6th Circuit Decides NSMIA Preemption Issue

Brown v. Earthboard Sports USA, 6th Circuit Mar. 16, 2007, 2007 WL 777491:

NSMIA preempts state registration of "covered securities" issued "pursuant to" a Reg D exemption.  Federal and state courts have split on the conditions for establishing the applicability of the NSMIA preemption to unregistered offerings purportedly exempt under Reg D.  Specifically, must the offering actually meet the conditions for an exemption under Reg D, or is it enough that the offering was purportedly made under Reg D?  Reversing the district court, the 6th Circuit held that the offering must actually qualify for the Reg D exemption for NSMIA preemption to apply.  The court relied on the statutory language to reach this conclusion.

The 6th Circuit also reversed the district court on its conclusion that, as a matter of law, a non-reliance clause in the subscription agreement precluded the purchaser from establishing reliance on the broker's misrepresentations, since determining reasonable reliance requires a contextual analysis.