In 1998, Congress enacted the Securities Litigation Uniform Standards Act to keep state courts from handling state law claims in securities lawsuits that the Private Securities Litigation Reform Act of 1996 made harder to win. SLUSA makes state law class actions that relate to a "covered security" removable to federal court. Today, the Second Circuit recognized a hole in SLUSA. It held that an insurance "rider" doesn’t count as a "covered security" under SLUSA just because it rides on a security (a variable life insurance policy) that does. The court directed the district court to remand the case to the state court from which it originated. Ring v. AXA Financial, Inc., No. 05-0616 (2d Cir. Apr. 6, 2007).
Blawgletter can’t estimate the size of the SLUSA hole but can say that the Second Circuit’s decision reflects a healthy reluctance to suck all state law class actions concerning any kind of "securities" into the SLUSA black hole. SLUSA limits "covered securities" to those that list on a national securities exchange or that an investment company issues under Securities and Exchange Commission authority. That definition sweeps in lots of securities but hardly all. The Second Circuit simply applied the definition.