Suit against Merrill a No Go for State Court

June 12, 2002 ( - 401(k) plan trustees can't sue Merrill Lynch in Florida state court for improperly recommending participants buy shares of Merrill's growth fund, a federal appeals court ruled.

The US Eleventh Circuit Court of Appeals decided that the federal Securities Litigation Uniform Standards Act of 1998 (SLUSA) prohibits the disputes between Merrill and two 401(k) plans from going to state court.

In particular, SLUSA would cover allegations that Merrill’s misrepresentations about the fund caused participants to purchase shares, Circuit Judge Rosemary Barkett said, writing for the appeals court.

Two trustees of the Performance Toyota Inc. 401(k) Profit Sharing Plan, along with a trustee of the Master Packing Inc. 401(k) Plan, filed class actions in a federal district court against Merrill Lynch alleging the firm violated the Florida Securities and Investor Protection Act and the Florida Deceptive and Unfair Trade Practices Act.

After some wrangling about the suit’s proper venue, a US District Court judge for the Middle District of Florida said the Performance Toyota Inc. plan’s suit was barred by SLUSA from going to state court and that the Master Packing Inc. plan claims also didn’t belong in federal court. The appeals court upheld the lower court decision.

To avoid the SLUSA, the Toyota plan had show that Merrill’s alleged misrepresentation caused participants to hold shares of Merrill’s growth fund rather than to buy or sell the shares, the appeals judges said. 

The case is Riley v. Merrill Lynch, Pierce, Fenner & Smith Inc., 11th Cir., No. 01-16150, 6/7/02.