Hastings Business Law Journal


Kenneth Hsu


The "Delaware carve-out” is a carefully written savings clause that preserves state law claims that would otherwise be dismissible under SLUSA preclusion. The carve-out's broad statutory language, however, does not provide much clarity for parties litigating its applicability. While three circuit level opinions have addressed particular portions of the carve-out's text, none have offered a controlling understanding of the statute. The carve-out's precise scope instead remains largely defined by an assortment of lower court decisions relying on different interpretations of the statutory language and of related case law. Amid such uncertainty, this note seeks to discern some clarity to the carve-out's reach and evaluate its effectiveness.

Part II of this note details the evolution of federal securities regulation since the Depression, highlighting Congress's expansion and eventual reining in of private securities fraud class action litigation. These trends not only provide the backdrop to the note's findings, but also shed light on Congress's reasons for enacting SLUSA.

Part III investigates how lower courts have interpreted the carve- out since its passage. This analysis is informed by an extensive survey of case law construing the carve-out's text. By dividing the carve-out into four core prongs, this note illustrates how certain portions of its statutory language have determined its influence on securities class action litigation after SLUSA.

Finally, Part IV argues that courts interpreting the carve-out should be more cautious of preempting state law causes of action. The note explains how the carve-out quickly became outdated and suggests that the federal courts compensate by deferring more to their state counterparts. This assertion is also informed by recent federal case law addressing the carve-out's reach and, more broadly, the limits on securities class actions under SLUSA.