presents a question of first impression in this
circuit: whether allegations concerning a trustee’s imprudent
investments constitute activity “in connection with” the
purchase or sale of securities when those allegations are
brought by the beneficiaries of an irrevocable trust. Banks
argues that any false statements or deceptive activity by
Northern could not have been material to a beneficiary’s
individual decision to purchase or sell a covered security for
two reasons: (1) a beneficiary who is not also a trustee of an
10 BANKS V. NORTHERN TRUST
irrevocable trust cannot make an individual decision to
purchase or sell securities for the trust, and (2) Banks has no
control over Northern’s decision to do so.
Applying Troice here, we agree with Banks. Unlike an
agent-principal relationship, beneficiaries who are not also
trustees of an irrevocable trust cannot direct Northern’s
actions as the trustee. Accordingly, even if Northern
engaged in fraudulent conduct, that conduct does not change
the fact that its beneficiaries are unable to purchase or sell
covered securities.
Northern contends that this difference between an agent
and a trustee is a meaningless one. But if Northern were
acting as an agent – similar to a stockbroker – Northern’s
statements and allegedly deceptive conduct could meet
SLUSA’s “in connection with” requirement because Banks
(and other beneficiaries) could have relied on Northern’s
statements to induce the purchase of the affiliated funds.
Conversely, if Northern was in fact acting as a trustee, and if
Banks did not have control over investment of trust assets,
Northern’s deceptive or manipulative conduct resulted only
in Northern – and no other party – purchasing affiliated
funds. As Troice specifically notes, SLUSA does not
preclude cases where “the only party who decides to buy or
sell a covered security as a result of a lie is the liar” because
“that is not a ‘connection’ that matters.” 571 U.S. at 388;
see also O’Donnell v. AXA Equitable Life Ins. Co., 887 F.3d
124, 130 (2d Cir. 2018) (holding in a non-trust case that even
if plaintiffs allege fraud, that fraud must be material to the
plaintiffs’ decision to buy, sell, or hold a covered security to
meet the “in connection with” requirement for SLUSA
preclusion).
BANKS V. NORTHERN TRUST 11
Caselaw and secondary sources support our conclusion
that preclusion turns on the distinction between a trustee and
an agent. As we previously have explained, while “both
agents and trustees are fiduciaries . . . there are significant
differences between the two.” N.L.R.B. v. United Bhd. of
Carpenters & Joiners, Local No. 1913, 531 F.2d 424, 426
(9th Cir. 1976). Simply put, “[a]n agent acts for and on
behalf of his principal and subject to his control,” while a
“trustee acts for the benefit of the beneficiaries of the trust;
he is an agent only if he agrees to hold title for the benefit
and subject to the control of another.” Id. (citing
Restatement 2d, Agency § 14B; Restatement 2d, Trusts § 8).
In contrast to the beneficiary-trustee relationship, an
agent acts subject to the control of his or her principal. This
degree of control explains the difference between this case
and S.E.C. v. Zandford, 535 U.S. 813, 822 (2002), upon
which Northern heavily relies. In Zandford, the Supreme
Court held that a broker could still be liable under § 10(b) of
the Securities Exchange Act without making an affirmative
misrepresentation because his principals granted him full
discretion to trade stocks on their behalf. See id. at 822.
Each time the broker “exercised his power of disposition for
his own benefit, that conduct, without more, was” actionable
under § 10(b). Id. at 821 (internal quotation marks omitted)
(quoting United States v. Dunn, 268 U.S. 121, 131 (1925)).
Northern argues Zandford shows that the level of control
between an agent and a trustee does not matter because a
principal can give full control to an agent – just like a trustee
has full control of a trust.
Northern overlooks the fact that the principal controls
and directs the agent, who the principal likely has chosen.
Unlike in the irrevocable trust context, a principal can revoke
control from an agent in the course of their relationship. In
12 BANKS V. NORTHERN TRUST
the irrevocable trust context, by contrast, unless otherwise
specified in the trust instrument, a beneficiary cannot alter
the powers of a trustee or remove the trustee without
petitioning a court of law. See Cal. Prob. Code § 17200(10)
(providing removal power to probate courts); Arnold H.
Gold et al., California Civil Practice Probate and Trust
Proceedings § 24:47, Westlaw (database updated May 2019)
(explaining trustees can be removed only in accordance with
the trust instrument or by a court).
Here, the FAC does not allege that beneficiaries made
any investment decision based on Northern’s conduct or
statements. Quite the opposite: the FAC alleges that Banks
had no control over how Northern invested the trust’s assets
because Banks was only the beneficiary of an irrevocable
trust. See FAC ¶¶ 16 (“[U]nder the governing trust
instrument, all investment discretion lies exclusively with
the trustee . . .”), 41 (“[A]s a legal matter, under the terms of
their trust, [Northern] has sole discretion with regard to any
and all investments.”), 359–60 (Northern “had the power and
responsibility to administer and invest the trust assets in the
best interests of the trust beneficiaries . . . [who] had no
control over the investments”). The FAC also alleges that
Northern conducted all the relevant purchases of covered
securities without direction from Banks or other
beneficiaries. Accordingly, Troice’s discussion of SLUSA’s
“in connection with” requirement is directly on point. The
FAC does not allege that Northern’s activities as trustee
were “in connection with” any purchase or sale of covered
securities by anyone other than Northern.
Northern’s strongest support against our application of
Troice – and its discussion of the “in connection with”
requirement – are two pre-Troice cases: Segal v. Fifth Third
Bank, N.A., 581 F.3d 305 (6th Cir. 2009), and Siepel v. Bank
BANKS V. NORTHERN TRUST 13
of Am., N.A., 526 F.3d 1122 (8th Cir. 2008). In Segal, trust
beneficiaries alleged that the trustee breached its fiduciary
and contractual duties by investing in proprietary and higher
fee accounts that benefited the trustee. 581 F.3d at 308. The
Sixth Circuit affirmed the dismissal of the complaint,
holding that SLUSA precluded the claims. See id. at 309–
10. In Siepel, the trust beneficiaries alleged state-law
fiduciary duty claims against the trustee because it failed to
disclose conflicts of interest in its selection of nationally
traded securities. See 526 F.3d at 1124. The Eighth Circuit
similarly held that SLUSA precluded the state-law claims
because the fraud “coincided” with the trustee’s purchase of
shares in the mutual funds. See id. at 1127.
But the post-Troice decision in Henderson v. Bank of
N.Y. Mellon Corp., 146 F. Supp. 3d 438 (D. Mass. 2015),
explains why Northern’s reliance on Segal and Siepel is
misplaced:
[E]ven if the self-dealing allegations amount
to a fraud claim, the fraud was not in
connection with the purchase or sale of the
covered securities except by the fraudster,
i.e., the trustee. Here, the plaintiff, as a trust
beneficiary, was powerless to buy or sell
covered securities . . . .
....
The analysis in both [Segal and Siepel] is
foreclosed by Troice, because both cases rely
on Dabit’s broad holding that for SLUSA to
preempt, the fraud may merely “coincide”
with the purchase or sale of covered
14 BANKS V. NORTHERN TRUST
securities. Siepel, 526 F.3d at 1127; Segal,
581 F.3d at 312.
146 F. Supp. 3d at 443. 3
In Henderson, the plaintiff-beneficiaries brought similar
fee and imprudent investment claims against the defendant-
trustee. See id. at 440–41. The court held that in light of
Troice, SLUSA did not preclude the claims. See id. at 443–
44. Northern argues Henderson directly contradicts Dabit
and construes the “in connection with” requirement too
narrowly. But Henderson’s understanding of Troice
conforms with the Supreme Court’s explanation of the “in
connection with” requirement: it must be read broadly, but
not so broadly that the connection between a defendant’s
conduct and the covered security becomes immaterial. 4 As
we already concluded after Dabit, the claims should “have
more than some tangential relation to the securities
3
Similarly, Northern’s reliance on Fleming v. Charles Schwab
Corp., 878 F.3d 1146, 1155–56 (9th Cir. 2017), and Holtz v. JPMorgan
Chase Bank, N.A., 846 F.3d 928, 929, 933–34 (7th Cir. 2017), is
misplaced because both cases involved an agent-principal relationship.
See also Taksir v. Vanguard Grp., 903 F.3d 95, 98 (3d Cir. 2018) (noting
that Fleming and Goldberg v. Bank of America, N.A., 846 F.3d 913 (7th
Cir. 2017) (per curiam), were factually distinguishable because those
plaintiffs conceded that the alleged misconduct “was plainly material to
brokerage customers”).
4
Northern asserts that we have cited Segal with approval multiple
times. But those citations were only for the proposition that the
substance and gravamen of the complaint govern in a preclusion inquiry.
See Freeman, 704 F.3d at 1115; Fleming, 878 F.3d at 1153; Hampton v.
Pac. Inv. Mgmt. Co. LLC, 705 F. App’x 558, 560 (9th Cir. 2017). We
have not cited Segal for its application of SLUSA to state-law trust
claims.
BANKS V. NORTHERN TRUST 15
transaction.” Fleming, 878 F.3d at 1155 (quoting Freeman,
704 F.3d at 1116). 5 And as the Third Circuit explained in
Taksir, “the Supreme Court in Troice made clear that . . .
Troice clarifies – rather than modifies – Dabit.” 903 F.3d
at 97.
Northern would like us to read Dabit without considering
its clarification in Troice. But we will not render Troice
meaningless the way that Game of Thrones rendered the
entire Night King storyline meaningless in its final season.
Troice directly supports our conclusion that a trustee’s
misconduct – over which a beneficiary of an irrevocable
trust has no control – cannot constitute misconduct “in
connection with” the sale of covered securities where “the
only party who decides to buy or sell a covered security as a
result of a lie is the [trustee].” Troice, 571 U.S. at 388. To
use the language in Troice, the trustee is both the buyer and
the “fraudster”; because the trustee can deceive only itself
with any alleged misconduct, its misconduct does not require
SLUSA preclusion. See also Bernard v. BNY Mellon Nat’l
Ass’n, No. 2:18-cv-00783-CRE Dkt. 58 (W.D. Pa. June 14,
2019). Troice confirms that SLUSA’s “in connection with”
requirement does not preclude claims brought by an
5
Northern also contends that we disavowed this application of
Troice in Fleming, where in a footnote we rejected the argument that
Troice “amended the Dabit ‘coincide’ standard.” 878 F.3d at 1155 n.5.
This argument fails for two reasons. First, we agree that Troice did not
amend Dabit, but simply clarified its application. Fleming’s holding –
that the “in connection with requirement” should “have more than some
tangential relation to the securities transaction” – supports our
conclusion. Id. at 1155. Second, Fleming considered SLUSA preclusion
in a situation involving brokers as agents, not the trust context.
16 BANKS V. NORTHERN TRUST
irrevocable trust beneficiary – who has no control over the
trustee – alleging imprudent investments by that trustee. 6
Here, the district court’s dismissal relied entirely on its
conclusion that Northern was an agent of the trusts’
beneficiaries, a conclusion unsupported by the moving
papers and the FAC. Not only did the district court fail to
consider Banks’ allegations that the beneficiaries lacked any
control over the trustees – an allegation supported by
caselaw and secondary sources – but courts generally
determine the existence of an agency relationship at the
summary judgment stage, not in determining a motion to
dismiss. See Rookard v. Mexicoach, 680 F.2d 1257, 1261
(9th Cir. 1982). Moreover, the district court’s brief
discussion of Troice did not acknowledge Troice’s holding
that the “in connection with” requirement is not met if the
fraudster alone bought or sold the covered securities. The
district court erred in concluding SLUSA precluded Banks’
imprudent investment claims.
Because we conclude Banks’ imprudent investment
claims do not meet the “in connection with” requirement for
SLUSA preclusion, we need not decide whether the claims
meet SLUSA’s fraudulent conduct requirement, i.e.,
whether Banks adequately alleged Northern (1) engaged in
misrepresentation or omission of a material fact or (2) used
or employed any manipulative or deceptive device or
contrivance. We reverse and remand all of Banks’
imprudent investment claims.
6
Our opinion is limited to claims involving a trustee-beneficiary
irrevocable trust relationship in which the trust instrument does not grant
the beneficiary financial management trustee powers. We do not opine
on how Troice may affect other state-law claims.
BANKS V. NORTHERN TRUST 17
B. Banks’ fee-related claims
1. SLUSA does not preclude Banks’ fee-related
claims.
The FAC alleged three claims related to management
fees, asserting that Northern: (1) improperly charged tax-
preparation fees, (2) failed to maintain records justifying
those costs, and (3) overcharged fixed-fee trusts. The district
court dismissed these claims as precluded by SLUSA but did
not explain how the alleged activities were “in connection
with” securities transactions. The same concern that
animates our holding as to the imprudent investment claims
– that a trustee’s misconduct, without more, cannot
constitute misconduct “in connection with” the purchase or
sale of covered securities – applies equally to Banks’ fee
claims.
Northern argues that the fee claims should be precluded
because they are “inextricably intertwined” with the
investment claims. Not only are the fee claims not precluded
by SLUSA because of the “in connection with” requirement,
the fee claims also lack any plausible relationship to covered
securities. Unlike the investment claims, Banks’ fee claims
do not allege conduct in relation to any securities
transactions.
The Third Circuit’s recent decision in Taksir, which held
that SLUSA did not bar investors’ almost identical
overcharging claims against their broker, is instructive. See
903 F.3d at 99. Taksir concluded SLUSA did not apply
because the overcharges were “not the result of a material
misrepresentation about securities transactions, but rather a
contractual breach . . . tangentially related to the securities
transactions.” Id. Taksir relied on Troice for its holding that
the fee-related claims were not “in connection with”
18 BANKS V. NORTHERN TRUST
transactions involving a security, because the fees were not
plausibly material to the sale or purchase of a security. See
id. Additionally, Taksir recognized our dicta in Fleming that
“a claim that [the broker] charged Plaintiffs $10 for
executing a trade, despite a contract providing for a $5
charge, would not be barred” by SLUSA. Id. at 98
(alteration in original) (quoting Fleming, 878 F.3d at 1153).
The district court’s order did not address these
considerations or discuss the fee claims in any substantive
manner, nor did it explain why SLUSA would preclude these
claims. Because we agree with the reasoning in both Taksir
and Fleming, we conclude the district court erred in
dismissing the tax-preparation and overcharging claims on
SLUSA-preclusion grounds.
2. Banks’ fee-related claims survive 12(b)(6).
Separately from its SLUSA-preclusion argument,
Northern’s motion to dismiss the FAC also contended that
Banks did not sufficiently plead the fee-related claims under
Rule 12(b)(6). To survive a Rule 12(b)(6) motion to dismiss
for failure to state a claim, a complaint must offer “more than
labels and conclusions,” and instead contain “enough factual
matter” indicating “plausible” grounds for relief, not merely
“conceivable” ones. Bell Atlantic Corp. v. Twombly,
550 U.S. 544, 555–56, 570 (2007). Northern argues that
because its fees were reasonable, Banks failed to state a
claim. Northern also contends the FAC consists of
conclusory allegations. The district court did not rule on
these arguments because it held SLUSA precluded the fee-
related claims.
A trustee must administer a trust according to its
instrument and the laws of trusts, see Cal. Prob. Code
§ 16001, and may only incur appropriate and reasonable
BANKS V. NORTHERN TRUST 19
costs. See Cal. Prob. Code § 16050. Trustees are under a
continuing duty to account for dealings with trust property
and to provide those accountings to the beneficiaries on
demand. See In re Estate of De Laveaga, 326 P.2d 129, 133
(Cal. 1958); see also Cal. Prob. Code § 16062. A trustee’s
violation of its duty is a breach of trust. See Cal. Prob. Code
§ 16400.
The FAC alleged which specific fees were at issue – tax-
preparation fees and fees in excess of the fixed-fee allowed
by the trust – and explained why those fees allegedly
breached Northern’s duty of loyalty. The FAC also alleged
that the $900 tax-preparation fee was previously part of the
regular trust administration fee but subsequently became a
separate cost, without approval by a probate court. The FAC
alleged that, “[a]s time has progressed, and despite the
benefits of computerization and technology capabilities at
Northern Trust, the fees charged have increased” without
explanation. The FAC also asserted that Northern did not
provide any information about when, how, or why it began
charging tax-preparation fees. The FAC contended these
combined allegations amounted to breach-of-trust
violations: “[t]his uniform practice of charging excessive
and improper fees violates the duties of loyalty and prudent
administration by placing [Northern’s] own financial
interest above the interest of Plaintiffs and members of the
proposed Tax Preparation Class.”
These detailed allegations meet Twombly’s plausibility
requirement and amount to more than conclusory labels.
C. Banks’ elder abuse claims and claims against NT
Corp.
Finally, Northern argues that Banks’ opening brief did
not address the district court’s dismissal of the elder abuse
20 BANKS V. NORTHERN TRUST
claims and the claims against NT Corp., Northern’s
corporate parent. Banks responds that the district court
dismissed all those claims based solely on SLUSA
preclusion, which is why its opening brief focused on the
inapplicability of SLUSA preclusion. Further, Banks’
opening brief argued the district court erred by summarily
dismissing the complaint because it should have considered
the FAC on a claim-by-claim basis. See Proctor v. Vishay
Intertech., Inc., 584 F.3d 1208, 1228 (9th Cir. 2009) (holding
that “SLUSA does not require the dismissal of all non-
precluded claims appearing in the same complaint as a
precluded claim”). As SLUSA does not preclude the elder
abuse claims or the claims against NT Corp., and because
the briefing provides no other basis for dismissal, we also
reverse the dismissal of those claims. 7
REVERSED AND REMANDED. 8
7
We decline to reach whether the district court erred by dismissing
the claims without leave to amend, as our analysis renders that issue
moot.
8
We decline to reassign this case to a different district court judge.
See United States v. Paul, 561 F.3d 970, 975 (9th Cir. 2009) (per curiam)
(noting the three-factor test for reassignment).