People v. Edward D. Jones & Co.

The People of the State of California sued Edward D. Jones & Co. (Edward Jones), a brokerage firm, for failing to adequately disclose to investors and potential investors certain “shelf-space” agreements under which Edward Jones received additional compensation for selling certain preferred mutual funds. The trial court dismissed the action on the ground it was preempted by federal law—namely, the National Securities Markets Improvement Act of 1996 ( Pub.L. No. 104-290 (Oct. 11, 1996) 110 Stat. 3416 , 3417; 15 U.S.C. § 77r) (NSMIA)—because, in the court’s view, “[t]he assertion of California’s authority in this manner conflicts with the federal regulation of information provided in mutual fund prospectuses.”

We conclude this action is not preempted by the NSMIA because it is a type of action expressly permitted by that statute. We also conclude the action is not preempted by the United States Securities and Exchange Commission (SEC) rule 10b-10 ( 17 C.F.R. § 240 .10b-10 (2005)) (rule 10b-10) because the action does not conflict with that rule. Accordingly, we will reverse the judgment.

FACTUAL AND PROCEDURAL BACKGROUND

We take the following facts from the second…