The breadth of SLUSA’s Delaware carve-out was the focus of District Judge John G. Koeltl’s opinion in Indiana Electrical Workers Pension Trust Fund v. Millard, 2007 U.S. Dist. LEXIS 54203 (S.D.N.Y. July 25, 2007). The plaintiffs’ New York state court class action was purely an options backdating claim sounding in breach of fiduciary duty — the duty of disclosure under Delaware law. The plaintiffs attacked as false assertions in four successive proxy statements that the strike price for employee stock options was to be set at the stock's fair market value on the date of the grant. In one of the four years, moreover, the proxy statement elicited and obtained shareholder approval of the addition of 6.5 million shares to fund the stock option plan. The defendants removed the case from New York State Supreme Court under SLUSA.

On the plaintiffs’ motion to remand, the plaintiffs conceded that SLUSA’s core provision, 15 U.S.C. § 78bb(f)(1), was satisfied because: (1) the underlying suit was be a "covered class action"; (2) the action was based on state law; (3) the action concerned a "covered security"; and (4) the defendants misrepresented material facts "in connection with the purchase or sale" of that security. The plaintiffs sought remand, however, under the Delaware carve-out, which provides:

(i) Actions preserved

Notwithstanding paragraph (1) or (2), a covered class action described in clause (ii) of this subparagraph that is based upon the statutory or common law of the State in which the issuer is incorporated (in the case of a corporation) or organized (in the case of any other entity) may be maintained in a State or Federal court by a private party.

(ii) Permissible actions

A covered class action is described in this clause if it involves--

(I) the purchase or sale of securities by the issuer or an affiliate of the issuer exclusively from or to holders of equity securities of the issuer; or

(II) any recommendation, position, or other communication with respect to the sale of securities of an issuer that--

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

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

15 U.S.C. § 78bb(f)(3)(A).

Judge Koeltl focused on prong (II) and specifically on the question whether the alleged communications about the proposed amendment to the stock option plan were made "with respect to the sale of securities." The defendants argued that "with respect to the sale of securities" as used in prong (II) of § 78bb(f)(3)(A) was more limited in scope than the phrase "in connection with the purchase or sale of a covered security" in § 78bb(f)(1), the core SLUSA preemption provision. (The plaintiffs, conversely, argued that, if the communications were not "with respect to the sale of securities," then they were not ‛in connection with the purchase or sale of a covered security,“ and SLUSA had no application.) Judge Koeltl found persuasive a Northern District of California opinion that ‛found no indication in SLUSA's language or legislative history to suggest that Congress intended the two phrases to imply a difference in scope, and it found the plain meaning of the two phrases to be essentially indistinguishable.“ He also rejected the defense argument that prong (II) of the Delaware carve-out applied only to communications that relate to mergers or acquisitions or other extraordinary transactions, finding it in conflict with ‛the plain meaning“ of the statutory language. Case remanded to New York Supreme.