U.S. Supreme Court Hears Oral Argument In Case That Raises Issue Of Whether State Courts Have Jurisdiction Over Securities Act Claims
12/05/2017On November 28, 2017, the U.S. Supreme Court heard argument in Cyan, Inc. v. Beaver County Employees Retirement Fund, No. 15-1439, a case addressing whether state courts have jurisdiction over class actions asserting exclusively claims under the Securities Act of 1933 (“Securities Act”). A high-level summary of the argument is below.
The case began in June 2014, when certain purported purchasers of Cyan’s common stock brought a securities class action in California state court against Cyan, certain of its officers and directors, and the underwriters of its IPO, asserting violations of Sections 11, 12(a)(2), and 15 of the Securities Act. Defendants argue that the Securities Litigation Uniform Standards Act of 1998 (“SLUSA”) amended the Securities Act’s concurrent grant of federal and state court jurisdiction to divest state courts of jurisdiction over a putative class action asserting exclusively Securities Act claims. Plaintiffs argue that SLUSA merely precludes certain state law securities class actions. Acting as an amicus in support of Cyan, the Solicitor General has taken the position that, under SLUSA, state courts have concurrent jurisdiction over Securities Act class actions, but a separate SLUSA provision should be interpreted as allowing defendants to remove such actions from state court to federal court. (For additional discussion of the history of the litigation and the parties’ positions, see The Supreme Court Invites The Views Of The United States In A Case That Could Clarify The Scope Of SLUSA, Shearman & Sterling LLP Need-to-Know Litigation Weekly (Oct. 11, 2016), http://www.lit-sl.shearman.com/the-supreme-court-invites-the-views-of-the-united-states-scope-slusa; United States Asks Supreme Court To Resolve Whether State Courts Have Jurisdiction Over Securities Act Claims, Arguing That State Courts Have Jurisdiction But Such Cases Are Removable To Federal Court, Shearman & Sterling LLP Need-to-Know Litigation Weekly (May 31, 2017), http://www.lit-sl.shearman.com/united-states-asks-supreme-court-to-resolve-wheth; U.S. Supreme Court Schedules Oral Argument In Case That Raises Issue Of Whether State Courts Have Jurisdiction Over Securities Act Claims, Shearman & Sterling LLP Need-to-Know Litigation Weekly (Oct. 10, 2017), http://www.lit-sl.shearman.com/us-supreme-court-schedules-oral-argument-in-case-.)
During argument, the most active questioners were Justices Sotomayor, Kagan, Breyer, Alito and Ginsburg. Justices Sotomayor, Kagan, and Breyer, and to a lesser extent Justice Ginsburg, asked questions to Cyan suggesting skepticism of its statutory interpretation and legislative intent arguments, as well as of the Solicitor General’s removal argument. Justice Sotomayor suggested that the aim of SLUSA was to ensure that claims under federal securities laws or similar state laws be adjudicated under federal substantive standards but not that they be adjudicated exclusively in federal courts. Justice Sotomayor also observed a tension between the argument that SLUSA gives exclusive jurisdiction to federal courts but at the same time permits removal of such actions to federal courts. Justice Kagan suggested that Cyan’s interpretation of both the jurisdictional and removal provisions failed to read the statute as a whole, and also noted that, in contrast to the Securities Act provisions under review, in the relevant similar provisions affecting the Securities Exchange Act of 1934 Congress spoke very clearly to foreclose state court actions bringing such claims. Justice Breyer suggested that Cyan’s and the Solicitor General’s arguments regarding the removal provision required the statute to be read in an “unnatural” way. And Justice Ginsburg noted that if Congress had intended to give exclusive jurisdiction to federal courts, it could have clearly said so.
Justices Alito and Gorsuch asked questions challenging Plaintiffs’ interpretation, with Justice Gorsuch appearing to express the most skepticism. Both justices described the relevant SLUSA provisions as “gibberish.” And Justice Alito asked why, if a state court could not keep an action filed under a state statute mirroring the Securities Act, Congress would nevertheless allow a state court to entertain the “real thing”—i.e., a Securities Act claim.
Finally, Justice Kennedy appeared to raise the possibility of deciding the jurisdictional question, but deferring decision on whether such actions can be removed to federal court, given that the case at bar had not been removed (a point which Justice Ginsburg had also suggested in questioning). Plaintiffs suggested that as a matter of jurisprudence this was “probably the right thing to do.” Cyan, however, urged the Court to resolve both issues because they are pressing and important.
A decision is expected before the Supreme Court’s current term ends in June 2018.