author: PER CURIAM. FLAUM, Circuit Judge, HAMILTON, Circuit Judge,

text:
    Margaret Richek GOLDBERG, as Trustee under the Seymour Richek Revocable Trust, on behalf of a class, Plaintiff-Appellant, v. BANK OF AMERICA, N.A., and LaSalle Bank, N.A., Defendants-Appellees.
    No. 11-2989
    United States Court of Appeals, Seventh Circuit.
    Argued January 17, 2012
    Decided January 23, 2017

      J. Stephen Walker, Attorney, Law Offices of J. Stephen Walker, P.C., Terry Rose Saunders, Attorney, Saunders Law Firm, Chicago, IL, for Plaintiff-Appellant.
    Mary J. Hackett, Attorney, McGuire-woods LLP, Pittsburgh, PA, for Defendant-Appellee.
    Before FLAUM, EASTERBROOK, and HAMILTON, Circuit Judges.

       Circuit Judge Cudahy was a member of the panel that heard oral argument but died before the decision was issued.' On December 1, 2016, Circuit Judge Flaum was selected by a random procedure to replace him. He has read the briefs and listened to the recording of oral argument.

   PER CURIAM.

LaSalle Bank offered custodial accounts that clients used to invest in securities. If an account had a cash balance at the end of a day, the cash would be invested in (“swept” into) a mutual fund from a list that the client chose. LaSalle Bank would sell the mutual fund shares automatically when the customer needed the money to make other investments or wanted to withdraw cash. Stephen Richek, as trustee under the Seymour Richek Revocable Trust, opened a custodial account with a sweeps feature. (The current trustee is Margaret Richek Goldberg; for the sake of continuity we continue to refer to the investor and plaintiff as Richek.) Richek was satisfied with LaSalle’s services until it was acquired by Bank of America. After the acquisition, Bank of America notified the clients that a particular fee was being eliminated. Richek, who had not known about the fee, then sued in state court, contending that LaSalle had broken its contract (which had a schedule that did not mention this fee) and violated its fiduciary duties. Richek proposed to represent a class of all customers who had custodial accounts at LaSalle. (Because LaSalle became a subsidiary of Bank of America, and now operates under its name, we refer from now on to “the Bank,” which covers both institutions.)

The Bank removed the suit to federal court, relying on the Securities Litigation Uniform Standards Act of 1998 (SLUSA or the Litigation Act), 15 U.S.C. § 78bb(f). (Section 78bb is part of the Securities Exchange Act of 1934. The Litigation Act added similar language to the Securities Act of 1933. See 15 U.S.C. § 77p(b). The Bank is not an issuer or underwriter covered by the 1933 Act, so we refer to § 78bb(f).) SLUSA authorizes removal of any “covered class action” in which the plaintiff alleges “a misrepresentation or omission of a material fact in connection with the purchase or sale of a covered security” (§ 78bb(f)(l)(A)). The statute also requires such state-law claims to be dismissed. The district court held that Ri-chek’s suit fits the standards for both removal and dismissal and entered judgment in the Bank’s favor. 2011 U.S. Dist. Lexis 86105 (N.D. Ill. Aug. 4, 2011). ' ■

According to the complaint, some mutual funds paid the Bank a fee based on the balances it transferred, and the Bank did not deposit these fees in the custodial accounts or notify customers that it was retaining them. The Bank’s retention of these payments is economically equivalent to a secret fee collected from the accounts, because they contained less money than they would have had the Bank credited them with the fees paid by the mutual funds—fees derived from the custodial accounts themselves. Richek contends that the Bank thus kept for its own benefit fees exceeding those in the contractual schedule, without disclosure to its customers.

Richek’s claim depends on the omission of a material fact—that some mutual funds paid, and the Bank kept, fees extracted from the “swept” balances. He concedes that his suit is a “covered class action” (the class has more than 50 members; see § 78bb(f)(5)(B)(i)(I)) and that each of the mutual funds is a “covered security” (see § 78bb(f)(5)(E)). The Bank’s omission was in connection with a purchase or sale of a “covered security”. See Merrill Lynch, Pierce, Fenner & Smith Inc. v. Dabit, 547 U.S. 71, 126 S.Ct. 1503, 164 L.Ed.2d 179 (2006). Chadbourne & Parke LLP v. Twice, — U.S.-, 134 S.Ct. 1058, 188 L.Ed.2d 88 (2014), does not affect this conclusion, because customers were dealing directly with covered investment vehicles. (Twice holds that the Litigation Act does not apply when the customer invests in an asset that does not consist of, or contain, covered securities.) Because “[n]o 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” (§ 78bb(f)(l)) when these conditions have been met, the district court’s decision is unexceptionable.

According to Richek, the Bank’s omission is outside the scope of the Litigation Act because it does not involve the price, quality, or suitability of any secuiity. But the Litigation Act does not say what kind of connection must exist between the false statement or omission and the purchase or sale of a security; the statute asks only whether the complaint alleges “a misrepresentation or omission of a material fact in connection with the purchase or sale of a covered security”. Richek’s complaint alleged a material omission in connection with sweeps to mutual funds that are covered securities; no more is needed.

Apparently Richek believes that only statements (or omissions) about price, quality, or suitability are covered by the federal securities laws, and that only state-law claims that overlap winning securities claims are affected by the Litigation Act. This is doubly wrong. First, Dabit holds that claims that arise from securities transactions are covered whether or not the private party could recover damages under federal law. (In Dabit itself no private right of action for damages was possible, yet the Court held the claim covered and preempted.) Second, the Securities Exchange Act of 1934 forbids material misrepresentations and omissions in connection with securities transactions whether or not the misrepresentation or omission concerns the price, quality, or suitability of the security. See, e.g., SEC v. Zandford, 535 U.S. 813, 122 S.Ct. 1899, 153 L.Ed.2d 1 (2002); United States v. Naftalin, 441 U.S. 768, 99 S.Ct. 2077, 60 L.Ed.2d 624 (1979). Thus Richek may have had a good claim under federal securities law. But he chose not to pursue it, and SLUSA prevents him from using a state-law theory instead.

We said earlier that Richek concedes that his claim rests on a material omission and that the mutual funds are covered securities. He does not concede that the omission was “in connection with” the purchase or sale of a covered security. This branch of his argument rests on Gavin v. AT&T Corp., 464 F.3d 634 (7th Cir. 2006). We reject Richek’s contention for the reasons given in Holtz v. JPMorgan Chase Bank, N.A., No. 13-2609 (7th Cir. Jan. 23, 2017), 846 F.3d 928, 933-34, 2017 WL 279499.

Richek also maintains that his action rests on state contract law and state fiduciary law, not securities law. This line of argument, too, is addressed and rejected in Holtz, which holds that if a claim could be pursued under federal securities law, then it is covered by the Litigation Act even if it also could be pursued under state contract or fiduciary law. A claim that a fiduciary that trades in securities for a customer’s account has taken secret side payments is well inside the bounds of securities law. See Holtz, 846 F.3d 928, 930-33.

Affirmed

FLAUM, Circuit Judge,

concurring.

I agree that the Securities Litigation Uniform Standards Act of 1998 (“SLU-SA”), 15 U.S.C. § 78bb(f), warranted removal and dismissal of Stephen Riehek’s lawsuit. The challenge presented by this appeal requires addressing the scope of SLUSA’s “misrepresentation or omission of a material fact” prohibition.

Stephen Richek, as trustee under the Seymour Richek Revocable Trust, entered into an agreement with LaSalle National Bank, under which LaSalle would open a custodian account for the Trust to invest in securities. The parties agreed to a fee schedule that required LaSalle to notify Richek of any increases. As part of maintaining Richek’s custodian account, LaSalle would invest (“sweep”) any cash balances at the end of the day into a mutual fund Richek had selected from a list provided by LaSalle. Eventually, Richek learned that LaSalle, unbeknownst to him, had been accepting reinvestment (“sweep”) fees from the rqutual funds based on the average daily invested balance LaSalle had swept from his custodian account. Each fee was unique to the particular mutual fund.

Richek sued the Bank in Illinois state court on behalf of all customers with custodian accounts, alleging that the Bank had (1) violated its fiduciary duties and (2) breached the underlying contract. The Bank removed the lawsuit to federal court pursuant to SLUSA and 28 U.S.C § 1332(d)(2). Richek subsequently amended his complaint, and the district court dismissed that amended complaint under SLUSA, entering judgment for the Bank. This appeal followed.

SLUSA provides, in relevant part:

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)(l). There is no dispute that Richek’s class action qualified as a “covered class action” under the statute. Instead, the issue is whether Richek alleged “a misrepresentation or omission of a material fact.”

Brown v. Calamos, 664 F.3d 123 (7th Cir. 2011), is instructive. There, a plaintiff shareholder sued a closed-end investment fund alleging that the fund had breached its fiduciary duty by redeeming a particular stock, at terms unfavorable to the common shareholders, in an effort to remain in the good graces of the investment banks and brokerage firms facing lawsuits stemming from the stock’s value after the 2008 financial crisis. Id. at 126. We concluded, despite the complaint’s language to the contrary, that the complaint “implicitly” alleged a material misrepresentation or omission: The fund had failed to disclose the conflict of interest created by its broader concerns for the fund family’s long-term wellbeing. Id. at 127. Without addressing the complaint’s unjust enrichment claim, we affirmed the district court’s dismissal of the complaint under SLUSA. Id. at 131.

In doing so, we considered three approaches to dismissing complaints under SLUSA: (1) the Sixth Circuit’s “literalist” approach, where the court asks simply whether the complaint can reasonably be interpreted as alleging a material misrepresentation or omission, see Atkinson v. Morgan Asset Mgmt., Inc., 658 F.3d 549, 554-55 (6th Cir. 2011); (2) the Third Circuit’s “looser” approach, where the court asks whether proof of a material misrepresentation or omission is inessential (an “extraneous detail” that does not require dismissal) or essential (either a necessary element of the cause of action or otherwise critical to a plaintiffs success in the case, warranting dismissal), see LaSala v. Bordier et Cie, 519 F.3d 121, 141 (3d Cir. 2008) (citing Rowinski v. Salomon Smith Barney Inc., 398 F.3d 294 (3d Cir. 2005)); and (3) the Ninth Circuit’s “intermediate” approach, where the court dismisses preempted suits without prejudice, permitting plaintiffs to file complaints devoid of any prohibited allegations, see Stoody-Broser v. Bank of America, 442 Fed.Appx. 247, 248 (9th Cir. 2011).

We have expressed concern with the Ninth Circuit’s approach, cautioning, “No longer in American law do complaints strictly control the scope of litigation.” Brown, 664 F.3d at 127. A plaintiff who removes SLUSA-triggering allegations in an attempt to avoid dismissal may simply “reinsert” them later upon returning to state court. Id. It is an open question in this Circuit whether this risk of reinsertion warrants a court’s looking beyond the amended complaint to the original pleading. Doing so may leave the court’s analysis vulnerable to hindsight bias, but may also aid in guarding against artful amendments. Richek’s complaint history illustrates this tension. In his original complaint in state court, Richek’s fiduciary duty claim alleged,

Defendants breached their fiduciary duties of loyalty, care and candor when they steered plaintiff and members of the Class to investment vehicles that had agreed to pay a percentage fee to defendants from, and based on, reinvest-ments made by Custodian Accounts.

(emphasis added). This claim is nearly identical to the fiduciary duty claim dismissed pursuant to SLUSA in Holtz v. JPMorgan Chase Bank, N.A., No. 13-2609 (7th Cir. Jan. 23, 2017), 846 F.3d 928, 929-30, 2017 WL 279499, where the plaintiff alleged that J.P. Morgan Chase had steered its employees to invest client money in the bank’s own mutual funds, despite higher fees or lower returns. As we noted, claims alleging that “one party to a contract concealed] the fact it planned all along to favor its own interests ... is a staple of federal securities law.” Id. at 932. Here, upon removal to federal court, Ri-chek amended his complaint to among, other things, omit the “steered” language. This amendment, however, does not alleviate the concerns under SLUSA: “[Ojnce the case shorn of its fraud allegations resumes in the state court, the plaintiff—who must have thought the allegations added something to his case, as why else had he made them?—may be sorely tempted to reintroduce them, and maybe the state court will allow him to do so. And then SLUSA’s goal of preventing state-court end runs around limitations that the Private Securities Litigation Reform Act had placed on federal suits for securities fraud would be thwarted.” Brown, 664 F.3d at 128. One must then turn to Richek’s amended complaint, and to the two remaining approaches to dismissals under SLUSA, with this “reinsertion” risk in mind.

As in Broum, Riehek’s fiduciary duty claim triggered SLUSA preemption under both the Sixth Circuit’s “literalist” approach and the Third Circuit’s “looser” approach. In his amended complaint, he claims,

Defendants breached their duty of candor to plaintiff and members of the Class when they failed to disclose that they were receiving daily cash re-investment (sweep) fees from investment vehicles into which cash balances from Custody Accounts were transferred,

(emphasis added). Following the “literalist” approach, the claim’s language speaks for itself. One can reasonably read it to allege a material misrepresentation or omission: The Bank failed to disclose a particular fee that, if disclosed, may have “given pause to potential investors.” Brown, 664 F.3d at 127. Likewise, under the “looser” approach, the Bank’s failure to disclose was far from an inessential “extraneous detail.” Rather, Richek’s claim rested on it: To have succeeded on his fiduciary “duty of candor” claim, Richek needed to show that the Bank failed to disclose, or omitted, the fact that it collected “swipe fees” while investing its clients’ custody-account cash balances. The inherent misrepresentation becomes especially clear after considering the claim as it originally appeared to the state court—if, in fact, we may consider the original complaint—which alleged that the Bank secretly “steered” the clients’ money to those mutual funds that had agreed to pay the Bank “sweep fees.” The risk that Richek may “reinsert” these original allegations in a future state-court proceeding is amplified by the fact that his amended claim is inseparably intertwined with a material misrepresentation or omission. See generally Brown, 664 F.3d at 128-31. As such, Ri-chek’s fiduciary duty claim triggered SLU-SA preemption.

All of this raises the question: Did SLU-SA preempt Richek’s entire complaint or just the individual claim? We have not decided this issue. Some circuits, on one hand, have endorsed a claim-by-claim approach. See In re Kingate Mgmt. Ltd. Lit, 784 F.3d 128, 153 (2d Cir. 2016); In re Lord Abbett Mut. Funds Fee Lit., 553 F.3d 248, 264-58 (3d Cir. 2009); Proctor v. Vishay Intertech. Inc., 584 F.3d 1208, 1228-29 (9th Cir. 2009). The Third Circuit, for example, has explained that “SLUSA does not mandate dismissal of an action in its entirety where the action includes only some preempted claims.” In re Lord Abbett, 553 F.3d at 255-56. Instead, the court concluded: “Allowing those claims that do not fall within SLUSA’s preemptive scope to proceed, while dismissing those that do, is consistent with the goals of preventing abusive securities litigation while promoting national legal standards for nationally traded securities.” Id. at 257. On the other hand, some courts have interpreted SLU-SA to preempt actions, not individual claims. See Behlen v. Merrill Lynch, 311 F.3d 1087, 1095 n.6 (11th Cir. 2002); Hidalgo-Velez v. San Juan Asset Mgmt., Inc., Civil No. 11-2175CCC, 2012 WL 4427077, at *3 (D.P.R. Sept. 24, 2012), rev’d on other grounds, 758 F.3d 98 (1st Cir. 2014) (“Removal of the entire action was proper because SLUSA precludes actions; not just claims. Based on [SLUSA’s] statutory language, many courts have rejected the claim-by-claim analysis advanced by Plaintiffs.”) (citation omitted) (collecting cases).

This appeal, however, does not require us to resolve the issue. Richek’s second claim, alleging breach of contract, also triggered SLUSA preemption. Specifically, Richek’s amended complaint alleged,

Despite full performance by plaintiff and the other members of the Class, defendants breached their contract with plaintiff and the other members of the Class by receiving daily cash re-investment (sweep) fees on cash balances in Custody Accounts that were transferred into money market or other investment vehicles from the recipients of the transferred funds, without authorization, or disclosure to, Custody Account holders,

(emphasis added). We have previously explained that “a plaintiff [should not be able to] evade SLUSA by making a claim that did not require a misrepresentation [or omission] in every case, such as a claim of breach of contract, but did in the particular case.” Brown, 664 F.3d at 127. The same is true here. Richek alleged the Bank breached the contract by receiving the “sweep fees” without “authorization, or disclosure to,” Richek. The disclosure claim inherently alleges a material misrepresentation or omission for the same reasons that the “disclosure” language in Ri-chek’s fiduciary duty claim does. And for Richek to have “authorized” the fees, the Bank would have had to have disclosed them to him; so the “authorization” claim was still fundamentally tied to a material misrepresentation or omission.

As noted in Holtz, SLUSA does not preempt all contract claims—just those that allege misrepresentations or omissions. Claims involving negligent breach or post-agreement decisions to breach, for example, may avoid SLUSA’s scope. Holtz, 846 F.3d at 932. I do not, however, read the examples identified in Holtz as exhaustive. Richek’s breach of contract claim may have avoided SLUSA preemption had he pleaded, for instance, that the Bank effectively reduced the “returns” the parties had agreed Richek would receive. Although such an allegation would not necessarily have involved negligence on the Bank’s part, or a post-agreement decision to breach, it still may have successfully supported a breach of contract claim that did not include a material misrepresentation or omission. But Richek did not take this approach.

Thus, SLUSA preempted Richek’s complaint, and the district court properly dismissed it.

HAMILTON, Circuit Judge,

dissenting.

“Just as plaintiffs cannot avoid SLUSA through crafty pleading, defendants may not recast contract claims as fraud claims by arguing that they ‘really’ involve deception or misrepresentation.” Freeman Investments, L.P. v. Pacific Life Ins. Co., 704 F.3d 1110, 1116 (9th Cir. 2013) (reversing dismissal of similar breach of contract case). That’s why we should reverse the dismissal of this complaint, which alleges only breach of contract and breach of fiduciary duty, not any form of fraud or negligent misrepresentation.

Plaintiffs breach of contract claim is simple: my contract with the bank spelled out the fees the bank would charge for its services. The bank breached the contract by charging additional fees. Plaintiff can prove that claim without proving any misrepresentation or omission of material fact.

To affirm dismissal, however, my colleagues transform this simple claim for breach of contract into one of “omission of a material fact.” The “omitted fact” was that the bank was breaching the contract by charging the unauthorized fees. By this sort of reverse alchemy, my colleagues turn gold into lead. They use logic that other circuits have rejected and transform an ordinary state-law claim for breach of contract into a leaden and doomed claim under federal securities law. I respectfully dissent.

The opinions in this case and Holtz v. JPMorgan Chase Bank, N.A., 846 F.3d 928, widen an already existing circuit split under SLUSA. They also head in the wrong direction. They take our circuit to a position that: (a) departs from the statutory text; (b) loses sight of Congress’s efforts in SLUSA to protect federalism interests; (c) selects a standard for SLUSA preemption that is difficult to administer and will produce arbitrary results; and (d) takes special-interest legislation to extraordinary lengths. The opinions shelter the wrongful conduct of powerful financial institutions from the only viable means to enforce contractual and fiduciary duties.

We should instead apply the standard adopted in the Second, Third, and Ninth Circuits, which allows class actions under state contract and fiduciary law where the plaintiffs can prevail on their claims without proving the defendants engaged in deceptive misrepresentations or omissions. In re Kingate Management Ltd. Litig., 784 F.3d 128, 149, 152 (2d Cir. 2015); Freeman Investments, 704 F.3d at 1115-16; LaSala v. Bordier et Cie, 519 F.3d 121, 141 (3d Cir. 2008).

I. SLUSA: The Securities Fraud Core and the Issue of Expansion to Contract Claims

The general story of “SLUSA,” the acronym for the Securities Litigation Uniform Standards Act of 1998, is well known. In 1995, Congress enacted stringent new pleading standards for private federal securities fraud litigation in the Private Securities Litigation Reform Act. Securities plaintiffs and their lawyers responded to the 1995 Act by bringing securities fraud claims involving securities traded on national markets in state courts under state law.

Congress enacted SLUSA to prevent such avoidance of the standards of the 1995 Act. See Merrill Lynch, Pierce, Fenner & Smith Inc. v. Dabit, 547 U.S. 71, 82, 126 S.Ct. 1503, 164 L.Ed.2d 179 (2006). SLUSA includes provisions in 15 U.S.C. §§ 77p(b) and 78bb(f)(l) to bar plaintiffs from using fraud class actions under state statutes or common law in connection with the purchase or sale of a security traded on a national exchange. In that core application, SLUSA seems to be working. The controversial question is whether SLUSA preemption reaches so far as to bar class actions asserting not fraud but only state-law claims for breach of contract or breach of fiduciary duty. If it does, then defendants can manage some extraordinary feats of legal jiu-jitsu to avoid liability for wrongdoing:

Start with a plaintiff, a customer of a bank or securities firm, who believes that she and other customers are the victims of systematic breaches of contract and fiduciary duty. She knows she does not have a viable claim under federal securities law or for common-law fraud. She files a class action in state court under state contract and fiduciary law. The defendant removes to federal court and argues for dismissal under SLUSA. The jiu-jitsu move is that the defendant then embraces a sweeping approach to federal securities law. It argues that the plaintiff could assert a securities fraud claim (though perhaps a fatally flawed one), that that’s what she must really be doing, and that only her artful pleading conceals that claim. If this logical flip works, SLUSA requires dismissal of a perfectly good contract claim.

In our prior SLUSA cases, we have taken care to leave room for state-law claims for breach of contract, at least. See Kurz v. Fidelity Management & Research Co., 556 F.3d 639, 640 (7th Cir. 2009). By extending SLUSA preemption to dismiss the state-law class actions in Goldberg and Holtz, my colleagues effectively immunize a favored category of defendants—banks and securities businesses—from liability for their breaches of contract and fiduciary duty. That is an erroneous interpretation of SLUSA.

The critical statutory language describes which state-law class actions are not permitted:

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)(l). The key phrase in (A), “alleging a misrepresentation or omission of a material fact,” is of course the language of fraud and negligent misrepresentation, and (B) also echoes the prohibitions of federal securities law.

How might one transform a complaint alleging only breach of contract and breach of fiduciary duty into one “alleging a misrepresentation or omission of a material fact”? The problem is that parties who disagree about the meaning of their contract will often believe and allege that the counter-party has told them something that is not true or has failed to disclose something, such as that party’s different interpretation of the contract. Also, a fiduciary owes a beneficiary a duty of candor, see generally Restatement (Third) of Trusts §§82 (duty to provide information), 109 (duty to account for principal and income). A breach of that duty can look a lot like an “omission of a material fact.”

II. The Circuit Split

How should a court apply SLUSA to such class action complaints alleging state-law claims for breaches of contract and fiduciary duty? This question has produced at least a three- or four-way circuit split.

Since the 2012 oral argument in this case, the Second and Ninth Circuits have adopted the approach that I believe is best: a class action claim is barred by SLUSA only if the plaintiffs claim requires proof of a misrepresentation or omission of material fact. This approach avoids both the risks of artful pleading by plaintiffs and the jiu-jitsu move by defendants. It bars claims that are, in substance, for fraud or negligent misrepresentation yet allows contract and fiduciary claims to go forward. This approach is most consistent with the statute’s text and purposes, and it is administrable and fair.

In Freeman Investments, L.P. v. Pacific Life Ins. Co., 704 F.3d 1110 (9th Cir. 2013), the defendant had sold variable universal life insurance policies to the plaintiffs. The plaintiffs alleged that the defendant had breached their contracts and . a duty of good faith and fair dealing by charging policyholders an excessive “cost of insurance.” The original complaint had included allegations of systematic concealment and deceit involving hidden fees. Those allegations provided fuel for the defendants’ argument that these were allegations of misrepresentations and omissions of material facts so that SLUSA should apply. The district court agreed and dismissed.

In an opinion by then-Chief Judge Ko-zinski, the Ninth Circuit reversed, explaining that SLUSA preemption should depend on what the plaintiffs would be required to show to prove their claims:

To succeed on this [contract] claim, plaintiffs need not show that Pacific misrepresented the cost of insurance or omitted critical details. They need only persuade the court that theirs is the better reading of the contract term. See Yount v. Acuff Rose-Opryland, 103 F.3d 830, 836 (9th Cir. 1996). “[Wjhile a contract dispute commonly involves a ‘disputed truth’ about the proper interpretation of the terms of a contract, that does not mean one party omitted a material fact by failing to anticipate, discover and disabuse the other of its contrary interpretation of a term in the contract.” Webster v. N.Y. Life Ins. and Annuity Corp., 386 F.Supp.2d 438, 441 (S.D.N.Y. 2006). Just as plaintiffs cannot avoid SLUSA through crafty pleading, defendants may not recast contract claims as fraud claims by arguing that they “really” involve deception or misrepresentation. Id.; see also Walling v. Beverly Enters., 476 F.2d 393, 397 (9th Cir. 1973) (“Not every breach of a stock sale agreement adds up to a violation of the securities law.”).

704 F.3d at 1116-16 (emphasis added).

In Kingate Management, 784 F.3d 128, the Second Circuit adopted essentially the same approach in a complex case against some of the “feeder funds” for Bernie Ma-doffs Ponzi scheme. The plaintiffs asserted 28 claims, which the Second Circuit organized in five groups. Most relevant for our purposes are the “Group 4” and “Group 5” claims for breaches of contract and fiduciary duty and other non-fraud tort theories, and for recovery of professional fees that were calculated in error or charged for services performed poorly. The district court had dismissed the entire case under SLUSA.

The Second Circuit reversed in a thorough opinion by Judge Leval. SLUSA preempted some claims alleging that , the defendants themselves had engaged in fraudulent or negligent misrepresentations. SLUSA did not preempt the claims for breaches of contract or fiduciary duty or for fees. Those claims would not require the plaintiffs to prove that the defendants had misrepresented or omitted material facts, so they were not preempted by SLUSA. 784 F.3d at 151-62. Accord, LaSala v. Bordier et Cie, 519 F.3d 121, 141 (3d Cir. 2008) (reversing dismissal; SLU-SA preemption would not apply to breach of fiduciary duty claims unless allegation of misrepresentation operates as “factual predicate” for claim; extraneous allegations would not support SLUSA preemption) (Poliak, J.); Norman v. Salomon Smith Barney, Inc., 350 F.Supp.2d 382, 387-88 (S.D.N.Y. 2004) (Lynch, J.) (“Plaintiffs’ claim is simply that Salomon said it would do something in exchange for plaintiffs’ fees, and then didn’t do what it had promised. The fact that the actions underlying the alleged breach could also form the factual predicate for a securities fraud action by different plaintiffs cannot magically transform every dispute between broker-dealers and their customers into a federal secuiities claim—the mere ‘involvement of securities [does] not implicate the anti-fraud provisions of the securities laws.’ ”).

The Sixth Circuit takes a different approach. It does not consider whether allegations of fraud are required to prove the plaintiffs’ contract claim: “[SLUSA] does not ask whether the complaint makes ‘material’ or ‘dependent’ allegations of misrepresentations in connection with buying or selling securities. It asks whether the complaint includes these types of allegations, pure and simple.” Segal v. Fifth Third Bank, N.A., 581 F.3d 305, 311 (6th Cir. 2009), quoted in Atkinson v. Morgan Asset Mgmt., Inc., 658 F.3d 549, 555 (6th Cir. 2011). This seemingly textual approach is not symmetrical, however. If the plaintiff has omitted allegations of fraud, the Sixth Circuit instructs district courts to treat the omission as artful pleading, to imply the toxic allegations, and to dismiss. Atkinson, 658 F.3d at 555, following Segal, 581 F.3d at 310-11.

Before today’s decisions in Holtz and Goldberg, we applied a third standard for deciding when a contract or fiduciary claim might be preempted. In Kurz v. Fidelity Management & Research, 556 F.3d at 641, and Brown v. Calamos, 664 F.3d 123, 127 (7th Cir. 2011), we signaled that SLUSA would not preempt contract claims. In Brown, we addressed the problems I discuss here. We allowed considerably more room for contract class actions, but under a standard that is difficult to administer. Brown requires a court to look at a complaint and to prophesy whether “it is likely that an issue of fraud will arise in the course of the litigation.” 664 F.3d at 128-29.

While I believe plaintiff should prevail here under the better rule adopted by the Second, Ninth, and Third Circuits, plaintiff should also prevail under Brown. Her breach of contract claim requires her to show only that the contract with the bank authorized certain fees and that the bank breached the contract by charging additional fees (in the form of retaining the “sweep fees” paid for the investment of plaintiffs’ funds). There is no need for fraud to become an issue.

In both this case and Holtz, however, my colleagues go beyond the Brown standard and adopt a new, fourth standard that is different from any other circuit’s approach. Under Goldberg and Holtz, now, virtually any breach of contract claim is preempted. If the defendant had told the plaintiff what it was actually doing, the plaintiffs acquiescence could have been treated as a modification or waiver of the relevant contract terms. Thus can virtually any breach of contract claim by the customer of a securities firm be transformed into a doomed securities fraud claim that must be dismissed.

My colleagues offer a couple of interesting exceptions, though. One is for negligent breaches of contract, “by mistake.” Holtz, 846 F.3d at 932. Why the defendant’s state of mind should matter to a breach of contract claim is not explained, as a matter of either contract law or federal securities law. SLUSA surely preempts claims for negligent misrepresentation as well as those for intentional fraud. (Recall that SLUSA preemption does not include a scienter requirement.) This proposed exception has no apparent basis in the text of SLUSA and seems entirely arbitrary.

The second exception is for breaches of contract that occur after a plaintiff has already invested her money, presumably because such a breach is not “in connection with” the purchase or sale of a covered security. While the statutory text seems to support this exception, it is likely to have little meaning. In this case, for example, if the bank’s retention of the sweep fees was a breach of contract, it happened every day, and “in connection with” the bank’s purchases and sales of the securities with plaintiff’s capital. In any event, the limited scope of this exception will surely produce arbitrary results.

III. The Merits of Preempting Contract Claims

Only the Supreme Court can settle this three- or four-way circuit split. The Second Circuit’s opinion in Kingate, the Ninth’s in Freeman, and the Third’s in Bordier explain well why the best approach to this preemption problem is to ask whether the plaintiffs would be required to prove a misrepresentation or omission of a material fact. I offer a few additional thoughts prompted by my colleagues’ opinions in this case and Holtz.

First, my colleagues take statutory purpose too far. The core of their thinking appears in Holtz: “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 rechar-acterized as contract suits about the securities involved.” 846 F.3d at 930-31.

My colleagues have lost sight of a point that we and the Supreme Court have made repeatedly: “no legislation pursues its purposes at all costs. Deciding what competing values will or will not be sacrificed to the achievement of a particular objective is the very essence of legislative choice—and it frustrates rather than effectuates legislative intent simplistically to assume that whatever furthers the statute’s primary objective'must be the law.” Rodriguez v. United States, 480 U.S. 522, 525-26, 107 S.Ct. 1391, 94 L.Ed.2d 533 (1987); see also, e.g., Board of Governors of Federal Reserve System v. Dimension Financial Corp., 474 U.S. 361, 373-74, 106 S.Ct. 681, 88 L.Ed.2d 691 (1986) (“Application of ‘broad purposes’ of legislation at the expense of specific provisions ignores the complexity of the problems Congress is called upon to address and the dynamics of legislative action. Congress may be unanimous in its intent to stamp out some vague social or economic evil; however, because its Members may differ sharply on the means for effectuating that intent, the final language of the legislation may reflect hard-fought compromises.”); Covalt v. Carey Canada, Inc., 860 F.2d 1434, 1439 (7th Cir. 1988) (“Courts do not strive for ‘more’ of all legislative objectives, however; laws have both directions and limits, and each must be scrupulously honored.”).

We have made the same point more colorfully, in a way that applies directly here: “When special interests claim that they have obtained favors from Congress, a court should ask to see the bill of sale. Special interest laws do not have ‘spirits/ and it is inappropriate to extend them to achieve more of the objective the lobbyists wanted.” Chicago Prof'l Sports Ltd. P’ship v. Nat’l Basketball Ass’n, 961 F.2d 667, 671 (7th Cir. 1992).

The banks and securities businesses that won passage of SLUSA did not win a broad preemptive provision for all class action claims that might be made in connection with purchases or sales of covered securities. They certainly did not win passage of language preempting state-law claims for breach of contract or fiduciary duty. The enacted language preempts covered class action claims that allege “a misrepresentation or omission of material fact.” That language obviously calls to mind the law of fraud and (because there is no mention of scienter) negligent misrepresentation. See also Chadbourne & Parke LLP v. Twice, 571 U.S.-,-, 134 S.Ct. 1058, 1068-69, 188 L.Ed.2d 88 (2014) (rejecting purpose-based efforts to expand reach of SLUSA).

My colleagues’ approach also fails to give effect to the federalism balance struck in SLUSA. As the Supreme Court pointed out in Dabit, the statute was drafted to preserve certain specific roles for state securities law and securities regulators. See Dabit, 547 U.S. at 87-88, 126 S.Ct. 1503, discussing 15 U.S.C. § 78bb(f)(3), (f)(4), & (f)(5)(C); see also 15 U.S.C. § 77p (parallel provisions under 1933 Securities Act). The Dabit Court noted that including these explicit “carve-outs” for state law “both evinces congressional sensitivity to state prerogatives in this field and makes it inappropriate for courts to create additional, implied exceptions.” Id. (rejecting implied exception for fraud claims alleging inducement not to sell or purchase securities); accord, Chadbourne & Parke, 571 U.S. at-, 134 S.Ct. at 1068-69 (interpreting SLUSA to respect its limits and to preserve roles for state law and state courts).

That same federalism balance should persuade federal courts not to find in SLUSA implied authority to sweep up claims arising only under state law of contract and fiduciary duty. The Congress that took such care to leave room for certain state securities laws and enforcement powers would be surprised by these decisions. It would be surprised to learn that federal courts are reading the statute to give special privileges to banks and securities businesses by preventing effective enforcement against them of such core areas of state law as contract and fiduciary law.

My colleagues’ expansive reading of SLUSA also conflicts with the Supreme Court’s approach to a closely related federalism issue in Merrill Lynch, Pierce, Fenner & Smith Inc. v. Manning, 578 U.S.-, 136 S.Ct. 1562, 194 L.Ed.2d 671 (2016). The issue in Manning was whether section 27 of the Securities Exchange Act of 1934, which grants exclusive federal jurisdiction over actions “brought to enforce” Exchange Act requirements, extends to a complaint that is filed in state court and alleges only state-law claims, but mentions federal securities law. The unanimous Court said no, holding that the standard under section 27 is the same as the “arising under” rule for federal question jurisdiction under 28 U.S.C. § 1331, so that it applies when federal law creates the cause of action asserted and in a narrow category of cases where a state-law claim will necessarily raise a disputed and substantial issue of federal law. 578 U.S. at-, 136 S.Ct. at 1569-70.

Most salient for these cases is the Court’s federalism reasoning. 578 U.S. at -, 136 S.Ct. at 1573-75 (Part II-C). The Court warned against reading grants of exclusive federal jurisdiction too broadly, so as to interfere with state law and state courts:

Out of respect for state courts, this Court has time and again declined to construe federal jurisdictional statutes more expansively than their language, most fairly read, requires. We have reiterated the need to give “[d]ue regard [to] the rightful independence of state governments”—and more particularly, to the power of the States “to provide for the determination of controversies in their courts.” Romero [v. International Terminal Operating Co.], 358 U.S. [354] at 380 [79 S.Ct. 468, 3 L.Ed.2d 368 (1959)] (quoting Healy v. Ratta, 292 U.S. 263, 270 [54 S.Ct. 700, 78 L.Ed. 1248] (1934); Shamrock Oil & Gas Corp. v. Sheets, 313 U.S. 100, 109 [61 S.Ct. 868, 85 L.Ed. 1214] (1941)). Our decisions, as we once put the point, reflect a “deeply felt and traditional reluctance ... to expand the jurisdiction of federal courts through a broad reading of jurisdictional statutes.” Romero, 358 U.S. at 379 [79 S.Ct. 468], That interpretive stance serves, among other things, to keep state-law actions like Manning’s in state court, and thus to help maintain the constitutional balance between state and federal judiciaries.

578 U.S. at-, 136 S.Ct. at 1573.

Manning shows that Congress must use clear language if it intends to order federal courts to intrude into long-established realms of state law and state courts. The statutory language and standards in these cases are not identical, of course, but Manning was enforcing limits on a grant of exclusive federal jurisdiction. The Court explained that “it is less troubling for a state court to consider such an issue of [federal securities law] than to lose all ability to adjudicate a suit raising only state-law causes of action.” 578 U.S. at -, 136 S.Ct. at 1574. In Manning itself, the state-law complaint actually mentioned the federal securities laws but did not rely upon them for relief. The Court rejected Merrill Lynch’s argument, akin to my colleagues’ approach here and in Holtz, that a judge should go beyond the face of the complaint and find “artful pleading,” leaving no room for state law in the case simply because the plaintiff might have tried to assert a claim under federal law, but did not. Proper respect for the role of states and their laws should lead us to reject the similar attempted expansion of SLUSA preemption in this case and Holtz.

Finally, the rule of the Second, Ninth, and Third Circuits also has the benefit of being easier to administer fairly. As noted, our earlier Brown opinion requires judges to be prophets, looking at complaints and predicting whether fraud is likely to be an issue. The more expansive approach taken in this case and Holtz will likely produce results that are unpredictable, unfair, or both. When the defendants in Manning suggested a similar approach, the Supreme Court said it had “no idea how a court would make that judgment” and said that avoiding this “tortuous inquiry into artful pleading is one more good reason to reject” the approach. 578 U.S. at-, 136 S.Ct. at 1575.

We should focus instead on whether a misrepresentation or omission of material fact is an element of the plaintiffs cause of action, as the Second and Ninth Circuits did in Kingate and Freeman. This would provide a straightforward standard consistent with the statutory language of fraud— “a misrepresentation or omission of a material fact.” It can be applied fairly at the pleading stage, preventing both truly artful pleading by plaintiffs and unfair recasting of contract and fiduciary claims as securities claims.

      . Margaret Richek Goldberg is the current trustee; I will refer to the investor and plaintiff as "Richek.”

      . Prior to the lawsuit, Bank of America acquired LaSalle, and LaSalle became a subsidiary of Bank of America; I will refer to both institutions and defendants as “the Bank.”

      . Richek also disputes that his allegations were "in connection with the purchase or sale of a covered security.” I agree with Judge Easterbrook and reject these arguments under Holtz v. JPMorgan Chase Bank, N.A., No. 13-2609 (7th Cir. Jan. 23, 2017), 846 F.3d 928, 933-34, 2017 WL 279499.

      .The complaint explicitly stated, "Plaintiff does not assert by this action any claim arising from a misstatement or omission in connection with the purchase or sale of a security, nor does plaintiff allege that Defendants engaged in fraud in connection with the purchase or sale of a security.” Such a statement, however, was not a well-pleaded allegation but rather a legal conclusion entitled to no deference on review.

      . The fund at issue was one of at least twenty in a family of mutual funds.

      . Actually, as suggested by Brown, it may be that the district court may consider only the original complaint in assessing a defendant’s SLUSA filing; and if so, Richek's amendment was inappropriate. See 664 F.3d at 131 (discussing amendments to a complaint after a defendant has moved to dismiss under SLU-SA); see also id, (disagreeing with Behlen v. Merrill Lynch, 311 F.3d 1087, 1095-96 (11th Cir. 2002)). In any event, as will be explained, SLUSA warranted dismissal of both the original and amended complaints in this case.

      . Although we discussed the plaintiff’s claims in Brown collectively, and thus referred to a single “suit,” we did not address the issue of whether individual claims may be preempted under SLUSA.

      . The recent Second and Ninth Circuit cases explain why my description of the circuit split differs from that in Judge Flaum’s concurrence.

      . Circuits have also divided on two related procedural questions: whether SLUSA preemption should be analyzed and applied to the entire civil action or claim-by-claim, and whether a plaintiff whose complaint or claim is deemed preempted should have any opportunity to amend the pleading to cure the problem. Compare, e.g., Kingate, 784 F.3d at 152-53 (applying SLUSA preemption claim-by-claim), with Atkinson, 658 F.3d at 555-56 (in dicta, one preempted claim requires dismissal of entire case); also compare, e.g., Freeman, 704 F.3d at 1116 (allowing amendment), and U.S. Mortgage, Inc. v. Saxton, 494 F.3d 833, 842-43 (9th Cir. 2007) (allowing amendment), with Brown, 664 F.3d at 131 (not allowing amendment). I agree with the claim-by-claim approach and allowing plaintiffs who can avoid SLUSA preemption to do so by amendment. Especially under post -Iqbal federal civil pleading standards, plaintiffs have strong incentives to say more than is necessary in their complaints. Alleging a little more than necessary should not be fatal.

      . My colleagues find support for their expansive treatment of SLUSA in Northwest, Inc. v. Ginsberg, 572 U.S.-, 134 S.Ct. 1422, 188 L.Ed.2d 538 (2014), which held that a state-law claim against an airline for breaching an implied covenant of good faith and fair dealing was preempted by the Airline Deregulation Act. See Holtz, 846 F.3d at 930-31. The simple answer to this argument is that the preemptive language in the Airline Deregulation Act is much broader than the relevant language in SLUSA. The Airline Deregulation Act provides that states “may not enact or enforce a law, regulation, or other provision having the force and effect of law related to a price, route, or service of an air carrier that may provide air transportation under this subpart.” 49 U.S.C. § 41713(b)(1) (emphasis added). To the extent Northwest is relevant here, it might affect only plaintiff's fiduciary duty claim, not her claim that the bank simply breached the .fee provision of the written contract by charging extra fees not authorized by the contract.


source: Caselaw Access Project

author: EASTERBROOK, Circuit Judge.

license: Public Domain

text:
    Patricia HOLTZ, et al., Plaintiffs-Appellants, v. JPMORGAN CHASE BANK, N.A., et al., Defendants-Appellees.
    No. 13-2609
    United States Court of Appeals, Seventh Circuit.
    Argued April 2, 2014
    Decided January 23, 2017

      Daniel L. Berger, Attorney, Grant & Eisenhofer P.A., New York, NY, Shannon Lack Braden, Attorney, Tyler S. Graden, Attorney, Kessler Topaz Meltzer & Check, LLP, Radnor, PA, for Plaintiffs-Appellants.
    Jonathan K. Youngwood, Attorney, Simpson Thacher & Bartlett, New York, NY, Stephen Victor D’Amore, Attorney, Winston & Strawn LLP, Chicago, IL, for Defendants-Appellees.
    Before EASTERBROOK, MANION, and SYKES, Circuit Judges.
   EASTERBROOK, Circuit Judge.

JPMorgan Chase Bank offers to manage clients’ portfolios of securities. Its affiliates sponsor mutual funds in which these funds can be placed. We refer to JPMorgan Chase Bank and all of its affiliates collectively as “the Bank.” According to the complaint in this case, customers invested in these mutual funds believing that, when recommending them as suitable vehicles, the Bank acts in clients’ best interests (as its website proclaims). But Patricia Holtz, on behalf of a class of other investors, alleges that the Bank gives its employees incentives to place clients’ money in the Bank’s own mutual funds, even when those funds have higher fees or lower returns than competing funds sponsored by third parties. Holtz maintains that the Bank violated its promises and its fiduciary duties by inducing its investment advisers to make recommendations in the Bank’s interest rather than the clients’.

Holtz filed this suit in federal court under the Class Action Fairness Act, 28 U.S.C. § 1332(d)(2), because the class has more than 100 members, the stakes exceed $5 million, and at least one member of the class has citizenship different from the Bank’s. This suit is also a “covered class action” for the purpose of the Securities Litigation Uniform Standards Act of 1998 (SLUSA or the Litigation Act), 15 U.S.C. § 78bb(f), because mutual funds are securities. SLUSA requires the district court to dismiss any “covered class action” in which the plaintiff alleges “a misrepresentation or omission of a material fact in connection with the purchase or sale of a covered security” (§ 78bb(f)(l)(A)). Under SLUSA, securities claims that depend on the nondisclosure of material facts must proceed under the federal securities laws exclusively. See, e.g., Merrill Lynch, Pierce, Fenner & Smith Inc. v. Dabit, 547 U.S. 71, 126 S.Ct. 1503, 164 L.Ed.2d 179 (2006); In re Mutual Fund Market-Timing Litigation, 468 F.3d 439 (7th Cir. 2006) (Kircher IV). Holtz does not want to invoke federal law and framed her claims entirely under state contract and fiduciary principles. But the district court concluded that these claims necessarily rest on the “omission of a material fact” and dismissed the suit under SLUSA. 2013 U.S. Dist. Lexis 90066 (N.D. Ill. June 26, 2013).

Holtz maintains that falsehoods and omissions have nothing to do with her claims. She tells us that they “are not in any way based on, dependent upon, or necessarily entangled with proof that [the Bank] made any false statements or omitted to disclose material information. Rather, [she] assert[s] simply that [the Bank] failed to provide the independent research, financial advice, and due diligence required by the parties’ contract and their fiduciary relationship.” The district court’s problem with this contention—our problem too—is that the suit depends on Holtz’s assertion that the Bank concealed the incentives it gave its employees. If it had told customers that its investment advisors were compensated more for selling the Bank’s mutual funds than for selling third-party funds, plaintiffs would have no claim under either state or federal law. This means that nondisclosure is a linchpin of this suit no matter how Holtz chose to frame the pleadings.

We grant that the complaint omits any allegation of scienter, which is essential in private securities-fraud litigation. See. Tellabs, Inc. v. Maker Issues & Rights, Ltd., 551 U.S. 308, 127 S.Ct. 2499, 168 L.Ed.2d 179 (2007); Ernst & Ernst v. Hochfelder, 425 U.S. 185, 96 S.Ct. 1375, 47 L.Ed.2d 668 (1976). Yet the Litigation Act does not ask what state-law theory a plaintiff invokes. The statutory question is whether plaintiff alleges “a misrepresentation or omission of a material fact in connection with the purchase or sale of a covered security” (§ 78bb(f)(l)(A)). Whether the complaint pleads a particular state of mind is neither here nor there—a point we made in Brown v. Calamos, 664 F.3d 123, 126-27 (7th Cir. 2011), when holding that an investor cannot avoid the Litigation Act by omitting an allegation of scien-ter and attempting to frame common-law claims under state law. Every other circuit that has addressed the question likewise has held that a plaintiff cannot sidestep SLUSA by omitting allegations of scienter or reliance. See Miller v. Nationwide Life Insurance Co., 391 F.3d 698, 701-02 (5th Cir. 2004); Atkinson v. Morgan Asset Management, Inc,, 658 F.3d 549 (6th Cir. 2011); Dudek v. Prudential Securities, Inc., 295 F.3d 875, 879-80 (8th Cir. 2002); Anderson v. Merrill Lynch, Pierce, Fenner & Smith, Inc., 521 F.3d 1278, 1284 (10th Cir. 2008).

Dabit concluded that the Litigation Act is designed to prevent persons injured by securities transactions from engaging in artful pleading or forum shopping in order to evade limits on securities litigation that are designed to block frivolous or abusive suits. See 547 U.S. at 81-84, 126 S.Ct. 1503. See also Appert v. Morgan Stanley Dean Witter, Inc., 673 F.3d 609, 615 (7th Cir. 2012). Private class-action litigation about securities transactions must be conducted under federal securities law, so that limits adopted by Congress, or recognized by the Supreme Court, can be applied. Allowing plaintiffs to avoid the Litigation Act by contending that they have “contract” claims about securities, rather than “securities” claims, would render the Litigation Act ineffectual, because almost all federal securities suits could be recharac-terized as contract suits about the - securities involved.

Federal law often permits genuine contract claims to survive preemption. So, for example, a contract requiring an investment manager to keep funds in an interest-bearing account pending the purchase of new securities could proceed under state law—if the manager by error failed to invest the money properly, or if a decision to break the promise occurred after the promise had been made and the money invested. (The significance of these qualifications will become clear later oh.) But Holtz has not alleged that the Bank created the hidden conflict of interest only after she had invested her money.

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. Here’s an example drawn from the Airline Deregulation Act, which preempts' suits under state law that concern the price or quality of air service, see 49 U.S.C. § 41713, but permits suits that rest on contracts. That sets up an opportunity for artful pleading. The plaintiff in Northwest, Inc. v. Ginsberg, — U.S.-, 134 S.Ct. 1422, 188 L.Ed.2d 538 (2014), conceded that when excluding him from its frequent-flyer program the airline had followed the letter of its contract but contended that it had nonetheless not engaged in good faith and' fair dealing. The Court recognized that good faith and fair dealing is a longstanding doctrine of state contract law but held that it does not constitute a “contract” claim for the purpose of the Airline Deregulation Act. The Justices held that a claim “is pre-empted if it seeks to enlarge the contractual obligations that the parties voluntarily adopt.” Id. at 1426.' If the state-law duty is independent of the contract’s terms, then it does not rest on contract.

Much the same can be said about Holtz’s claims. She does not point to any explicit term that the Bank violated; instead she relies (as Ginsberg did) on a state-law duty to treat the other party fairly. That’s what a fiduciary claim is all about. Indeed, Holtz contends that it is not even possible under state law to contract out of this duty—that is why Holtz submits that the Bank could not have reserved the right to favor its own interests over those of investors (at least not without explicit disclosure). Holtz uses this supposed non-negotiable fiduciary duty to show why, in her view, the suit does not depend on nondisclosure. But if the duty is non-negotiable, then under Northwest it is also non-contractual.

In Dabit, as in this case, the plaintiff tried to recharacterize as a state-law contract claim a situation that securities law sees as a nondisclosure claim. A mutual fund issued a prospectus asserting that the fund was operated in a way that held down transactions costs. Plaintiffs alleged that the fund broke this promise by secretly allowing some investors to make short-swing trades in order to take advantage of price differences between the closing price in one nation and the price elsewhere, where stock exchanges closed at different times. Allowing short-swing trades not only increased transactions costs but also diverted wealth from long-term holders to the arbitrageurs. Plaintiffs maintained that they had contract claims, based on promises in the prospectus and other documents the fund had issued; the Supreme Court held, however, that because claims based on false statements in (or material omissions from) a prospectus are in connection with securities covered by federal law, it does not matter what state-law characterization might be possible. (Kircher v. Putnam Funds Trust, 403 F.3d 478 (7th Cir. 2005) (Kircher I), explains the nature of the claim in Dabit more fully than the Justices did. In Dabit the Supreme Court expressly agreed with this circuit, 547 U.S. at 74, 86, 126 S.Ct. 1503, and rejected the contrary view of the Second Circuit— though later it vacated Kircher I after concluding that this court had lacked appellate jurisdiction. 547 U.S. 633, 126 S.Ct. 2145, 165 L.Ed.2d 92 (2006) (Kircher III).)

The sort of situation we encounter—in which one party to a contract conceals the fact that it planned all along to favor its own interests—is a staple of federal securities law. When one side in Wharf (Holdings) Ltd. v. United Int'l Holdings, Inc., 532 U.S. 588, 121 S.Ct. 1776, 149 L.Ed.2d 845 (2001), contended that a suit alleging a broken promise was a simple contract claim, the Supreme Court replied that making a promise with intent not to keep it is fraud, and that when the subject of the contract is a security the claim involves securities fraud. The link to securities law is equally strong for Holtz’s contention that the Bank promised to recommend investments in her best interest, while intending all along to make recommendations in its own interest. We observed above that Holtz would have a contract claim free of a securities component if she alleged that the Bank broke its promise by mistake, or if the Bank created the incentive to favor its own mutual funds only after she had invested her money (which would take Wharf out of the picture). But she does not make either allegation.

A fiduciary that makes a securities trade without disclosing a conflict of interest violates federal securities law. See In re E.F. Hutton & Co., 49 S.E.C. 829 (1988) (the several opinions in that decision collect many of the important decisions). Likewise a broker-dealer that fails to achieve best execution for a customer by arranging a trade whose terms favor the dealer rather than the client has a securities problem, not just a state-law contract or fiduciary-duty problem. See Newton v. Merrill Lynch, Pierce, Fenner & Smith, Inc., 135 F.3d 266 (3d Cir. 1998) (en banc). A broker-dealer that churns securities (makes trades to generate commissions rather than extra value for the customer) likewise has a securities problem in addition to a state-law contract and fiduciary duty problem. See Costello v. Oppenheimer & Co., 711 F.2d 1361 (7th Cir. 1983). Or consider United States v. Naftalin, 441 U.S. 768, 99 S.Ct. 2077, 60 L.Ed.2d 624 (1979): a short seller assured the broker that he owned enough shares to deliver, but he did not and the sale therefore was a “naked short”; his lie was a breach of contract as well as fraud, and the Supreme Court held that it violated the Securities Act of 1934.

E.F. Hutton in particular shows that Holtz has a securities claim based on the Bank’s (asserted) failure to disclose the conflict under which its employees were operating. Our decision in Brown v. Calamos reiterates the point. Plaintiffs alleged that managers of an investment fund pooled assets in a way that favored holders of preferred stock over holders of common stock. They presented this as a contract and fiduciary claim—which it was—but we thought that it was also a securities claim because it depended on nondisclosure of the procedures said to create the conflict. A statement along the lines of “we will act in your best interest” plus nondisclosure of a competing private interest is the basis of many securities actions. It is hard to see much difference between Holtz’s theory and Brown’s. After the Litigation Act, a plaintiff cannot proceed by omitting the securities theory and standing on state law in the sort of circumstances discussed in the preceding paragraph.

At oral argument, Holtz’s lawyer told us that no sane person would have invested through the Bank had it revealed a bias for its own mutual funds—indeed, that the secret information contradicted the promise to act in investors’ interest, and that the Bank never intended to keep its promise. All of this just brings the suit squarely within Wharf, which, recall, held that a concealed plan not to keep a promise about a securities transaction is securities fraud. Indeed, in Broim we rejected an argument that a plaintiff can avoid SLUSA by contending that no sane investor would have purchased the security (or the investment advice) if the truth had been told, and that the suit therefore must be about substance rather than disclosure. 664 F.3d at 129.

Holtz has not pointed to any nondisclosure or fiduciary-duty claim concerning investments in securities, traded in interstate commerce, that is outside the scope of federal securities law. Sometimes a plaintiff will be unable to show a material lie or omission, intent to deceive, or the existence of a purchase or sale, and thus will not have a miming federal securities claim (even though he might have a good claim under state law), but Dabit holds that SLUSA applies whether or not a federal securities theory would succeed. Holtz’s decision not to plead scienter means that she could not prevail under federal securities law, but as Dabit observes the Litigation Act would be ineffectual if it covered only winning securities claims. To protect defendants from weak or abusive claims of wrongdoing in connection with securities transactions, it is essential to block those that fail under federal law as well as those that could succeed.

Holtz has one more argument: that the Bank’s omissions did not occur “in connection with” the purchase or sale of a covered security. The Litigation Act deals only with fraud or omissions in connection with covered securities. This branch of Holtz’s argument rests on Gavin v. AT&T Corp., 464 F.3d 634 (7th Cir. 2006), which holds that the Litigation Act does not block a suit concerning the terms on which shares of one company were exchanged for shares of another following a merger. AT&T acquired MediaOne in June 2000 and needed to issue new AT&T shares to persons who had held stock in MediaOne. Communications offered those investors several options for conducting the exchange. Worried that investors who ignored these communications might find their investments subject to escheat, AT&T hired Georgeson Shareholder Communications six months after the merger closed and told Georgeson to do what it could to get investors to take the necessary steps. Georgeson sent letters that the plaintiffs later characterized as fraudulent for omitting the fact that, even long after the merger, people holding shares of Me-diaOne stock had one option that did not require payment of a fee for conducting the exchange.

As we saw matters in Gavin, the purchase or sale of securities was the merger in June 2000, not the ensuing swaps of certificates, so Georgeson’s letter was not “in connection with” the sale of a covered security. Gavin does not assist Holtz, because the Bank’s omission was made in connection with an impending investment decision (into which mutual fund would Holtz invest) rather than with a record-keeping decision. The Supreme Court held in Dabit that a decision not to sell a security (when influenced by a material misrepresentation or omission) is “in connection with” a purchase or sale of that security; the link between the secret fees to the Bank’s employees and the choice of mutual funds is tighter than the link between the nondisclosure and non-sale in Dabit.

That some of the investment decisions were made by investment advisers as Holtz’s agent does not take this out of the “in connection with” domain—otherwise suitability and churning could not be a securities theory. SEC v. Zandford, 535 U.S. 813, 122 S.Ct. 1899, 153 L.Ed.2d 1 (2002), holds that the “in connection with” requirement is satisfied when a broker makes a purchase or sale as an investor’s agent. That’s equally true of transactions that the Bank made as Holtz’s agent.

The Litigation Act does allow state-law claims in which the misrepresentations or omissions are not “material,” see Appert, 673 F.3d at 616-17, but Holtz has not argued that the Bank’s incentives to its employees were too small to be “material” under the standard of Matrixx Initiatives, Inc. v. Siracusano, 563 U.S. 27, 131 S.Ct. 1309, 179 L.Ed.2d 398 (2011), and its predecessors. An omission is “material” when a reasonable investor would deem it significant to an investment decision. Holtz herself deems the Bank’s incentives material to investments; that’s the basis of this suit.

If she wants to pursue a contract or fiduciary-duty claim under state law, she has only to proceed in the usual way: one litigant against another. The Litigation Act is limited to “covered class actions,” which means that Holtz could litigate for herself and as many as 49 other customers. 15 U.S.C. § 78bb(f)(5)(B)(i)(I). What she can’t do is litigate as representative of 50 or more other persons when the suit involves “a misrepresentation or omission of a material fact in connection with the purchase or sale of a covered security”. If the Bank did wrong by its customers, the SEC could file its own suit (or open an administrative proceeding) without regard to the Litigation Act—and the Commission sometimes can obtain relief without showing scienter. See Aaron v. SEC, 446 U.S. 680, 100 S.Ct. 1945, 64 L.Ed.2d 611 (1980). What’s more, states and their subdivisions can litigate in state court; the Litigation Act exempts them. 15 U.S.C. § 78bb(f)(3)(B). Thus there are plenty of ways to bring wrongdoers to account—but a class action that springs from lies or material omissions in connection with federally regulated securities is not among them.

AFFIRMED


author: POSNER, Circuit Judge.

text:
    Buruji KASHAMU, Plaintiff-Appellant, v. U.S. DEPARTMENT OF JUSTICE, et al., Defendants-Appellees.
    No. 16-1004
    United States Court of Appeals, Seventh Circuit.
    Submitted November 18, 2016
    Decided January 23, 2017

      Matthew J. Piers, Chirag Gopal Badlani, Attorneys, HUGHES SOCOL PIERS RESNICK & DYM, LTD., Chicago, IL, for Plaintiff-Appellant.
    Tyce R. Walters, Douglas N. Letter, Lewis S. Yelin, Attorney, DEPARTMENT OF JUSTICE, Washington, DC, for Defendants-Appellees.
    Before POSNER and KANNE, Circuit Judges.
   POSNER, Circuit Judge.

Buruji Kashamu, a fugitive for nearly two decades and the alleged leader of a heroin-importing conspiracy that inspired the hit show “Orange is the New Black,” appears before us for a third time not in person but through counsel because he is unwilling to risk being present in the United States, and in fact has never in his life been in the United States. See “Man Who Inspired Orange is the New Black Elected Senator in Nigeria” The Guardian, Apr. 16, 2015, https://www.theguardian.com/ world/2015/apr/16/alleged-drug-kingpin-wanted-us-elected-senator-nigeria (visited Jan. 20, 2017).

In 1998 a grand jury in the Northern District of Illinois had charged him and thirteen others with conspiracy to import heroin, in violation of 21 U.S.C. § 963. Eleven co-conspirators pleaded guilty, and one other was convicted after trial. But Kashamu, refusing to appear (which would have required his presence in the United States), insisted that the authorities were trying to pin crimes committed by his dead brother—who he said bore a striking resemblance to him—on him.

The present suit is Kashamu’s latest attempt to avoid answering the still-pending charges that the Justice Department has brought against him. When he surfaced in England six months after his indictment Justice Department lawyers commenced what turned out to be a four-year legal battle seeking his extradition to the United States—unsuccessfully. Later Kashamu moved to dismiss the American indictment on the ground that the doctrine of collateral estoppel barred his prosecution by the United States. We denied that motion, explaining that the English magistrate’s refusal to authorize his extradition to the United States had been based simply on the Justice Department’s inability to convince the judge that the person it was seeking to extradite was indeed Kash-amu. United States v. Kashamu, 656 F.3d 679 (7th Cir. 2011). Because the magistrate had not ruled on Kashamu’s guilt or innocence of the U.S. charges, the refusal to extradite him did not preclude further efforts to prosecute him. Id. at 688.

Three years later Kashamu again appeared before the court, this time petitioning for a writ of mandamus to dismiss the indictment on speedy-trial grounds. Again we turned him down, this time on the ground that he had forfeited any speedy-trial right by remaining a fugitive, and noting that if “he wants to fight the charges, he has only to fly from Lagos to Chicago.” In re Kashamu, 769 F.3d 490, 494 (7th Cir. 2014).

Rather than do that, Kashamu devised a new strategy. He filed suit in the district court in Chicago in April 2015—one month after his election to the Nigerian Senate— asking the court to “enjoin his abduction abroad by U.S. authorities.” He claimed to have been tipped off that U.S. authorities, colluding with his political rivals, were planning to abduct him in Nigeria and drag him to Chicago to stand trial before he could be sworn into office as a Nigerian senator. He relied on a provision of the Mansfield Amendment, 22 U.S.C. § 2291(c)(1), that states that “no officer or employee of the United States may directly effect an arrest in any foreign country as part of any foreign police action with respect to narcotics control efforts.”

A month after filing the suit, Kashamu amended the complaint to allege that his fear of abduction had nearly come true: agents of Nigeria’s National Drug Law Enforcement Agency, along with two white men who Kashamu reasons must have been operatives of the United States Drug Enforcement Administration, surrounded his Lagos residence and tried to arrest him on an “invalid provisional warrant.” But, the complaint continues, he “refused to surrender,” and so the agents “laid siege ... keeping him prisoner in his own home for six days, until a Nigerian federal court ordered them to cease their activities and depart from the premises.” He speculates that U.S. agents directed and coordinated the entire affair, and that U.S. authorities still are trying to extradite him. In the absence of injunctive relief, he maintains, he is vulnerable to “a very real threat of abduction by U.S. authorities.”

The district court dismissed Kashamu’s complaint on the ground that the Mansfield Amendment does not create a private right of action. Although the statute forbids federal employees to arrest a person in a foreign country on narcotics charges, the Supreme Court has repeatedly construed statutes similar to the Mansfield Amendment as directives to federal agencies and their employees (i.e., “behave yourselves,” or face disciplinary action) rather than “as a conferral of the right to sue” the agencies and their employees. See, e.g., Armstrong v. Exceptional Child Center, — U.S. -, 135 S.Ct. 1378, 1387, 191 L.Ed.2d 471 (2015); Alexander v. Sandoval, 532 U.S. 275, 121 S.Ct. 1511, 149 L.Ed.2d 517 (2001); Thompson v. Thompson, 484 U.S. 174, 108 S.Ct. 513, 98 L.Ed.2d 512 (1988); California v. Sierra Club, 451 U.S. 287, 101 S.Ct. 1775, 68 L.Ed.2d 101 (1981).

Kashamu’s suit further lacks merit because it confuses an attempt by U.S. government agents to arrest him on a provisional warrant (a first step toward possible extradition) in coordination with local law enforcement, with an attempted abduction. The Mansfield Amendment is explicit in not prohibiting an employee of the United States, provided he has the approval of the United States chief of mission, from “being present when foreign officers are effecting an arrest or from assisting foreign officers who are effecting an arrest.” 22 U.S.C. § 2291(c)(2). The conduct of which Kasha-mu complains—that U.S. agents actively participated in an attempt by Nigerian agents to arrest him—was thus lawful.

For all these reasons, the decision of the district court is

AFFIRMED.


author: BAUER, Circuit Judge.

text:
    Rollie M. MITCHELL, Plaintiff-Appellant, v. UNITED STATES of America, Defendant-Appellee.
    No. 14-3759
    United States Court of Appeals, Seventh Circuit.
    Argued November 3, 2016
    Decided January 25, 2017

      Adam Stevenson, Attorney, University of Wisconsin, Law School, Madison, WI, for Petitioner-Appellant.
    Winfield D. Ong, Attorney, Brian L. Reitz, Attorney, Bob Wood, Attorney, Office of the United States Attorney, Indianapolis, IN, for Respondent-Appellee.
    Before BAUER, MANION, and HAMILTON, Circuit Judges.
   BAUER, Circuit Judge.

After his conviction for cocaine distribution, Petitioner Rollie Mitchell appealed his sentence; this Court affirmed. Petitioner then filed a motion for post-conviction relief under 28 U.S.C. § 2255, claiming that he received ineffective assistance of counsel. He argued that, prior to trial, his attorney failed to inform him adequately of the details of the government’s plea offer and failed to advise him of the potential ramifications of rejecting the offer and proceeding to trial. The district court denied the motion, finding that counsel’s performance was adequate and that Petitioner could not demonstrate that, absent any deficient performance, he would have accepted the plea offer. We affirm.

I. BACKGROUND

In June 2006, Petitioner sold 144 grams of cocaine base to a police informant named Tony Hurd. Hurd also purchased cocaine base from two of Petitioner’s associates, Billy Hicks and Tyree Smith. All three were charged in Indiana state court with controlled substance offenses. As part of the state court proceedings, the county clerk’s office made the error of including Hurd’s name on a public filing. Hurd soon began receiving threats, and in August 2006, he was shot and killed at a gas station in Ohio.

After Hurd’s murder, Petitioner was indicted on federal drug charges. The government also had reason to believe that Petitioner was involved in Hurd’s murder. In June 2009, the district court appointed public defender Bruce Brattain to represent Petitioner. As the trial date approached, Brattain had discussions with the Assistant United States Attorney handling the case about a potential plea agreement. The AUSA informed Brattain that the government was willing to recommend a 20-year sentence in exchange for Petitioner’s full cooperation with the government’s investigation into Hurd’s murder. The government never put this offer in writing.

Brattain communicated to Petitioner the terms of the offer both orally and in writing. According to Brattain’s affidavit submitted to the district court, he met with Petitioner and discussed the proposal on October 19, October 23, and November 5, 2009, and Petitioner repeatedly rejected the potential agreement. On October 29, 2009, Brattain sent Petitioner a letter in which he outlined the principal terms of the government’s offer and advised Petitioner that it was in his best interest to consider it before trial.

Brattain sent another letter on November 3, 2009, in which he informed Petitioner that the government’s evidence made it “almost absolutely certain” that he would be convicted at trial on the drug charge. This letter also referenced a new witness who would corroborate the government’s theory that Petitioner was involved in Hurd’s murder. The letter informed Petitioner that if the court found the witness to be credible by a preponderance of the evidence, Petitioner was likely to face a life sentence upon his conviction. Finally, this letter advised Petitioner that if he wished to negotiate a lesser sentence, “now is the time to do it.”

Petitioner again rejected the government’s offer and his case went to trial on November 9 and 10, 2009. The jury found him guilty of distributing 50 grams or more of cocaine base in violation of 21 U.S.C. § 841(a)(1). The district court held a sentencing hearing on April 1, 2010, during which the government presented evidence of Petitioner’s involvement in Hurd’s murder. The court found, by a preponderance of the evidence, that Petitioner participated in the murder, and applied the murder cross-reference under the United States Sentencing Commission Guidelines, § 2Dl,l(d)(l). The court sentenced Petitioner to life imprisonment, which was the resultant Guidelines range after the application of the murder cross-reference. Petitioner appealed the sentence, and we affirmed. United States v. Mitchell, 635 F.3d 990, 991 (7th Cir. 2011).

Petitioner then filed a motion for post-conviction relief under 28 U.S.C. § 2255, contending that Brattain provided ineffective assistance of counsel by not producing the government’s plea offer in writing and by not advising him adequately on its substance and effects. The district court rejected these arguments. The court found that the government never submitted its proposal in writing and that, even if it had done so, Petitioner could not demonstrate that he would have accepted the offer. The court held that Brattain’s communication and advice regarding the proposed plea deal did not constitute ineffective assistance. The court also rejected Petitioner’s request for an evidentiary hearing on the issue, finding that the record and filings conclusively showed that Petitioner was not entitled to relief. The denial of his motion and his request for an evidentiary hearing form the basis for this appeal.

II. DISCUSSION

When reviewing the denial of a petition under 28 U.S.C. § 2255, we review the district court’s legal conclusions de novo and its factual findings for clear error. Martin v. United States, 789 F.3d 703, 705 (7th Cir. 2015) (citation omitted).

“The Sixth Amendment right to effective assistance of counsel extends to the plea bargaining process.” Id. at 706 (citing Lafler v. Cooper, 566 U.S. 156, 132 S.Ct. 1376, 1384, 182 L.Ed.2d 398 (2012)). To establish his claim for ineffective assistance, Petitioner must demonstrate both prongs of the test established by Strickland v. Washington, 466 U.S. 668, 104 S.Ct. 2052, 80 L.Ed.2d 674 (2012). First, he “must show that counsel’s representation fell below an objective standard of reasonableness.” Strickland, 466 U.S. at 688, 104 S.Ct. 2052. Once he has demonstrated deficient performance, Petitioner must then show that “there is a reasonable probability that, but for counsel’s unprofessional errors, the result of the proceeding would have been different.” Id. at 694, 104 S.Ct. 2052. Petitioner is unable to meet his burden on either prong.

Petitioner argues that Brattain’s representation was deficient in that he did not provide sufficient detail of the government’s offer, that he failed to explain fully the ramifications of rejecting the offer, and that he did not make Petitioner aware of the offer in a timely manner. “[D]efense counsel has the duty to communicate formal offers from the prosecution to accept a plea on terms and conditions that may be favorable to the accused.” Missouri v. Frye, 566 U.S. 133, 132 S.Ct. 1399, 1408, 182 L.Ed.2d 379 (2012); see also Lafler, 132 S.Ct. at 1387 (“If a plea bargain has been offered, a defendant has the right to effective assistance of counsel in considering whether to accept it.”). “Frye does not consider whether counsel furnish ineffective assistance by failing to convey a plea offer ‘effectively’; we assume without deciding that counsel must do so.” Overstreet v. Wilson, 686 F.3d 404, 406-07 (7th Cir. 2012).

Petitioner first argues that Brattain failed to communicate the offer effectively because he did not provide details outside of the principal terms of a 20-year sentence in exchange for Petitioner’s cooperation in the murder investigation. There is no indication, however, that there were any such details for him to convey. The district court found that the government never put the proposal in writing and Petitioner has not produced any evidence to contradict that finding. Nor does Petitioner offer evidence that Brattain and the government had any discussions beyond what Brattain communicated to him. Petitioner cannot identify any details that Brattain knew, yet failed to communicate to him. Brattain effectively communicated all of the information that was available to him at the time of the offer and thus, this argument fails.

Petitioner then contends that Brattain’s representation was ineffective because he failed to adequately advise Petitioner of the potential outcomes of rejecting the offer and going to trial. He argues that Brattain should have done more to explain the applicable Sentencing Guidelines and the sentence he would face if convicted. Brattain’s letters, however, clearly defeat this contention. In his October 29, 2009, letter, Brattain advised Petitioner that it was in his best interest to consider the government’s offer because a guilty verdict at trial could result in a “sentence greater than twenty years.” In the November 3, 2009, letter, Brattain informed Petitioner of a new government witness and advised Petitioner that if the court found the witness credible, “I now believe that you will be looking at life in prison upon your conviction.” It is difficult to imagine what more effective advice Brattain could have provided regarding the effects of rejecting the plea offer. Therefore, Petitioner’s argument that Brattain’s performance was deficient on this point also fails.

Lastly, Petitioner claims that Brattain was ineffective because he did not inform Petitioner of the offer until the day his trial began. Again, however, Brattain’s letters show that Petitioner’s claim is incorrect. Brattain sent Petitioner a letter on October 29, 2009, ten days before trial, outlining the terms of the plea offer. That letter also indicates that Brattain and Petitioner had already “spoken of [the offer] several times.” Brattain sent Petitioner another letter on November 3, 2009, advising Petitioner that if he wished to negotiate a sentence of less than life in prison, “now is the time to do it.” Additionally, Brattain’s affidavit states that he and Petitioner discussed the proposed agreement as early as October 19, 2009. Thus, it is clear that Brattain effectively communicated the offer to Petitioner with ample time for him to consider it.

For the reasons just explained, Petitioner has failed to demonstrate that Brattain’s performance fell below an objective standard of reasonableness. Therefore, Brattain’s communication and advice regarding the plea offer did not constitute deficient performance.

However, even if we were to determine that Brattain’s representation was deficient, Petitioner’s claim still fails because he cannot establish Strickland’s prejudice requirement. To show prejudice in the context of the handling of plea offers, “defendants must demonstrate a reasonable probability they would have accepted the earlier plea offer had they been afforded effective assistance of counsel.” Frye, 132 S.Ct. at 1409. Petitioner is unable do so here.

Petitioner has admitted, both in the district court and in his brief before this Court, that he cannot say with certainty that he would have accepted the government’s offer. He argues that he cannot do so because he did not receive “the full terms” of the offer due to Brattain’s deficient performance. However, because Petitioner rejected the general framework of the government’s offer, the negotiation of further details never began. Petitioner cannot point to any conditions of the government’s offer that Brattain failed to communicate to him. As a result, he cannot show a reasonable probability that, but for some failure on Brattain’s part, he would have accepted the government’s offer. Therefore, Petitioner cannot establish the prejudice prong of his Strickland claim.

Finally, we briefly address Petitioner’s argument that the district court erred in denying his request for an eviden-tiary hearing. We review the district court’s denial of an evidentiary hearing on a § 2255 motion for abuse of discretion. Martin, 789 F.3d at 705. An evidentiary hearing is not required if “the motion and the files and records of the case conclusively show that the prisoner is entitled to no relief....” 28 U.S.C. § 2255(b); Martin, 789 F.3d at 706. That is the case here.

The district court was able to determine, from the record alone, that the government had not reduced its plea offer to writing and had not set forth any details or conditions other than its offer to recommend a 20-year sentence in exchange for Petitioner’s cooperation in the murder investigation. Brattain’s letters demonstrated that Petitioner learned of the offer at least ten days before his trial, despite his contention that he first heard the offer on the day of trial. Finally, Petitioner admitted in his motion that he could not say definitively that he would have accepted the government’s offer but for Brattain’s supposed ineffective assistance. The district court did not abuse its discretion in denying Petitioner’s request for a hearing.

III. CONCLUSION

For the foregoing reasons, the judgment of the district court is AFFIRMED.