                  FOR PUBLICATION

  UNITED STATES COURT OF APPEALS
       FOR THE NINTH CIRCUIT


NORTHSTAR FINANCIAL ADVISORS,               No. 16-15303
INC., on behalf of itself and all others
similarly situated,                            D.C. No.
                    Plaintiff-Appellant,    5:08-cv-04119-
                                                 LHK
                  v.

SCHWAB INVESTMENTS; MARIANN                   OPINION
BYERWALER; DONALD F. DORWARD;
WILLIAM A. HASLER; ROBERT G.
HOLMES; GERALD B. SMITH;
DONALD R. STEPHENS; MICHAEL W.
WILSEY; CHARLES R. SCHWAB;
RANDALL W. MERK; JOSEPH H.
WENDER; JOHN F. COGAN; CHARLES
SCHWAB INVESTMENT
MANAGEMENT, INC.,
            Defendants-Appellees.


      Appeal from the United States District Court
        for the Northern District of California
        Lucy H. Koh, District Judge, Presiding

         Argued and Submitted October 11, 2017
               San Francisco, California

                 Filed September 14, 2018
2        NORTHSTAR FINANCIAL V. SCHWAB INVESTMENTS

    Before: Sidney R. Thomas, Chief Judge, and Milan D.
    Smith, Jr. and Kathleen M. O’Malley, * Circuit Judges.

                    Opinion by Judge O’Malley;
            Partial Concurrence and Partial Dissent by
                       Chief Judge Thomas


                          SUMMARY **


                             Securities

    The panel (1) affirmed the district court’s dismissal of
class claims brought under state law as precluded by the
Securities Litigation Uniform Standards Act and
(2) reversed the dismissal with prejudice and remanded to
give plaintiff the opportunity to amend its complaint.

    The panel held that SLUSA bars a plaintiff class from
bringing (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
purchase or sale of (5) a covered security. The central
question is whether the complaint describes conduct by the
defendant that would be actionable under the 1933 or 1934
Securities Acts. The court must determine whether (1) the

     *
      The Honorable Kathleen M. O’Malley, United States Circuit Judge
for the U.S. Court of Appeals for the Federal Circuit, sitting by
designation.
    **
       This summary constitutes no part of the opinion of the court. It
has been prepared by court staff for the convenience of the reader.
     NORTHSTAR FINANCIAL V. SCHWAB INVESTMENTS              3

complaint’s description of a defendant’s conduct involves
conduct specified in SLUSA, and (2) the alleged conduct
will be part of the proofs in support of the state cause of
action. While a defendant’s conduct need not be an element
of the state cause of action, the conduct still must be a fact
on which the proof of that state cause of action depends.

    The complaint made allegations about the Schwab Total
Bond Market Fund. In 1997, shareholders approved
proposals requiring the Fund managers to seek to track a
bond index and to invest no more than 25% of the Fund’s
total assets in any one industry. During the “Pre-Breach
Period,” the Fund’s investments performed in a manner
substantially consistent with the index.      During the
subsequent “Breach Period,” the Fund deviated from its
fundamental investment policies.

   The panel held that the Pre-Breach class claims
depended on allegations of misrepresentations or omissions
and were therefore barred by SLUSA. It was this conduct to
which plaintiff would point to prove its breach of contract
and breach of fiduciary duty claims. The panel held that
Breach class’s claims similarly depended on allegations of
misrepresentations and were barred by SLUSA.

    The panel concluded that neither the Pre-Breach nor the
Breach class claims were saved by the Delaware carve-out,
which provides that class claims that would otherwise be
barred by SLUSA are not subject to dismissal if (1) they are
based upon the statutory or common law of the state in which
the issuer of the securities is organized, and (2) they
constitute “permissible actions” defined by SLUSA. The
panel concluded that the claims were based on the law of
Massachusetts, the state in which defendant was organized,
but the claims were not “permissible actions.”
4    NORTHSTAR FINANCIAL V. SCHWAB INVESTMENTS

    The panel affirmed the district court’s dismissal of all of
the class claims, but it held that the district court erred in
dismissing the claims with prejudice. The panel remanded
to give plaintiff the opportunity to amend its complaint.

    Concurring in part and dissenting in part, Chief Judge
Thomas wrote that he dissented from the portion of the
opinion addressing the Pre-Breach claims. He wrote that
those claims fell comfortably within the category of state law
claims outside the ambit of SLUSA because proving them
would not require proof of a misrepresentation or omission
of material fact.


                         COUNSEL

Robert C. Finkel (argued), Wolf Popper LLP, New York,
New York; Joseph J. Tabacco Jr. and Christopher T.
Heffelfinger, Berman DeValerio, San Francisco, California;
Marc J. Gross, Greenbaum Rowe Smith & Davis LLP,
Roseland, New Jersey; for Plaintiff-Appellant.

Matthew L. Larrabee (argued), Joshua D.N. Hess, and Brian
C. Raphel, Dechert LLP, San Francisco, California; Richard
A. Schirtzer, Karin A. Kramer, and Arthur M. Roberts,
Quinn Emanuel Urquhart & Sullivan LLP, San Francisco,
California; for Defendants-Appellees.
        NORTHSTAR FINANCIAL V. SCHWAB INVESTMENTS                        5

                              OPINION

O’MALLEY, Circuit Judge:

    In this appeal, we consider whether the Securities
Litigation Uniform Standards Act (“SLUSA”) precludes
class claims brought under state law by Northstar Financial
Advisors, Inc. (“Northstar”) against Schwab Investments,
Charles Schwab Investment Management, Inc., and the
trustees of the Schwab Trust (collectively, “defendants”).
We conclude that SLUSA precludes all of Northstar’s
claims, and that the district court therefore correctly
dismissed them. The district court erred, however, in
dismissing the claims with prejudice. We therefore affirm
in part, reverse in part, and remand. 1

                                    I

                                    A

    Northstar is a registered investment advisory and
financial planning firm that manages accounts on behalf of
investors. During the relevant time period, Northstar traded
through Charles Schwab’s Institutional Advisor Platform,
where it purchased shares in the Schwab Total Bond Market
Fund (“Fund”) for its clients. The Schwab Trust (“Trust”) is
a Massachusetts Business Trust having assets held by a
group of trustees (“Trustees”) who manage and supervise the

    1
       The Supreme Court recently addressed SLUSA in its Cyan, Inc. v.
Beaver County Employees Retirement Fund, 138 S. Ct. 1061 (2018),
decision. There, the Court held that SLUSA does not strip state courts
of jurisdiction to adjudicate class actions alleging violations of the 1933
Securities Act, and does not authorize removing such actions from state
to federal court. Nothing in Cyan is inconsistent with our conclusions
here.
6    NORTHSTAR FINANCIAL V. SCHWAB INVESTMENTS

Fund’s operations for the benefit of its shareholders, the
Trust’s beneficiaries.     Charles Schwab Investment
Management, Inc. (“Schwab Advisor”), an investment
advisory firm affiliated with the Trust, has acted as the
manager of, and investment advisor to, the Trust in
accordance with a June 1994 Investment Advisory
Agreement (“IAA”). The Schwab Advisor oversees the day-
to-day operations of the Fund, including selection of
investments.

    Northstar’s core allegations have remained the same
across its five complaints. In a July 1997 Proxy Statement
(“1997 Proxy Statement”), the Trustees sought a shareholder
vote on two proposals relevant to this appeal. Proposal No.
2 would amend the Fund’s fundamental investment
objective to track the investment results of the Lehman
Brothers Aggregate Bond Index (“Index”). Proposal No. 3
would change the Fund’s “fundamental investment policies
and investment restrictions” regarding the concentration of
investments to incorporate the SEC’s interpretation of
“concentration” from the Investment Company Act of 1940
(“ICA”), which was and is 25% of the available assets in a
fund. A majority of Fund shareholders voted to approve the
proposals. As a result, the Trust was obligated to “seek to
track” the Index and to invest no more than 25% of the
Fund’s total assets in any one industry.

    From August 1997 through August 2007—which
Northstar refers to as the “Pre-Breach period”—the Fund’s
investments performed in a manner substantially consistent
with the Index. During this period, the Fund continuously
offered its shares to the public pursuant to annual
prospectuses, which affirmed to potential and current
shareholders that the Trust was following the fundamental
investment objectives set forth in the 1997 Proxy Statement.
     NORTHSTAR FINANCIAL V. SCHWAB INVESTMENTS             7

     From August 2007 until February 2009—which
Northstar refers to as the “Breach period”—the Trust
continued to represent in Fund prospectuses and other public
filings that the Fund would be managed conservatively and
passively, and would be invested in the same securities as
the Index, pursuant to its fundamental investment objective.
In or about September 2007, however, the Trust caused the
Fund to deviate from its fundamental investment policies by
investing in collateralized mortgage obligations that were
not part of the Index, and by concentrating more than 25%
of the Fund’s total assets in mortgage-backed securities and
collateralized mortgage obligations. The Fund deviated
from its fundamental investment policies until about the end
of February 2009. Fund shareholders suffered financial
injury due to the Fund’s deviation, as the Fund
underperformed the Index during this time.

                             B

    This case has a lengthy procedural history that includes
the dismissal of successive amended complaints for failures
to state claims. In June 2015, Northstar filed its Fourth
Amended Complaint. In that complaint, Northstar asserted
claims on behalf of Fund shareholders who purchased shares
during the Breach period (“Breach class”), as well as those
who purchased shares during the Pre-Breach period but held
them during the Breach period (“Pre-Breach class”). The
complaint alleges fourteen causes of action:           seven
pertaining to the Pre-Breach class, and seven pertaining to
the Breach class. With respect to each class, Northstar
alleged breach of fiduciary duties against both the Trust and
the Trustees; breach of fiduciary duty against the Schwab
Advisor; aiding and abetting breach of fiduciary duty against
the Trustees and the Schwab Advisor; breach of contract as
third-party beneficiary to the IAA against the Schwab
Advisor; breach of contract against the Trust; and breach of
8    NORTHSTAR FINANCIAL V. SCHWAB INVESTMENTS

the covenant of good faith and fair dealing against the
Schwab Advisor and the Trustees. Northstar alleged that its
claims, if barred by SLUSA, are nonetheless preserved by
the “Delaware carve-out.”

    The district court granted in part and denied in part the
defendants’ motion to dismiss. Northstar Fin. Advisors Inc.
v. Schwab Invs., 135 F. Supp. 3d 1059 (N.D. Cal. 2015). In
particular, the court granted the motion to dismiss, with
prejudice, Northstar’s claims for breach of contract and
breach of the covenant of good faith and fair dealing,
concluding that SLUSA barred those claims and that they
did not fall within the Delaware carve-out. The district court
also granted the motion to dismiss, with prejudice,
Northstar’s breach of fiduciary duty claims “insofar as these
claims pertain to an alleged breach of fiduciary duty by the
Trust.” Id. at 1089. The district court reasoned that any such
duties were owed by the Trustees, rather than by the Trust
itself. The district court further granted the motion to
dismiss, with prejudice, Northstar’s third-party beneficiary
claims, breach of contract claims, and breach of the covenant
of good faith and fair dealing claims, concluding that
SLUSA also barred those claims and that they did not fall
within the Delaware carve-out. Id. at 1080–89.

    The district court denied the motion to dismiss the
remaining claims, however, which alleged breaches of
fiduciary duties by the Trustees and the Schwab Advisor,
and aiding and abetting such breaches. Id. at 1077–80. The
district court reasoned that the defendants could not assert a
SLUSA defense to these claims in a Rule 12(b)(6) motion,
but that they could raise such a defense by filing a motion
for judgment on the pleadings. Id. at 1071. The defendants
subsequently moved for judgment on the pleadings, arguing
that the breach of fiduciary duty and aiding and abetting
claims were barred by SLUSA, and the district court granted
     NORTHSTAR FINANCIAL V. SCHWAB INVESTMENTS              9

the motion. Northstar Fin. Advisors Inc. v. Schwab Invs.,
No. 08-CV-04119-LHK, 2016 WL 706018 (N.D. Cal. Feb.
23, 2016). This appeal timely followed.

                              II

                              A

   We review de novo a district court’s order granting a
motion to dismiss, Proctor v. Vishay Intertechnology Inc.,
584 F.3d 1208, 1218 (9th Cir. 2009), as well as a grant of a
motion for judgment on the pleadings, Harris v. Cty. of
Orange, 682 F.3d 1126, 1131 (9th Cir. 2012). In evaluating
Northstar’s claims, we “accept factual allegations in the
complaint as true and construe the pleadings in the light most
favorable to the nonmoving party.” Manzarek v. St. Paul
Fire & Marine Ins. Co., 519 F.3d 1025, 1031 (9th Cir. 2008).

                              B

    SLUSA was enacted to stem the shift of class-action
securities lawsuits from federal courts to state courts after
passage of the Private Securities Litigation Reform Act of
1995 (“PSLRA”). Merrill Lynch, Pierce, Fenner & Smith
Inc. v. Dabit, 547 U.S. 71, 82 (2006). In order to 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. Id. Congress sought to end this
practice by enacting SLUSA.

    SLUSA bars a plaintiff class from bringing (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 purchase or sale of (5) a covered
10   NORTHSTAR FINANCIAL V. SCHWAB INVESTMENTS

security. Freeman Invs., L.P. v. Pac. Life Ins. Co., 704 F.3d
1110, 1114–15 (9th Cir. 2013). Here, the only element at
issue is whether the plaintiff class alleged that the defendants
made a misrepresentation or omission.

    Several basic principles about SLUSA govern our
analysis of Northstar’s claims. First, the Supreme Court has
made clear that SLUSA’s requirement that fraudulent
statements be made in connection with the purchase or sale
of a covered security must be construed broadly. See Dabit,
547 U.S. at 86. As the Court explained:

        The presumption that Congress envisioned a
        broad construction follows not only from
        ordinary principles of statutory construction
        but also from the particular concerns 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 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.

Id. (quoting Securities Litigation Uniform Standards Act of
1998, Pub. L. 105-353, § 2(5), 112 Stat. 3227, 3227 (1998)
(codified at 15 U.S.C. § 78a note)).

    Second, consistent with this first principle, SLUSA
precludes “state-law holder class action claims”—i.e.,
claims predicated on the notion that, even when shares are
purchased based on accurate information, a claim under the
1934 Act, Pub. L. 73-291, 48 Stat. 881 (1934) (codified, as
amended, at 15 U.S.C. § 78a et seq.), may be asserted when
the seller fails to advise purchasers of subsequent facts that
     NORTHSTAR FINANCIAL V. SCHWAB INVESTMENTS               11

affect those shares, and the shares are held in the face of the
omission, see Dabit, 547 U.S. at 87 (“In concluding that
SLUSA pre-empts state-law holder class-action claims of
the kind alleged in Dabit’s complaint, we do not lose sight
of the general ‘presum[ption] that Congress does not
cavalierly pre-empt state-law causes of action.’” (alteration
in original) (quoting Medtronic, Inc. v. Lohr, 518 U.S. 470,
485 (1996))).

    Third, while the Supreme Court is keenly aware of the
fact that statutes purporting to preempt state law causes of
action should generally be construed narrowly, it has
explained that this general principle carries far less force
when construing SLUSA, because SLUSA does not actually
preempt any state law cause of action—it simply precludes
using a class action as a device to vindicate claims
collectively on behalf of fifty or more plaintiffs. See Dabit,
547 U.S. at 87.

     Fourth, SLUSA’s preclusion of a cause of action does
not turn on the name or title given to a claim by the plaintiff.
It turns instead on the “gravamen or essence of the claim.”
Freeman, 704 F.3d at 1115 (“As our sister circuits have
recognized, the statute operates wherever deceptive
statements or conduct form the gravamen or essence of the
claim.”). Courts must “look to the substance of the
allegations,” so that “plaintiffs cannot avoid preclusion
‘through artful pleading that removes the covered words . . .
but leaves in the covered concepts.’” Id. (alteration in
original) (quoting Segal v. Fifth Third Bank, N.A., 581 F.3d
305, 311 (6th Cir. 2009)). “Were it otherwise, SLUSA
enforcement would reduce to a formalistic search through
the pages of the complaint for magic words—‘untrue
statement,’ ‘material omission,’ ‘manipulative or deceptive
device’—and nothing more.” Id. (quoting Segal, 581 F.3d
at 310).
12   NORTHSTAR FINANCIAL V. SCHWAB INVESTMENTS

    The central question we are to assess, therefore, is
whether the description of a defendant’s conduct involves
conduct specified in SLUSA—i.e., whether the complaint
describes conduct by the defendant that would be actionable
under the 1933 or 1934 Acts. If it does, and that conduct
necessarily will be part of the proofs in support of the state
law cause of action, SLUSA bars the claim, regardless of
whether that conduct is an essential predicate of the asserted
state law claim. In re Kingate Mgmt. Ltd. Litig., 784 F.3d
128, 149 (2d Cir. 2015) (citing In re Herald, 730 F.3d 112,
119 (2d Cir. 2013); Segal, 581 F.3d at 311); see also id. at
146 (citing Rowinski v. Salomon Smith Barney Inc., 398 F.3d
294 (3d Cir. 2005), as standing for this same principle).

    The dissent contends that the legal standard governing
SLUSA preemption varies materially from circuit to circuit.
See Diss. at 24 n.1. We do not see as much daylight between
the standards adopted by the various circuits as does the
dissent. Indeed, the law appears to be uniform across the
circuits. Consistent with the principles articulated above, for
example, the Second Circuit explained in Herald that,
“[s]ince ‘SLUSA requires our attention to both the pleadings
and the realities underlying the claims,’ plaintiffs cannot
avoid SLUSA ‘merely by consciously omitting references to
securities or to the federal securities law.’” 730 F.3d at 119
(quoting Romano v. Kazacos, 609 F.3d 512, 523 (2d Cir.
2010)); see also Rayner v. E*TRADE Fin. Corp., No. 17-
1487, — F.3d —, 2018 WL 3625378, at *2 (2d Cir. July 31,
2018) (same). The Third, Sixth, Seventh, and Eighth
Circuits have held similarly. See Zola v. TD Ameritrade,
Inc., 889 F.3d 920, 924 (8th Cir. 2018) (“To determine
whether a plaintiff has alleged a misrepresentation or
omission of a material fact, we look at the substance of the
allegations, based on a fair reading of the complaint. What
matters is the conduct alleged, not the words used to describe
     NORTHSTAR FINANCIAL V. SCHWAB INVESTMENTS             13

the conduct.” (citation omitted)); Lewis v. Scottrade, Inc.,
879 F.3d 850, 854 (8th Cir. 2018) (“SLUSA applies if the
gravamen of a state law claim involves an untrue statement
or substantive omission of a material fact in connection with
the purchase or sale of a covered security.”); Holtz v.
JPMorgan Chase Bank, N.A., 846 F.3d 928, 930–31 (7th Cir.
2017) (“Allowing plaintiffs to avoid [SLUSA] by
contending that they have ‘contract’ claims about securities,
rather than ‘securities’ claims, would render [SLUSA]
ineffectual, because almost all federal securities suits could
be recharacterized as contract suits about the securities
involved.”); Segal, 581 F.3d at 310–11 (stating that courts
must look to “the substance of a complaint’s allegations in
applying SLUSA” because “[t]he question under SLUSA is
not whether the complaint uses the prohibited words,” but
rather “whether the complaint covers the prohibited theories,
no matter what words are used (or disclaimed) in explaining
them”); Rowinski, 398 F.3d at 300 (stating that “preemption
does not turn on whether allegations are characterized as
facts or as essential legal elements of a claim, but rather on
whether the SLUSA prerequisites are ‘alleged’ in one form
or another” and that “[a] contrary approach, under which
only essential legal elements of a state law claim trigger
preemption, is inconsistent with the plain meaning of the
statute”). To the extent there are differences in the outcomes
of these cases, we believe those differences are due to the
application of the same well-established law to different
facts, not to the adoption of different law, as the dissent
suggests.

    In sum, the proper SLUSA inquiry has two parts. We
must determine whether: (1) the complaint’s description of
a defendant’s conduct involves conduct specified in SLUSA,
and (2) the alleged conduct will be part of the proofs in
support of the state law cause of action. While a defendant’s
14       NORTHSTAR FINANCIAL V. SCHWAB INVESTMENTS

conduct need not be an element of the state cause of action,
the conduct still must be a fact on which the proof of that
state cause of action depends. 2

                                  III

    We now apply this legal framework to Northstar’s
claims. Northstar divides its claims into those made on
behalf of the Pre-Breach class and those made on behalf of
the Breach class. For the reasons set forth below, we
conclude that both sets of claims are barred by SLUSA.

                                  A

    The Pre-Breach class claims depend on allegations of
misrepresentations or omissions, and are therefore barred by
SLUSA. Those claims are predicated on a 1997 Proxy
Statement that Northstar alleged promised that the Trustees
and Schwab Advisor would employ a particular investment
strategy. Northstar alleged that the Trustees and Schwab
Advisor deviated from that strategy in the 2007–2009 time
period, during which they issued prospectuses reaffirming
the 1997 investment objectives but made investments that
were inconsistent with those objectives in material ways.
Northstar therefore did not simply plead a garden-variety
breach of contract claim. To the contrary, Northstar made
clear that it intends to prove the alleged breach of contract
by describing what the defendants did during the Breach
Period, and alleging that the defendants acted without



     2
       This legal framework is mandated by the plain language of the
statute and the Supreme Court’s interpretation thereof. Policy concerns
about the scope of SLUSA’s preemption provision should be addressed
to Congress, not this court.
        NORTHSTAR FINANCIAL V. SCHWAB INVESTMENTS                   15

informing investors—either existing shareholders or new
ones—of their actions.

    Northstar expressly pled, in all of its complaints, that
investors were not told about the deviation from the
investment policy. As to the Pre-Breach class members,
Northstar additionally pled that those investors were induced
to hold their shares in reliance on inaccurate information,
and suffered losses thereby. Northstar asserts that the Pre-
Breach class members held their shares in reliance on the
repetition of statements first made in the 1997 Proxy
Statement, when they were no longer true. 3 Northstar, in
fact, pled that the terms of the contract between the parties
were disclosed and reiterated in subsequent prospectuses.
Northstar’s complaint therefore makes clear that it is this
conduct to which it will point to prove its breach of contract
and breach of fiduciary duty claims. It is Northstar itself that
has chosen to tie the Pre-Breach class claims to the actions
the defendants undertook during the 2007–2009 Breach
Period.

    The misrepresentations and omissions during the Breach
Period are not extraneous to the contract claims—i.e., they
are not wholly irrelevant or unconnected activities as the
word “extraneous” is commonly understood. They are,
instead, at the heart of the res gestae of those claims. They
are the only material proofs to which Northstar points to
establish that a breach occurred. The Fourth Amended
Complaint, thus, reaches activities of the defendants that are



    3
      Northstar’s only explanation for separating the Pre-Breach and
Breach classes in its Fourth Amended Complaint is that it hoped to
protect the claims of the Pre-Breach class members if the district court
found that SLUSA was implicated during the Breach Period.
16   NORTHSTAR FINANCIAL V. SCHWAB INVESTMENTS

actionable under the securities laws, making them barred by
SLUSA, regardless of the label placed on them.

    This court’s recent decision in Hampton v. Pacific
Investment Management Co., 705 F. App’x 558 (9th Cir.
2017), is instructive. There, although the plaintiff argued
that its allegations asserted violations of contractual and
fiduciary duties, “the complaint unmistakably describe[d]
PIMCO Funds telling its investors it would do one thing—
limit its exposure to certain risky assets—while it was in
fact, at the same time, doing another—betting big on those
same assets.” Id. at 560. Hampton argued that, because the
prospectus statement committing the Fund to a certain
investment policy was not false at the time it was made,
Hampton did not need to establish a falsehood to prove its
claims. The panel disagreed, noting that, like here, the
statement was made multiple times, including after it
allegedly had ceased to be true. Based on this conclusion,
the panel found the holder claims barred by SLUSA. Id. at
560–61. The facts here parallel those before this court in
Hampton. The defendants are accused of promising, and
continuing to promise, one thing—that they would follow
the stated investment objectives—while in fact doing
another—deviating from those objectives across multiple
prospectuses and failing to disclose that fact to the original
investors.

    The dissent views SLUSA preemption more narrowly,
stating that a state law claim is not barred by SLUSA unless
“a misrepresentation is an essential fact on which the
original claim depends.” Diss. 28. As described above,
however, the law does not require us to undertake an analysis
with only the elements of the state law cause of action in
mind. Such an analysis would limit our consideration to a
pleading’s satisfaction of the bare elements of the state law
claim. Under the dissent’s approach, if we found that a
     NORTHSTAR FINANCIAL V. SCHWAB INVESTMENTS             17

complaint alleged the elements of a state law claim, our
analysis would end regardless of the complaint’s other
allegations.

     This conclusion is inconsistent with SLUSA. Indeed,
various circuits, including this one, have rejected such an
approach. See Fleming v. Charles Schwab Corp., 878 F.3d
1146, 1154 (9th Cir. 2017) (noting that the plaintiffs’
“pleadings carefully allege[d] at least several causes of
action whose elements do not include manipulative
conduct,” but determining nonetheless that “the substance of
all their allegations” was that the defendant had engaged in
a “deceptive practice actionable under federal securities
law”); see also Zola, 889 F.3d at 924 (concluding that the
“gravamen” of plaintiffs’ complaints “involves a
misrepresentation or omission of a material fact in
connection with the purchase or sale of a covered security”
and rejecting the “argument that characterizing his
complaint as alleging an omission of material fact could
recast any breach of contract claim into a fraud claim”);
Holtz, 846 F.3d at 931 (“The possibility that plain vanilla
contract claims can proceed under state law creates an
incentive to characterize all securities claims as ‘contract’
suits and avoid federal preemption. . . . That sets up an
opportunity for artful pleading.”); Rowinski, 398 F.3d at 300
(rejecting plaintiff’s claim “that because ‘misrepresentation’
is not an essential legal element of [the plaintiff’s] claim
under Pennsylvania contract law, the factual allegations of
misrepresentation included in the complaint are irrelevant to
the SLUSA inquiry,” and holding that the plaintiff’s
“suggested distinction—between the legal and factual
18    NORTHSTAR FINANCIAL V. SCHWAB INVESTMENTS

allegations in a complaint—is immaterial under the statute,”
which looks only to what the complaint is “alleging”). 4

    Here, the Pre-Breach class claims arise from more than
the alleged fact of the defendants’ breaches; their claims are
only possible because of the defendants’ concealment of
those breaches. The claims are no less tied to the defendants’
misstatements and omissions during the Breach Period than
are the Breach Class claims themselves, described in greater
detail below. We therefore conclude that the Pre-Breach
class claims are barred by SLUSA.

                                  B

    The Breach class’s claims similarly depend on
allegations of misrepresentations or omissions and are
barred by SLUSA. At the time that the Breach class
members purchased their securities, the defendants were
already breaching any contractual obligations and related
duties owed to the class. Had the defendants not made any
misrepresentations or omissions with respect to these
breaches—that is, had the breaches been disclosed—the
Breach class would not be able to maintain its state law
claims. As a general rule, when a contracting party has
knowledge of a breach by the other party and nonetheless
accepts some performance of the contract, he or she has
     4
       We believe that the dissent’s application of SLUSA to the Pre-
Breach class claims could lead to illogical results. Under the dissent’s
theory, Pre-Breach claimants would move forward with their claims in
federal court, while Breach claimants would have to resort to individual
state court actions even though all claims are based on the same alleged
behavior by the defendants. It is unclear, under the dissent’s theory of
contract breach, how any holder claim could be stated such that SLUSA
preclusion would apply. Yet, the Supreme court has made clear that
holder claims are within the reach of SLUSA preemption. See Dabit,
547 U.S. at 86–89.
     NORTHSTAR FINANCIAL V. SCHWAB INVESTMENTS            19

waived the breach. See 23 Williston on Contracts § 63:9 (4th
ed.). If the Breach class members had knowledge of the
breach at the time that they purchased their securities, they
would not be able to maintain claims for breach against the
defendants. Allegations of misrepresentations or omissions
are thus factual predicates to their thirteenth claim (for
breach of contract), to their twelfth claim (for relief as a
third-party beneficiary of the IAA), and to their fourteenth
claim (for breach of the covenant of good faith and fair
dealing).

    The Breach class’s fiduciary duty claims fare no better.
To prevail on a breach of fiduciary duty claim under
Massachusetts law, a plaintiff must establish, among other
things, that a fiduciary duty exists. See Baker v. Wilmer
Cutler Pickering Hale & Dorr LLP, 81 N.E.3d 782, 842
(Mass. App. Ct. 2017). “A fiduciary duty exists ‘when one
reposes faith, confidence, and trust in another’s judgment
and advice.’” Doe v. Harbor Sch., Inc., 843 N.E.2d 1058,
1064 (Mass. 2006) (quoting Van Brode Grp., Inc. v.
Bowditch & Dewey, 633 N.E.2d 424, 428 (Mass. App. Ct.
1994)). Had the defendants made no misrepresentations
during the Breach period—i.e., had they disclosed to the
Breach class that the Fund was no longer abiding by its
fundamental investment objectives—there would have been
no grounds for the Breach class to repose trust in the
defendants’ judgment and advice. The fiduciary duty claims
thus implicitly depend on allegations of misrepresentations
or omissions.

    Because the Breach class claims depend on a
misrepresentation or omission of a material fact, these
claims are barred by SLUSA.
20       NORTHSTAR FINANCIAL V. SCHWAB INVESTMENTS

                                    IV

    The Delaware carve-out does not save either the Pre-
Breach or Breach class claims. 5 The carve-out provides, in
relevant part, that class actions that would otherwise be
barred by SLUSA are not subject to dismissal if (1) they are
“based upon the statutory or common law of the State in
which the issuer is . . . organized,” and (2) they constitute
“permissible actions” defined by the statute. 15 U.S.C.
§ 77p(d)(1).

    With the exception of its third-party beneficiary claims,
which arise under the IAA and are governed by California
law, all of Northstar’s claims are based on the statutory and
common law of Massachusetts, the state in which the
Schwab Trust is organized. 6 The remaining question is
whether the claims constitute permissible actions under the
statute. As relevant to Northstar’s claims, “permissible
actions” include a covered class action that “involves”:


     5
      The district court did not abuse its discretion in finding that the
defendants did not waive their Delaware carve-out arguments. See
Hamilton v. State Farm Fire & Cas. Co., 270 F.3d 778, 782 (9th Cir.
2001) (“We review the district court’s application of the doctrine of
judicial estoppel to the facts of this case for an abuse of discretion.”);
Novato Fire Prot. Dist. v. United States, 181 F.3d 1135, 1140–41 (9th
Cir. 1999) (noting that, on appeal, the court considers whether the district
court abused its discretion in refusing to apply the doctrine of waiver).
Indeed, in our recent decision in this matter, we stated that the district
court should consider “whether the allegations in the Third Amended
Complaint can survive under SLUSA.” Northstar Fin. Advisors Inc. v.
Schwab Invs., 779 F.3d 1036, 1050 (9th Cir. 2015).

     6
      Because the third-party beneficiary claims (the fifth and twelfth
claims) are based on California law and the Trust is organized in
Massachusetts, Northstar concedes that the Delaware carve-out does not
preserve those claims.
     NORTHSTAR FINANCIAL V. SCHWAB INVESTMENTS             21

       (ii) any recommendation, position, or other
       communication with respect to the sale of
       securities of the issuer that—

           (I) is made by or on behalf of the issuer or
           an affiliate of the issuer to holders of
           equity securities of the issuer; and

           (II) concerns decisions of those equity
           holders with respect to voting their
           securities, acting in response to a tender
           or exchange offer, or exercising
           dissenters’ or appraisal rights.

Id. § 77p(d)(1)(B)(ii).

    Northstar’s Pre-Breach class claims are not “permissible
actions” under the statute because the communications
Northstar alleges the issuer made do not satisfy the
requirement that the communications concern equity holders
voting their securities shares. In particular, the wrongdoing
Northstar alleges in this action is the defendants’ failure to
follow, during the Breach Period, the fundamental
investment practices shareholders approved in the 1997
vote; the injury that Northstar alleges derives only from the
holding of shares based on the defendants’ alleged omissions
during that Breach Period. The plain language of the statute
requires that the communications “concern[] decisions . . .
with respect to voting . . . securities[.]” Northstar does not
allege that the false disclosures and material omissions,
made during the Breach Period, concern any vote. Northstar
admits, both in its briefing and in the final amended
complaint, that the only vote with respect to this action was
the 1997 vote on the 1997 Proxy Statement—there was no
vote during the Breach Period.
22   NORTHSTAR FINANCIAL V. SCHWAB INVESTMENTS

    The Breach class claims are also not “permissible
actions” under the statute, because they likewise do not
involve any communication that “concerns decisions of
those equity holders with respect to voting their shares.” The
Breach class claims that are subject to SLUSA are based on
misrepresentations that occurred between 2007 and 2009.
The only vote that occurred with respect to these securities
occurred in 1997. The misrepresentations that underlie the
Breach class claims were thus not made to shareholders in
advance of, or to influence, any vote.                   Those
communications therefore do not “concern[]” any
“decisions” of shareholders with respect to voting their
securities. The carve-out does not save Northstar’s claims.

    We therefore affirm the district court’s dismissal of all
of Northstar’s claims.

                              V

   The district court erred, however, in dismissing
Northstar’s claims with prejudice. Northstar should be
granted leave to amend its complaint.

    To the extent that SLUSA bars a plaintiff’s claims, “it
does so by depriving the district court of jurisdiction to hear
his state-law claims on a class-wide basis.” Hampton v. Pac.
Inv. Mgmt. Co. LLC, 869 F.3d 844, 847 (9th Cir. 2017).
Thus, it is error to dismiss such claims under Rule 12(b)(6);
they should be dismissed under Rule 12(b)(1) without
prejudice. Id. We therefore reverse the district court’s
     NORTHSTAR FINANCIAL V. SCHWAB INVESTMENTS              23

contrary ruling and remand to give Northstar the opportunity
to amend its complaint.

  AFFIRMED IN PART, REVERSED IN PART, AND
REMANDED.

   Each party shall bear its own costs.



THOMAS, Chief Judge, concurring in part and dissenting in
part:

    The Supreme Court has rejected an interpretation of the
Securities Litigation Uniform Securities Act (“SLUSA”)
that “would limit the scope of protection under state laws
that seek to provide remedies to victims of garden-variety
fraud.” Chadbourne & Parke LLP v. Troice, 134 S. Ct.
1058, 1068 (2014). The Pre-Breach claims fall comfortably
within this category of actions that fall outside SLUSA’s
reach. Thus, in my view, the majority extends SLUSA’s
application too far, reaching ordinary state-law claims that
are not within the statute’s ambit. Therefore, I respectfully
dissent from that portion of the opinion.

    SLUSA bars a class action state-law claim only if that
claim requires proof of a misrepresentation or omission of
material fact. Even if a misrepresentation or omission is not
a legal element of the state-law claim, SLUSA may bar the
claim when such misrepresentation is a “factual predicate”
of the claim. LaSala v. Bordier et Cie, 519 F.3d 121, 141
(3d Cir. 2008).

    Under this approach, we only inquire into what facts the
plaintiffs must prove in order to establish liability under the
theory stated in their complaint. See In re Kingate, 784 F.3d
24       NORTHSTAR FINANCIAL V. SCHWAB INVESTMENTS

128, 142–43 (2d Cir. 2015) (holding that SLUSA does not
apply when a misrepresentation “is extraneous to the
complaint’s theory of liability”); LaSala, 519 F.3d at 141
(holding that SLUSA applies when a misrepresentation
“gives rise to liability” and is not “merely an extraneous
detail”).

    Thus, application of SLUSA does not turn on facts that
are contained in the complaint, but that are necessary to
establish liability. 1


     1
      There is an existing circuit split on SLUSA’s application. See, e.g.,
Samuel Wolff, Securities Litigation Update--Part 2: Securities
Litigation Uniform Standards Act, 35 No. 1 Sec. and Fed. Corp. Law
Rep. 1 (2013); Goldberg v. Bank of Am., N.A., 846 F.3d 913, 922-25 (7th
Cir. 2017) (Hamilton, J., dissenting) (describing three- or four-way
circuit split on SLUSA’s application).

     The Second and Third Circuits have adopted a relatively narrow
approach, holding that SLUSA precludes a claim only if prevailing on
the claim requires proving the fact of a misrepresentation or an omission.
The Second Circuit has held that “state law claims that do not depend on
false conduct are not within the scope of SLUSA, even if the complaint
includes peripheral, inessential mentions of false conduct.” In re
Kingate, 784 F.3d at 132 (emphasis in original). The Third Circuit has
held that SLUSA bars a state law claim when “allegations of a material
misrepresentation serve as the factual predicate of” the claim. Rowinski
v. Salomon Smith Barney Inc., 398 F.3d 294, 300 (3d Cir. 2005). The
Third Circuit later clarified that a “factual predicate” means a fact
essential to the state law claim. LaSala, 519 F.3d at 141 (“To be a factual
predicate, the fact of a misrepresentation must be one that gives rise to
liability, not merely an extraneous detail. This distinction is important
because complaints are often filled with more information than is
necessary.”).

    The Sixth and Seventh Circuits have given SLUSA a broader
application. The Sixth Circuit has held that a state law claim is barred
under SLUSA if the complaint includes any allegations of
        NORTHSTAR FINANCIAL V. SCHWAB INVESTMENTS                        25

    Applying this standard, I agree with the majority’s
conclusion that the Breach class claims are barred by
SLUSA, because proving those claims would require
proving a misrepresentation or omission. However, I
respectfully part ways from the majority as to the Pre-Breach
class claims. Proof of those claims does not require proof of
a misrepresentation or omission of material fact. Therefore,
the Pre-Breach claims are not barred by SLUSA.

    The Pre-Breach class claims are all, in effect, versions of
a state-law breach of contract claim. The majority opinion
states that misrepresentations and omissions during the
Breach Period are “at the heart of the res gestae” of the Pre-
Breach class claims, and that “[t]hey are the only material
proofs to which Northstar points to establish that a breach
occurred.” Opinion at 16. The majority opinion later states
that the Pre-Breach class claims “are only possible because
of the defendants’ concealment of” its breaches of contract.
Opinion at 19. 2


misrepresentation, regardless of whether those allegations are essential
to the success of the claim. See Segal v. Fifth Third Bank, N.A., 581 F.3d
305, 311 (6th Cir. 2009) (SLUSA “does not ask whether the complaint
makes ‘material’ or ‘dependent’ allegations of misrepresentation in
connection with buying or selling securities. It asks whether the
complaint includes these types of allegations, pure and simple.”). The
Seventh Circuit has held that a state law claim is barred “if the allegations
of the complaint make it likely that an issue of fraud will arise in the
course of the litigation.” Brown v. Calamos, 664 F.3d 123, 128-29 (7th
Cir. 2011); see also Goldberg, 846 F.3d at 924 (Hamilton, J., dissenting)
(observing that the majority opinion “go[es] beyond the Brown standard
and adopt[s] a new, fourth standard,” under which “virtually any breach
of contract claim is preempted”).
    2
      For this proposition, the majority cites our unpublished and non-
precedential decision in Hampton v. Pac. Inv. Mgmt. Co., 705 F. App’x
26    NORTHSTAR FINANCIAL V. SCHWAB INVESTMENTS

    I respectfully disagree. The complaint states a claim for
breach of contract that can be proven true with no reference
to a misrepresentation or omission. The Pre-Breach class
had a contract with the defendants through the 1997 Proxy
Statement, and the defendants breached that contract. The
district court itself, describing the facts alleged in the
complaint, made clear that plaintiffs could prove the breach
without proving a misrepresentation or omission:

        Northstar alleges that Defendants deviated
        from the Fund’s investment objective to track
        the Lehman Brothers U.S. Aggregate Bond
        Index (the “Lehman Index”) in two ways.
        First, Northstar alleges that, starting around
        August 31, 2007, the Fund began investing in
        high risk non-U.S. agency collateralized
        mortgage obligations (“CMOs”) that were
        not part of the Lehman Index and that were
        substantially more risky than the U.S. agency
        securities and other instruments that
        comprised the Lehman Index. Second,
        Northstar alleges that, beginning around
        August 31, 2007, the Fund deviated from the
        Fund’s investment objectives (which


558 (9th Cir. 2017), to support its conclusion that the Pre-Breach class
claims are barred. As a non-precedential opinion, Hampton does not
control us and carries only persuasive weight. Nonetheless, it is easily
distinguished. In Hampton, we considered claims brought on behalf of
a class that acquired shares both before and after the defendant began
deviating from the terms of an investment policy. Id. at 560. We
expressly declined to address “the question of whether a class composed
only of people who bought shares while the [policy] was still being
followed would have their claims barred by SLUSA on account of the
policy later becoming false.” Id. at 561 n.2. Hampton is inapposite to
the Pre-Breach class claims.
      NORTHSTAR FINANCIAL V. SCHWAB INVESTMENTS                     27

        prohibited investing more than 25% of the
        Fund’s assets in any one industry, unless such
        concentration was necessary to track the
        Lehman Index) by investing more than 25%
        of the Fund’s assets in U.S. agency and non-
        agency mortgage-backed securities and
        CMOs.

Northstar Fin. Advisors Inc. v. Schwab Investments, No. 08-
CV-04119-LHK, 2016 WL 706018, at *1 (N.D. Cal. Feb.
23, 2016) (internal citations omitted).

    These facts are sufficient to prove that the defendants
breached the contract. 3 None of these facts involves any
misrepresentation or omission of material fact. The Pre-
Breach class did not need to prove a misrepresentation or
omission in order to prevail on its breach of contract claim.
That claim—and the Pre-Breach class’s other similar
claims—are not barred by SLUSA.

    Northstar’s complaint may contain extraneous
references to misrepresentations, but such references do not
bring the complaint within SLUSA’s ambit. See LaSala, 519
F.3d at 141. (“While it may be unwise . . . to set out
extraneous allegations of misrepresentations in a complaint,
the inclusion of such extraneous allegations does not operate

     3
       To prevail on a claim for breach of contract under Massachusetts
law, a plaintiff must demonstrate that there was an agreement between
the parties; the agreement was supported by consideration; the plaintiff
was ready, willing, and able to perform his or her part of the contract;
the defendant committed a breach of the contract; and the plaintiff
suffered harm as a result. Singarella v. Boston, 173 N.E.2d 290, 291
(Mass. 1961). The majority opinion does not assert, nor does any party
claim, that the proof of any other element of this cause of action would
depend on proof of a misrepresentation or omission of material fact.
28    NORTHSTAR FINANCIAL V. SCHWAB INVESTMENTS

to require that the complaint must be dismissed under
SLUSA.”). SLUSA does not bar claims for which a plaintiff
class may need to allege a misrepresentation in order to
respond to a hypothetical affirmative defense. SLUSA only
prohibits a claim when a misrepresentation is an essential
fact on which the original claim depends. The Pre-Breach
class can prove its claims without proving any
misrepresentation or omission of material fact. That such
facts may be present in the complaint, or that they could arise
during the course of litigation, is not enough to bar the claims
under SLUSA. Under the majority’s approach, any ordinary
state law breach of contract claim would be preempted by
SLUSA if the breaching party failed to disclose its breach
(which would be the usual case) because the failure to
disclose could be characterized as a misrepresentation or
omission. This interpretation stretches SLUSA’s application
to a degree not intended by Congress.

     For these reasons, I respectfully dissent in part.
