In RGH Liquidating Trust v. Deloitte & Touche, LLP, 2011 WL 2471542 (N.Y. June 23, 2011), the New York Court of Appeals held that a liquidating trust established pursuant to a bankruptcy reorganization plan was a single “person” within the meaning of the “single-entity exemption” in the Securities Litigation Uniform Standards Act of 1998 (“SLUSA”). SLUSA effectively vests federal courts with exclusive jurisdiction over most securities fraud actions involving more than fifty plaintiffs. It provides further that for purposes of counting the number of plaintiffs, “a corporation, investment company, pension plan, partnership, or other entity, shall be treated as one person or prospective class member, but only if the entity is not established for the purpose of participating in the action.” Here, the Court of Appeals held that the bankruptcy liquidating trust fell within that single-entity exemption because the primary purpose of the trust was not to pursue the litigation. For this reason, the action brought by the trust was not subject to preemption or removal to federal court. With this decision, the Court clarified the scope of state court jurisdiction over securities fraud class actions.

SLUSA provides that no state or federal court may entertain a “covered class action” brought by a private party and based on state statutory or common law, which alleges fraud or manipulation in connection with the purchase or sale of a “covered security.” SLUSA defines a “covered class action” as a “single lawsuit” or “group of lawsuits” in which “damages are sought on behalf of more than 50 persons or prospective class members, and questions of law or fact common to those persons or members . . . predominate over any questions affecting only individual persons or members.” See 28 U.S.C. §§ 77p(f)(2)(A); 78bb(f)(5)(B). As noted above, SLUSA’s “single-entity exemption” specifies that for the purposes of counting whether there are fifty or more persons or prospective class members, “a corporation, investment company, pension plan, partnership, or other entity, shall be treated as one person or prospective class member, but only if the entity is not established for the purpose of participating in the action.” See 28 U.S.C. §§ 77p(f)(2)(C); 78bb(f)(5)(D).