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                                                                                [PUBLISH]



                 IN THE UNITED STATES COURT OF APPEALS

                           FOR THE ELEVENTH CIRCUIT
                             ________________________

                                    No. 16-14144
                              ________________________

                         D.C. Docket No. 0:15-cv-60334-WPD



JYLL BRINK,
on her own behalf, and on behalf of those similarly situated,

                                                                 Plaintiff - Appellant,

                                           versus

RAYMOND JAMES & ASSOCIATES, INC.,

                                                                 Defendant - Appellee.


                              ________________________

                     Appeal from the United States District Court
                         for the Southern District of Florida
                           ________________________

                                       (June 8, 2018)

Before JORDAN and JILL PRYOR, Circuit Judges, and REEVES, ∗ District Judge.


       ∗
       Honorable Danny C. Reeves, United States District Judge for the Eastern District of
Kentucky, sitting by designation.
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JILL PRYOR, Circuit Judge:

       Jyll Brink appeals the district court’s dismissal of her putative class action

complaint. She argues that the district court erred in determining that her state law

claims for negligence and breach of contract against Raymond James and

Associates, Inc. (“RJA”) were precluded under Title I of the Securities Litigation

Uniform Standards Act of 1998 (“SLUSA”), which prohibits class actions alleging

state law causes of action based on conduct that constitutes federal securities fraud.

Specifically, she disputes that her complaint alleged that RJA made a

“misrepresentation . . . of a material fact in connection with the purchase or sale of

a covered security.” 15 U.S.C. § 78bb(f)(1)(A). After careful review, we reverse

the district court’s order and remand for further proceedings consistent with this

opinion.

                                  I.      BACKGROUND 1

       As an alternative to a traditional commission-based investment account, RJA

offered a “Passport Account” program that charged customers an annual advisory

fee based on the total value of qualifying assets in the account instead of a

commission based on each individual trade. In addition, Passport Account

customers were charged a flat fee per transaction. In its written agreement with

       1
        At the motion to dismiss stage, we accept all factual allegations in the complaint as true
and construe them in the light most favorable to the plaintiff, here, Brink. Chaparro v. Carnival
Corp., 693 F.3d 1333, 1335 (11th Cir. 2012).
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each Passport Account customer (the “Passport Agreement”), RJA described this

flat fee as a “Processing Fee” for “transaction execution and clearing services” and

stated that the Processing Fees were “not commissions.” Compl. at 2 (Doc. 1).2

       RJA published a schedule of the Processing Fees in the Passport Agreement.

Before October 1, 2013, RJA’s Processing Fees ranged from $30.00 to $50.00 per

transaction, depending on the type of security. Beginning October 1, 2013, RJA

reduced the Processing Fees to range from $9.95 to $30.00. But the actual costs

incurred in the execution and clearing of the transactions were much lower than the

Processing Fees charged, allegedly no more than $5.00 per transaction. RJA kept

as profit any amount above the actual costs associated with transaction execution

and clearing.

       Brink filed this putative class action complaint alleging state law claims for

breach of contract and negligence. Brink alleged that because Passport Account

customers had agreed only to pay for “expenses incurred in facilitating the

execution and clearing” of their trades, RJA’s undisclosed profit built into the

Processing Fees breached the Passport Agreement. Id. at 3. She also claimed that

RJA breached its duty of care owed to its customers, which she alleged included a

duty to charge customers a reasonable fee for its services.



       2
        Unless otherwise specified, all citations in the form of “Doc. #” refer to the district court
docket entries.
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      After class certification discovery, Brink moved for class certification, and

RJA moved for summary judgment. While both of those motions were still

pending, RJA filed a motion to dismiss for lack of subject matter jurisdiction,

arguing that Brink’s state law claims were disguised claims for federal securities

fraud. Thus, RJA claimed, Brink’s putative class action was precluded under

SLUSA. As relevant here, SLUSA provides:

      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.

15 U.S.C. § 78bb(f)(1)(A). The district court concluded that Brink’s claims were

precluded because RJA’s alleged conduct constituted “a misrepresentation or

omission of a material fact in connection with the purchase or sale of a covered

security,” id., and granted RJA’s motion to dismiss. This is Brink’s appeal.

                         II.   STANDARD OF REVIEW

      “We review de novo . . . the district court’s conclusion that SLUSA

precludes [a plaintiff] from bringing . . . state law claims.” Instituto de Prevision

Militar v. Merrill Lynch, 546 F.3d 1340, 1344 (11th Cir. 2008).

                                III.   DISCUSSION

      Before addressing whether SLUSA precludes Brink’s putative class action,

we provide a brief background on the history and purpose of SLUSA. Federal law


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“broadly prohibits deception, misrepresentation, and fraud in connection with the

purchase or sale of any security.” Merrill Lynch v. Dabit, 547 U.S. 71, 78 (2006)

(internal quotation marks omitted). Almost half a century ago, the Supreme Court

recognized an implied right of action for private citizens alleging federal securities

fraud. See Superintendent of Ins. of N.Y. v. Bankers Life & Casualty Co. 404 U.S.

6, 13 & n.9 (1971). Concerned about “significant evidence of abuse in private

securities lawsuits,” H.R. Rep. No. 104-369, at 31 (1995) (Conf. Rep.), Congress

later passed the Private Securities Litigation Reform Act of 1995 (“PSLRA”), Pub.

L. 104-67, 109 Stat. 737 (1995) (codified at 15 U.S.C. §§ 77z and 78u-4). To

combat these “perceived abuses,” the PSLRA implemented multiple reforms in the

context of private federal securities fraud lawsuits, including “heightened pleading

requirements” and limitations on “recoverable damages and attorney’s fees.”

Dabit, 547 U.S. at 81.

      Although the PSLRA apparently was effective in deterring nuisance “suits

. . . [based on] federal securities fraud class actions,” it also “prompted at least

some of the plaintiffs’ bar to avoid the federal forum altogether.” Id. at 82.

Troubled by the flood of cases being brought in state court, Congress enacted

SLUSA to “stem this shift 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 PSLRA. Id. (alterations adopted) (internal quotation marks


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omitted). To that end, SLUSA provides that “[n]o covered class action based upon

the statutory or common law of any State . . . may be maintained in any State or

Federal court by any private party alleging . . . a misrepresentation of a material

fact in connection with the purchase or sale of a covered security.” 15 U.S.C.

§ 78bb(f)(1)(A). 3

       The question before us today is whether Brink’s putative class action alleges

that RJA made such a misrepresentation. If it does, then SLUSA precludes Brink’s

putative class action based on state law causes of action. If it does not, then

SLUSA is inapplicable, and Brink’s case may continue. We conclude that SLUSA

does not prohibit Brink’s putative class action because RJA’s alleged failure to

disclose the hidden profit built into the Processing Fee is not a misrepresentation of

a material fact for purposes of SLUSA. Id.

A.     Subject Matter Jurisdiction

       As with any case, we first must address our jurisdiction. See Arbaugh v. Y &

H Corp., 546 U.S. 500, 514 (2006). The district court dismissed this case for lack

of subject matter jurisdiction after concluding that SLUSA precluded Brink’s

claims. But this Court suggested in Riley v. Merrill Lynch that we analyze

jurisdiction differently in SLUSA cases depending on whether a state law class

       3
          SLUSA also precludes covered class actions alleging “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)(B), but neither party suggests that this
provision is at issue here.

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action was filed directly in federal court in the first instance or was removed to

federal court under SLUSA’s removal provision. 4 See 292 F.3d 1334, 1336-37

(11th Cir. 2002), abrogated on other grounds by Dabit, 547 U.S. at 89. In the

former circumstance, we must assess diversity jurisdiction before considering

SLUSA preclusion.

       In Riley, the trustees of the Performance Toyota, Inc. Profit Sharing Plan

(“Performance Plan”) and the trustee of the Master Packaging, Inc. 401(k) plan

(“Master Packaging”) filed a class action lawsuit against Merrill Lynch in federal

court alleging violations of two Florida statutes. The plaintiffs argued that Merrill

Lynch made material misrepresentations that induced the class members to

purchase and retain shares of a certain fund. Id. at 1336. Merrill Lynch moved to

dismiss, arguing that SLUSA barred the plaintiffs’ class action and that there was

no diversity jurisdiction. Id. While that motion was pending, Performance Plan

voluntarily dismissed and refiled in state court. Master Packaging maintained its

claims in federal court. After Performance Plan refiled in state court, Merrill

Lynch removed the case back to federal court, where it was consolidated again

with the Master Packaging action. Id.




       4
          “Any covered class action brought in any State court involving a covered security . . .
shall be removable to the Federal district court . . . and shall be subject to [SLUSA’s preclusion
provision].” 15 U.S.C. § 78bb(f)(2).

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      We analyzed Merrill Lynch’s motion to dismiss differently as to the two

plaintiffs. As for Performance Plan’s claims, we reasoned that when a defendant

removed a state law class action to federal court pursuant to SLUSA, and “SLUSA

was the only basis for removal,” the first step of our jurisdictional analysis was to

determine “whether SLUSA permitted removal from state to federal court.” Id. at

1337. This required “determin[ing] SLUSA’s applicability to” the action. Id. at

1340. We concluded that because SLUSA applied to and therefore barred

Performance Plan’s claims, the district court properly dismissed those claims rather

than remanding the action to state court. Id. at 1346.

      Master Packaging’s claims, however, were filed “in diversity directly in

federal court.” Id. at 1337. We therefore were “required to assess whether

[diversity jurisdiction was present] before addressing the merits of its [state law]

claims and before determining whether SLUSA barred those claims.” Id. at 1336-

37. If “diversity was lacking . . . , this determination eliminate[d] the need to reach

the SLUSA question.” Id. at 1339-40.

      Here, Brink filed suit directly in federal court. The district court thus should

have determined whether diversity jurisdiction was present before considering

SLUSA preclusion. Following Riley’s approach, we assess diversity jurisdiction




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before deciding whether SLUSA applies. Because diversity jurisdiction has been

properly pled in this case, we proceed to consider the SLUSA preclusion issue. 5

B.     SLUSA Preclusion

       SLUSA precludes “covered class action[s]” based on state law causes of

action that allege “a misrepresentation or omission of a material fact in connection

with the purchase or sale of a covered security.” 15 U.S.C. § 78bb(f)(1)(A). It is

undisputed that Brink’s putative state law class action is a “covered” one and that

the securities at issue are covered securities. 6 We thus must determine whether the

conduct alleged in Brink’s complaint—that RJA built a profit into the Processing

Fee while representing to its Passport Account customers that the Processing Fee

covered only the actual costs of transaction execution and clearing—constitutes a

“misrepresentation or omission of a material fact in connection with the purchase

or sale” of those securities, despite Brink having pled claims for breach of contract


       5
          Before oral argument, Brink moved to amend her complaint to correct her jurisdictional
allegations. That motion was previously denied as unnecessary. We sua sponte reconsider, and
the motion is GRANTED. As amended, Brink’s complaint adequately alleges diversity of
citizenship. See Lowery v. Ala. Power Co., 483 F.3d 1184, 1193 n.24 (11th Cir. 2007)
(explaining that the Class Action Fairness Act modified the diversity requirement for certain
class actions so that “only one member of the plaintiff class—named or unnamed—must be
diverse from any one defendant”). Although Brink fails to identify a diverse class member, at
this stage of the proceedings there is no class action nor any class members. Her allegations are
sufficient because she has shown that there is a “foreseeable possibility” that there will be a
diverse class member upon class certification. Clausnitzer v. Federal Exp. Corp., 621 F. Supp.
2d 1266, 1270 (S. D. Fla. 2008).
       6
         “A ‘covered class action’ is a lawsuit in which damages are sought on behalf of more
than 50 people. A ‘covered security’ is one traded nationally and listed on a regulated national
exchange.” Dabit, 547 U.S. at 83.

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and negligence. See Behlen v. Merrill Lynch, 311 F.3d 1087, 1090, 1094 (11th Cir.

2002) (determining that although the plaintiff had alleged breach of contract, it was

“clear that the crux of the complaint was that the defendants either misrepresented

or omitted crucial facts about the . . . shares, thus causing him and the class to

invest in inappropriate securities”). As Brink does not dispute that her breach of

contract and negligence claims are in fact claims about RJA’s misrepresentation

regarding the Processing Fee, we begin our analysis of whether the alleged

misrepresentation was material.

       Materiality has special meaning in the context of federal securities fraud, as

well as in SLUSA. 7 The Supreme Court has explained that materiality in federal

securities law requires a “substantial likelihood that the disclosure of the omitted

fact would have been viewed by the reasonable investor as having significantly

altered the total mix of information made available.” Basic Inc. v. Levinson, 485




       7
          We conclude that it is appropriate to look to the meaning of materiality in securities
fraud cases brought under § 10(b) and Rule 10-5 to understand SLUSA’s materiality
requirement. See Appert v. Morgan Stanley Dean Witter, Inc., 673 F.3d 609, 616 (7th Cir. 2012)
(“The language in SLUSA is similar to that in § 10(b) and Rule 10b-5 and there is no basis to
construe ‘materiality’ differently under these provisions.”); cf. Instituto de Prevision Militar, 546
F.3d at 1348 (explaining that SLUSA’s “in connection with the purchase or sale” language
“covers the same range of activities that the SEC could prosecute as violations of § 10(b) and
Rule 10b-5”). The Supreme Court has explained that when Congress used language in SLUSA
“identical” to the language used in § 10(b) and Rule 10b-5, it intended for that language to have
“the same meaning” in both contexts. See Dabit, 547 U.S. at 85-86 (construing the phrase “in
connection with the purchase or sale” of securities in SLUSA to have the same meaning as the
identical language used in § 10(b) and Rule 10b-5).

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U.S. 224, 231-32 (1988) (internal quotation marks omitted). 8 Thus, as RJA

concedes, for SLUSA to preclude a state law class action the misrepresentation

must “make[] a significant difference to someone’s decision to purchase or to sell a

covered security.” Appellee’s Br. at 26 (quoting Chadbourne & Parke LLP v.

Troice, 134 S. Ct. 1058, 1066 (2014)).

       Applying this standard, we have concluded that a misrepresentation that

would only influence an individual’s choice of broker is not “material” for federal

securities fraud actions brought under § 10(b) and Rule 10b-5. See SEC v. Goble,

682 F.3d 934 (11th Cir. 2012). As we explained in Goble:

       This court has said that the test for materiality in the securities fraud
       context is whether a reasonable man would attach importance to the
       fact misrepresented or omitted in determining his course of action.
       We understand this “course of action” to mean an investment
       decision—not an individual’s choice of broker-dealers. . . . We hold
       that a misrepresentation that would only influence an individual’s
       choice of broker-dealers cannot form the basis for § 10(b) securities
       fraud liability.

Id. at 943-44 (citations and internal quotation marks omitted).



       8
         RJA argues that federal securities fraud cases brought by private plaintiffs, such as
Basic Inc., are inapplicable because the Supreme Court held in Dabit that SLUSA preclusion,
like § 10(b) and Rule 10b-5, sweeps more broadly than the judicially created private right of
action for federal securities fraud. But Dabit concerned the identity of the plaintiffs, not the
materiality of the misrepresentations. Id. at 84, 89. Since Dabit, the Supreme Court has relied
on private securities fraud cases to inform its interpretation of the phrase “material fact in
connection with the purchase or sale” in SLUSA. See Chadbourne & Parke LLP v. Troice, 134
S. Ct. 1058, 1066 (2014) (relying on Matrixx Initiatives, Inc. v. Siracusano, 131 S. Ct. 1309
(2011), a private securities fraud class action, for the definition of material in SLUSA). We thus
conclude it is appropriate to look to the treatment of materiality in such cases.

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      Following this reasoning, the choice of a type of investment account, much

like the choice of a broker-dealer, is not intrinsic to the investment decision itself.

Although RJA’s alleged misrepresentation regarding the Processing Fee might

have influenced a reasonable investor’s decision to pick the Passport Account over

another type of account, that does not make the alleged representation “material”

under SLUSA.

      Importantly, RJA did not “mislead [its] customers as to what portion of the

total transaction cost was going toward purchasing securities versus the cost of the

broker’s involvement.” United States v. Litvak, 808 F.3d 160, 176 (2d Cir. 2015).

Further, Passport Account customers chose to trade securities with full knowledge

of the amount of the Processing Fee for each trade and never paid more than they

agreed. We do not believe that a reasonable investor would have made different

investment decisions had she known that some of the Processing Fee—a fee she

had agreed to pay and presumably had included in her cost-benefit calculation

before making each trade—included profit for RJA instead of merely covering the

transaction execution and clearing costs.

      We find it persuasive that two other circuits likewise have determined that a

hidden profit on a processing or transaction fee is not material under federal

securities law. In a Second Circuit case, investors alleged that a brokerage firm

charged hidden commissions on transactions, labeled as “transaction fees” on the


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transaction confirmation slips. Feinman v. Dean Witter Reynolds, Inc., 84 F.3d

539, 540 (2d Cir. 1996). 9 The Second Circuit held that the alleged conduct did not

constitute federal securities fraud because the misrepresentation was not material

as a matter of law: “Simply stated, reasonable minds could not find that an

individual investing in the stock market would be affected in a decision to purchase

or sell a security by knowledge that the broker was pocketing a dollar or two of the

fee charged for the transaction.” Id. at 541. Similarly, the Seventh Circuit has held

that SLUSA did not preclude a state law breach of contract claim where the

allegation was that the broker-dealer “improperly inflated the [handling, postage

and insurance fee] to include a profit” because the inflated fee was “not objectively

material to . . . any class members’ investment decisions.” Appert v. Morgan

Stanley Dean Witter, Inc., 673 F.3d 609, 617 (7th Cir. 2012).

       RJA argues that Feinman and Appert are distinguishable because the alleged

hidden profit built into the Processing Fee in this case is much higher than the

charges in those two cases. We are unconvinced. Here, it is true that the alleged

undisclosed profit is more than “a dollar or two,” but this is a distinction without a

difference: Brink, just like the plaintiffs in Feinman and Appert, knew how much

she was being charged for costs associated with each transaction and was never

       9
         RJA insists that Feinman is “wholly inapplicable because it was decided prior to
SLUSA’s enactment.” Appellee’s Br. at 27. But Feinman construed the materiality requirement
under federal securities law, which, as we explained in the previous footnotes, sheds light on
materiality for SLUSA purposes.

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charged more than she agreed to pay. It is the nature of the fees, not their amount,

that renders the misrepresentation immaterial as a matter of law.

       Here, RJA’s alleged undisclosed profit on the Processing Fee for each

transaction—a fee for transaction execution and clearing, known and agreed to in

advance by Passport Account customers—objectively could not make a significant

difference to a reasonable investor’s decision to purchase or sell a covered security.

As the court in Feinman noted, “[i]f brokerage firms are slightly inflating the cost

of their transaction fees, the remedy is competition among the firms in the labeling

and pricing of their services, not resort to the securities fraud provisions.” 84 F.3d

at 541. The conduct alleged in Brink’s complaint is therefore not “a

misrepresentation or omission of a material fact in connection with the purchase or

sale of a covered security.” 15 U.S.C. § 78bb(f)(1)(A) (emphasis added). Because

we conclude that the alleged misrepresentation was not material, we do not

consider whether it was made “in connection with” the purchase or sale of covered

securities.10 SLUSA does not preclude Brink’s putative class action.


       10
          RJA relies on four out-of-circuit cases in support of its argument that SLUSA bars
Brink’s claims. See Zola v. TD Ameritrade, Inc., 889 F.3d 920 (8th Cir. 2018); Dommert v.
Raymond James Fin. Servs., Inc., No. CIV A 1:06-CV-202, 2007 WL 1018234 (E.D. Tex. Mar.
29, 2007); Broadhead v. Goldman Sachs, No. 2:06CV009, 2007 WL 951623 (E.D. Tex. Mar. 26,
2007); Lewis v. Scottrade, Inc., 204 F. Supp. 3d 1064 (E.D. Mo. 2016). Of course, we are not
bound by these decisions. But we also note that the material facts of each case are
distinguishable from the allegations before us. Indeed, in those cases the plaintiffs alleged that
the broker had “manipulate[d] the price of the securities,” Zola, 889 F.3d at 924, charged fees
that “misle[]d [its] customers as to what portion of the total transaction cost was going toward
purchasing securities,” Litvak, 808 F.3d at 176, or received undisclosed kickbacks and
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                                    IV.    CONCLUSION

       We reverse the order of the district court dismissing this case for lack of

subject matter jurisdiction and remand the case to the district court for further

proceedings consistent with this opinion.

       REVERSED AND REMANDED.




incentives, creating a conflict of interest. For example, in Zola, the defendant’s alleged conduct
“enabled high-frequency traders to manipulate the price of the securities, to the detriment of the
plaintiffs.” 889 F.3d at 924. In Dommert, the defendants allegedly “failed to disclose important
information . . . about fees and financial gain” and “established a system wrought with conflicts
of interest in the form of undisclosed financial incentives.” 2007 WL 1018234, at *2, *8
(internal quotation marks omitted). In Broadhead, the allegations were that the defendants
“add[ed] extra amounts . . . to certain bond purchase prices[,] . . . subtract[ed] certain amounts
. . . from bond sales prices,” and failed disclose the mark ups and mark downs to customers,
providing statements that “only reflect[ed] a net selling or purchase price.” 2007 WL 951623, at
*1. And in Lewis, the defendant allegedly failed to disclose that it routed its customers’ trades to
trading venues that offered the biggest kickbacks to the broker, at the expense of its customers
obtaining a more advantageous price. 204 F. Supp. 3d at 1066, 1068.
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