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  • Southern District Of New York Dismisses Claim That Underwriter Of Regulation A+ Offering Was A Seller Of Unregistered Securities, But Allows Securities Fraud Claim To Proceed Past The Pleading Stage
     
    04/23/2019

    On April 11, 2019, Judge Denise Cote of the United States District Court for the Southern District of New York granted in part and denied in part an underwriter’s motion to dismiss a putative class action lawsuit filed against a financial and technological services company (the “Company”), its executives, and the lead underwriter (“Underwriter”) of the Company’s Regulation A+ (“Reg A+”) offering in 2017 (the “Offering”).  In re Longfin Corp. Securities Class Action Litigation, 1:18-cv-02933 (DLC) (S.D.N.Y. Apr. 11, 2019).  Reg A+ was created to exempt certain categories of offerings from registration requirements and is an alternative to a traditional initial public offering.  Plaintiffs alleged that all defendants sold unregistered securities in violation of Section 12(a)(1) of the Securities Act of 1933 (“Securities Act”) in order to list on the NASDAQ, and committed fraud in violation of the Securities Exchange Act of 1934 (“Exchange Act”) and Rule 10b-5 thereunder, and that certain of the individual defendants were liable under Section 20(a) of the Exchange Act and/or engaged in insider trading in violation of Section 20A of the Exchange Act.  The gravamen of plaintiffs’ claims is that the Company fraudulently issued more than 400,000 Class A shares to 24 individuals for $0 consideration in order to meet the NASDAQ’s listing requirement that the Company has issued 1,000,000 publicly held shares.  With respect to the Underwriter’s motion to dismiss, the Court dismissed the Securities Act claim, finding that it was not a “seller” of securities, but held that the Exchange Act claim could proceed because plaintiffs’ amended complaint adequately alleged, for the purpose of the motion to dismiss, the Underwriter’s knowledge and participation in a “scheme” under Rule 10b-5.
  • Supreme Court Argument On Third-party Counterclaim Defendant Removal
     
    01/23/2019

    On January 15, 2019, the Supreme Court heard argument on an appeal from a unanimous decision of the U.S. Court of Appeals for the Fourth Circuit holding that a third-party defendant against whom class action counter-claims are asserted in state court is not a “defendant” for purposes of the general removal statute, 28 U.S.C. § 1441 (“Section 1441”) or the Class Action Fairness Act, 28 U.S.C. § 1453 (“CAFA”).  The third-party defendant to the class action counterclaims therefore could not rely on those statutes to remove the case.  Home Depot U.S.A., Inc., v. Jackson, No. 17-1471.
    CATEGORIES: JurisdictionClass Actions
  • Supreme Court Rules That Agreements Delegating Arbitrability Determinations To Arbitrators Must Be Enforced As Written And Are Not Subject To A “Wholly Groundless” Exception
     
    01/15/2019

    On January 8, 2019, in a unanimous opinion authored by Justice Kavanaugh, the United States Supreme Court held that courts must enforce as written arbitration agreements that require the “gateway” question of arbitrability to be decided through arbitration.  In so doing, the Court reversed a decision of the United States Court of Appeals for the Fifth Circuit which had held (as had other Courts of Appeals) that, when a motion to compel arbitration is “wholly groundless,” the court may resolve whether the dispute is properly subject to arbitration — even if the parties’ agreement requires that such determinations shall be made by the arbitrator.  Henry Schein, Inc., v. Archer & White Sales, Inc., —U.S.—, 2019 WL 122164 (2019).
    CATEGORY: Jurisdiction
  • Supreme Court Seeks Solicitor General’s Input On Granting Certiorari For Case Raising The Question Of Whether A Non-U.S. Corporate Issuer With No Involvement In Establishing Or Selling ADRs Can Be Subject To Section 10(b) As Long As Plaintiff’s Alleged Securities Transaction Was “Domestic”
     
    01/15/2019


    On January 14, 2019, the United States Supreme Court invited the Solicitor General to file a brief expressing the views of the United States in connection with a pending petition for writ of certiorari regarding whether, in determining if Section 10(b) of the Securities Exchange Act of 1934 (the “Exchange Act”) may apply to a securities transaction—including one involving American Depositary Receipts (“ADRs”) which are not sponsored by the foreign issuer and are traded on over-the-counter markets—it is sufficient to show that the transaction itself was domestic.  Toshiba Corp. v. Auto. Indus. Pension Trust Fund, et al., No. 16-56058 (Jan. 14, 2019).  Under the Ninth Circuit decision for which review is being sought, a foreign issuer that has no involvement in establishing or selling the ADRs can be subject to Section 10(b) as long as the plaintiff purchased or sold the ADRs in a domestic transaction.  As noted by the defendant and various amici in support of the petition for certiorari, the Ninth Circuit’s holding significantly extends the extraterritorial application of Section 10(b) to non-U.S. companies which have not elected to avail themselves of the U.S. capital markets.
     

    CATEGORIES: Exchange ActJurisdiction
  • California State Court Stays Putative Class Action Based On Forum Selection Clause
     
    11/27/2018

    On September 5, 2018, Judge Marie Weiner of California Superior Court, San Mateo County, granted defendants’ motion to stay a putative class action on grounds of forum non conveniens in order for plaintiff to pursue the action in New York.  Plaintiff asserted claims under Sections 11, 12(a)(2), and 15 of the Securities Act of 1933 (the “Securities Act”) against an early childhood education service provider in the People’s Republic of China (the “Company”), several of its officers and directors, and the underwriters based on the Company’s initial public offering of American Depository Shares (“ADSs”).  Relying largely on a mandatory forum selection clause contained in a deposit agreement that set the terms for the deposit of the non-U.S. securities so that they could be traded on the New York Stock Exchange as ADS, the Court held New York was a more convenient forum and stayed the action in California
    CATEGORY: Jurisdiction
  • Northern District Of California Denies Motion To Remand Putative Class Action Asserting Both Securities Act And State Law Claims
     
    08/21/2018

    On August 10, 2018, United States District Judge Phyllis J. Hamilton of the United States District Court for the Northern District of California denied a motion to remand to state court a putative securities class action against digital currency issuer Ripple Labs, Inc., one of its subsidiaries, and its Chief Executive Officer.  Coffey v. Ripple Labs Inc., No. 18-cv-03286-PJH (N.D. Cal. Aug. 10, 2018).  Plaintiff, a purchaser of XRP, Ripple’s digital currency, sued defendants in California state court, alleging violations of the Securities Act of 1933 (the “Securities Act”) and California’s blue sky statute.  Plaintiff alleges that defendants’ sale of XRP to investors in an initial coin offering (in which digital assets are sold to consumers in exchange for legal tender or other cryptocurrencies) constituted an unregistered sale of securities in violation of the Securities Act and the California Corporations Code.  Defendants removed the action to federal court pursuant to Section 1453 of the Class Action Fairness Act (“CAFA”), and plaintiff moved to remand the action to state court.  The Court denied plaintiff’s motion, holding that Section 1453 of CAFA provides an independent right to removal that is not precluded by the anti-removal provision in Section 22(a) of the Securities Act, at least in cases not involving a “covered security” as defined in the Securities Litigation Uniform Standards Act (“SLUSA”).
    CATEGORY: Jurisdiction
  • Ninth Circuit Reverses Dismissal Of Securities Fraud Class Action And Rules That The Purchase And Sale Of American Depository Receipts Traded On An Over-The-Counter Market Could Be A Domestic Transaction Under Morrison
     
    07/24/2018

    On July 17, 2018, the United States Court of Appeals for the Ninth Circuit reversed the dismissal of a putative securities class action, which alleged that a technology company (the “Company”) and its current and former chief executive officers engaged in fraudulent accounting in violation of Sections 10(b) and 20(a) of the Securities Exchange Act of 1934, as well as Japanese securities law. Automotive Industries Pension Trust Fund, et al. v. Toshiba Corp., No. 16-56058 (9th Cir. July 17, 2018). In its ruling, the Ninth Circuit analyzed the second prong of the transaction test articulated in Morrison v. National Australia Bank, 561 U.S. 247 (2010) and adopted the Second and Third Circuits’ “irrevocable liability” test, which evaluates where the purchasers incurred the liability to take and pay for securities, and where the seller incurred the liability to deliver the securities. The Ninth Circuit remanded the case to the district court so that plaintiffs could amend their complaint to try to meet this standard.
    CATEGORY: Jurisdiction
  • Second Circuit Finds Commodity Exchange Act Claims Based On Korea Exchange Futures Contracts Adequately Pleaded Under Morrison’s “Domestic Transactions” Test
     
    05/15/2018

    In a March 29, 2018 decision, amended on May 9, 2018, the United States Court of Appeals for the Second Circuit vacated the dismissal of claims against defendants Tower Research Capital LLC (a New York based high-frequency trading firm) and its founder under the Commodity Exchange Act (“CEA”) by five Korean citizens who traded Korea Exchange (“KRX”) futures contracts on the KRX “night market.”  Choi v. Tower Research Capital LLC, No. 17-648, 2018 WL 2168642 (2d Cir. 2018).  Plaintiffs alleged that defendants engaged in manipulative “spoofing” transactions on the KRX night market—which operated by matching after-hours orders in Korea with anonymous counterparties on CME Globex, an electronic trading platform on the Chicago Mercantile Exchange.  The district court dismissed the action on the ground that the CEA did not apply extraterritorially, but the Second Circuit vacated and remanded, finding that plaintiffs’ allegations made it plausible that the trades were “domestic transactions” under Morrison v. National Australia Bank Ltd., 561 U.S. 247 (2010), and so within the reach of the CEA, and further that plaintiffs stated a claim for unjust enrichment.

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    CATEGORY: Jurisdiction
  • United States Supreme Court Allows For Appeals From Final Decisions Regarding Individual Actions In Ongoing Consolidated Proceedings
     
    04/03/2018

    On Tuesday, March 27, 2018, Chief Justice John Roberts announced a unanimous decision of the United States Supreme Court that allows immediate appeals from final decisions issued in any action that has been consolidated with other actions for proceedings under Rule 42(a) of the Federal Rules of Civil Procedure.  Hall v. Hall, --U.S.—, 2018 WL 1472897 (2018).  This decision provides important optionality for parties, including in securities actions (which are often consolidated under Rule 42(a)), to be able to appeal an adverse final decision while continuing to address pending cases within the consolidated proceeding.

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    CATEGORY: Jurisdiction
  • U.S. Supreme Court Holds In Cyan That SLUSA Does Not Divest State Courts Of Jurisdiction Over Federal Securities Act Claims And Does Not Alter The Bar To Removal Of Such Actions
     
    03/27/2018

    On March 20, 2018, the Supreme Court of the United States, in a unanimous decision delivered by Justice Kagan, ruled that state courts have jurisdiction to adjudicate class actions brought under the Securities Act of 1933 (the “Securities Act”) and that such actions cannot be removed from state to federal court.  Cyan, Inc. et al. v. Beaver County Employees Retirement Fund et al., 583 U.S. ___ (2018).  The Securities Act authorized both federal and state courts to exercise jurisdiction over private causes of action relating to securities offerings and barred removal of such suits from state to federal court.  In 1995, in order to stem perceived abuses of the class-action vehicle in securities litigation, Congress enacted the Private Securities Litigation Reform Act (“PSLRA”).  The PSLRA amended the Securities Act by introducing procedural reforms for securities class actions in federal court.  When plaintiffs began filing securities class actions in state courts instead, to avoid the federal procedural standards, Congress passed the Securities Litigation Uniform Standards Act of 1998 (“SLUSA”).  Cyan, Inc. (“Cyan”), a telecommunications company, and its officers and directors, argued that the SLUSA amendments gave federal courts exclusive jurisdiction over class actions brought under the Securities Act.  The Supreme Court disagreed, holding that those amendments did not divest state courts of concurrent jurisdiction over class actions pursuant to the Securities Act.  The Court also rejected the separate argument regarding removal of such actions, advanced by the U.S. Solicitor General, as amicus curiae, and held that SLUSA does not permit defendants to remove class actions alleging only Securities Act claims from state to federal court.

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    CATEGORIES: JurisdictionSLUSA
  • Second Circuit Affirms Dismissal Of Claims, Finding No Personal Jurisdiction Where Defendants Were Not “At Home” In The Forum And Only “A Handful Of Communications And Transfers Of Funds” Linked Defendants To The Forum
     
    02/13/2018

    ​On February 9, 2018, the United States Court of Appeals for the Second Circuit affirmed the dismissal of aiding and abetting claims against UBS AG, AIA LLC, and their affiliated entities and individuals.  SPV Osus Ltd. v. UBS AG, et al., No. 16-2173-cv (2d Cir. Feb. 9, 2018).  Plaintiff alleged defendants aided and abetted a Ponzi scheme orchestrated by Bernard L. Madoff Investment Securities LLC (“BLMIS”), by sponsoring and providing support for two European-based feeder funds despite being aware of fraudulent activity.  Plaintiff further alleged it suffered losses of approximately $2.9 billion when the scheme was uncovered.  The United States District Court for the Southern District of New York had denied plaintiff’s motion to remand the case to New York Supreme Court, where plaintiff had originally filed, and had granted defendants’ motion to dismiss the complaint for lack of personal jurisdiction.  On appeal, plaintiff argued that the district court erred by:  (1) denying plaintiff’s motion to remand because the instant litigation was not “related to” the Madoff/BLMIS bankruptcies and thus the federal court lacked subject-matter jurisdiction; (2) holding that the court lacked personal jurisdiction over defendants; and (3) holding that plaintiff failed to adequately plead proximate cause.  The Second Circuit rejected plaintiff’s arguments and affirmed the dismissal of the action based on lack of personal jurisdiction over defendants and failure to plead proximate cause.

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    CATEGORY: Jurisdiction
  • U.S. Supreme Court Hears Oral Argument In Case That Raises Issue Of Whether State Courts Have Jurisdiction Over Securities Act Claims
     
    12/05/2017

    On 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.

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    CATEGORIES: JurisdictionSLUSA
  • U.S. Supreme Court Schedules Oral Argument In Case That Raises Issue Of Whether State Courts Have Jurisdiction Over Securities Act Claims
     
    10/10/2017

    ​The U.S. Supreme Court has scheduled oral argument on November 28, 2017 in Cyan, Inc. v. Beaver County Employees Retirement Fund, No. 15-1439, a case that is expected to resolve the issue of whether state courts continue to have jurisdiction over class actions asserting only claims under the federal Securities Act of 1933 (“Securities Act”).  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 officers and directors of Cyan, and the underwriters of its IPO, asserting claims for violations of Sections 11, 12(a)(2) and 15 of the Securities Act.  Defendants moved to dismiss the complaint for lack of subject matter jurisdiction, arguing that the Securities Litigation Uniform Standards Act of 1998 (“SLUSA”) deprived the California state court of jurisdiction over a putative class action asserting only claims under the Securities Act.  Relying on an earlier decision by the California intermediate appellate court in Luther v. Countrywide Financial Corporation, the trial court rejected defendants’ arguments.  After the California Court of Appeals denied defendants’ appeal without opinion and the California Supreme Court denied discretionary review, in May 2016, defendants filed a petition for writ of certiorari to the U.S. Supreme Court.  In granting certiorari, the U.S. Supreme Court seeks to resolve a split among lower courts as to whether SLUSA divests state courts of jurisdiction over class action cases that allege only claims under the Securities Act, as well as whether SLUSA created a right to remove such cases to federal court, even if concurrent state and federal jurisdiction survived SLUSA.

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    CATEGORIES: JurisdictionSLUSA
  • Petition For Certiorari Is Filed Asking The United States Supreme Court To Clarify The Scope of State Court Jurisdiction Over Class Actions Asserting Securities Act Claims
     
    12/12/2016

    On December 6, 2016, FireEye, Inc. (“FireEye”), a cybersecurity company, filed a petition for writ of certiorari with the United States Supreme Court concerning the scope of state court jurisdiction over “covered class actions” under the Securities Act of 1933, as amended by the Securities Litigation Uniform Standards Act of 1998 (“SLUSA”).  Petition for Writ of Certiorari, FireEye, Inc. v. Sup. Ct. of Cal. (U.S. Dec. 6, 2016).  

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    CATEGORIES: JurisdictionSLUSA
  • Minnesota District Court Dismisses State Law Claims Arising From Sale Of Reverse Convertible Notes As Barred By SLUSA, Even Though Notes Were Not Traded On A National Exchange
     
    10/24/2016

    On October 13, 2016, Judge Susan Nelson of the United States District Court for the District of Minnesota dismissed a putative class action against RBC Capital Markets (a broker-dealer subsidiary of non-party Royal Bank of Canada (“RBC”)) which alleged that RBC Capital had violated the Minnesota Securities Act and state common law in connection with its sale of reverse convertible notes (“RCNs”) to plaintiffs.  Luis v. RBC Capital Mkts., LLC, No. 16-CV-00175-SRN-JSM, 2016 WL 6022909 (D. Minn. Oct. 13, 2016).  The Court held that the action was precluded under the Securities Litigation Uniform Standards Act (“SLUSA”), finding that the RCNs were “covered securities” under SLUSA even though they were not traded on an exchange.  The case is significant as apparently the first federal decision to consider whether a security is “covered” under SLUSA on the basis that it is “a security of the same issuer that is equal in seniority” to another security of the issuer that is listed on a national exchange.  15 U.S.C. § 77r(b)(1)(C). 

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    CATEGORIES: JurisdictionSLUSA
  • The Supreme Court Invites The Views Of The United States In A Case That Could Clarify The Scope Of SLUSA
     
    10/11/2016

    On October 3, 2016, the Supreme Court invited the Acting Solicitor General to file a brief expressing the views of the United States in Cyan, Inc. v. Beaver County Employees Retirement Fund (“Cyan”), a case in which the Supreme Court is considering whether, under Securities Litigation Uniform Standards Act of 1998 (“SLUSA”), a state court lacks subject matter jurisdiction over covered class actions that allege claims only under the Securities Act of 1933 (“Securities Act”).  There is no obligation on the part of the Solicitor General to respond or a formal deadline for it to do so, but the invitation by the Supreme Court could be read to suggest an increased likelihood that the Supreme Court will hear the case.

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    CATEGORIES: JurisdictionSLUSA
  • District Court Holds That State Courts Lack Jurisdiction Over “Covered Class Actions” Under The Securities Act; Finds Section 22(a)’s Removal Bar Does Not Apply
     
    09/19/2016

    On September 2, 2016, Chief Judge Leonard P. Stark of the U.S. District Court for the District of Delaware denied a motion to remand a putative class action brought under the Securities Act of 1933 (the “Securities Act”) to state court.  Iron Workers District Counsel of New England Pension Fund v. MoneyGram Int’l Inc.

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    CATEGORIES: JurisdictionSLUSA
  • Second Circuit Overrules Precedent, Holds That Courts May “Look Through” Petitions Challenging Arbitration Awards To Determine Jurisdiction
     
    08/22/2016

    On August 11, 2016, the Second Circuit overruled its own precedent and vacated an order of the United States District Court for the Southern District of New York that had dismissed a petition to vacate an arbitration award because the petition did not, on its face, present a federal question.  Doscher v. Sea Port Grp. Sec., LLC, —F.3d—, 2016 WL 4245427 (2d Cir. Aug. 11, 2016).  The Court held that when considering a petition challenging an arbitration award under section 10 of the Federal Arbitration Act (“FAA”), federal courts may “look through” the petition to the underlying dispute between the parties to determine whether the petition is predicated on an action arising under federal law.

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    CATEGORY: Jurisdiction
  • Northern District Of California Remands Securities Class Actions To State Court, Holding Only Covered Class Actions With State Law Claims Are Removable  
     
    08/08/2016

    On July 27, 2016, Judge Sarah Illston of the United States District Court for the Northern District of California remanded two putative securities class actions against Fitbit, Inc.—one to the Superior Court of California, San Mateo County and the other to the Superior Court of California, San Francisco County.  See Rivera v. Fitbit, Inc., Case No. 16-cv-2890 (N.D. Cal. July 27, 2016); De Luz v. Fitbit, Inc., Case No. 16-cv-3381 (N.D. Cal. July 27, 2016).  Both matters had been commenced in California Superior Court in April and May of 2016, alleging only claims under the Securities Act of 1933 (the “Securities Act”).  Fitbit removed both actions to federal court, and plaintiffs moved to remand, arguing that the Securities Act prohibits removal of class actions when those actions assert only Securities Act claims.  

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    CATEGORIES: JurisdictionSLUSA
  • Federal Court Holds That Unsponsored American Depository Receipts Of An Unlisted Foreign Company Are Not Subject To Section 10(b) Claims
     
    06/07/2016

    On May 20, 2016, Judge Dean Pregerson of the United States District Court for the Central District of California dismissed with prejudice a putative securities class action against Toshiba Corporation.  Stoyas v. Toshiba Corporation, No. CV 15-04194 DDP, 2016 BL 163950 (C.D. Cal May 20, 2016).  Plaintiffs alleged that Toshiba violated Section 10(b) of the U.S. Securities Exchange Act of 1934 (the “Exchange Act”) and Japan’s Financial Instruments & Exchange Act by making accounting misstatements that led to the restatement of six years of financial results and the elimination of approximately one-third of the company’s profits from 2008 to 2014.  The Court rejected these arguments, holding that the American Depository Receipts (“ADRs”) were not subject to Section 10(b) claims, and that comity and a lack of connection to the United States compelled dismissing the Japanese law claims.

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    CATEGORY: Jurisdiction
  • Supreme Court Rules That Exclusive Jurisdiction Under The Exchange Act Follows The “Arises Under” Standard For General Federal Question Jurisdiction
     
    05/23/2016

    On May 16, 2016, the United States Supreme Court unanimously affirmed the United States Court of Appeals for the Third Circuit, holding that Section 27 of the U.S. Securities Exchange Act of 1934 (the “Exchange Act”) confers exclusive federal jurisdiction over the suits that “arise under” the Exchange Act pursuant to the general federal question statute, 28 U.S.C. § 1331.  Merrill Lynch Pierce Fenner & Smith Inc. v. Manning, 14-1132 (May 16, 2016).  Thus, the Court held that Section 27’s jurisdictional test matches the one formulated by the Court for Section 1331.  Plaintiffs had commenced the suit in New Jersey state court, asserting state-law claims based on allegations that several financial institutions had impermissibly engaged in “naked short sales,” which had devalued stock of Escala Group, Inc., a company in which Manning and the other plaintiffs held stock.

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    CATEGORY: Jurisdiction
  • Federal Judge In Massachusetts Holds That Only Covered Class Actions Based On State Law Can Be Removed To Federal Court Under The Securities Act
     
    05/09/2016

    On April 29, 2016, Chief Judge Patti Saris of the United States District Court for the District of Massachusetts granted plaintiff’s motion to remand to state court a putative class action brought under the U.S. Securities Act of 1933 (the “Securities Act”).  Fortunato v. Akebia Therapeutics, Inc., No. 15-13501-PBS, 2016 BL 137403 (D. Mass. Apr. 29, 2016).  This decision joins a number of courts that have remanded Securities Act class actions to state court after concluding that the Securities Litigation Uniform Standards Act of 1998 (“SLUSA”) did not negate the removal bar contained in the Securities Act.  This decisional trend has led plaintiffs to increasingly file Securities Act class action lawsuits in state courts, which often are less likely to dismiss complaints and may not apply the procedural protections of the Private Securities Litigation Reform Act (“PSLRA”), such as the pre-motion to dismiss discovery stay.

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    CATEGORIES: JurisdictionSLUSA