Falkowski

The principal question we address here is whether state law fraud claims relating to employee stock options are preempted by the Securities Litigation Uniform Standards Act of 1998 (“SLUSA”), 15 U.S.C. §§ 77p, 78bb(f)(l)-(2). We hold that they are preempted because the alleged fraud took place “in connection with the purchase or sale of a covered security” under SLUSA. This case also involves contract claims based on multiple stock option agreements. Unlike the district court, we conclude that these claims cannot be resolved on a motion to dismiss.

Background

This class action litigation stems from a merger in which Imation Corporation, a *1127 publicly traded company, acquired Cemax-Icon, Inc. (“Cemax”), a closely held company in the medical information management business. Plaintiffs-appellants are a group of former Imation employees and contractors (the “Employees”) who brought suit for breach of contract and fraud in connection with their employee stock options.

The Employees were initially employed by Cemax. As part of the merger, Cemax stock options, which had been granted to the Employees under three previously-issued stock option plans, were amended to be options on…