On May 15, 2023, the Appellate Division of the Superior Court of New Jersey unanimously affirmed the dismissal with prejudice of a putative securities class action asserting claims under the Securities Act of 1933 against a bioelectric medicine company, its officers and directors, and the underwriters of its initial public offering. Kuehl v. electroCore, Inc., No. A-1539-21, 2023 WL 3444383 (N.J. App. Div. May 15, 2023). Plaintiffs alleged that the IPO offering documents did not disclose sufficient information about the company’s competitors or the challenges the company was facing in its business. The Court held that a federal forum selection provision in the Delaware-incorporated company’s charter was enforceable and had not been waived, and therefore affirmed the action’s dismissal with prejudice.

On April 28, 2022, the First Appellate District Court of Appeals for the State of California affirmed the dismissal of putative securities class action against a hair transplant technology company (the “Company”) alleging violations of the Securities Act of 1933 (the “1933 Act”).  Wong v. Restoration Robotics, Inc., A161489 (Cal. Ct. App. Apr. 28, 2022).  Plaintiff initiated the action in California state court, alleging that the offering documents for the Company’s 2017 initial public offering (“IPO”) contained materially false and misleading statements in violation of the 1933 Act.  The trial court dismissed the complaint on the basis of a federal forum provision (“FFP”) in the Company’s certificate of incorporation.  The Court affirmed, holding that the FFP was enforceable and that the trial court would only have jurisdiction if the Company consented to a different forum, which it had not.

On January 7, 2022, a split panel of the United States Court of Appeals for the Seventh Circuit reversed the dismissal of claims under Section 14(a) of the Securities Exchange Act of 1934 (the “Exchange Act”) against the current and former officers and directors (the “Defendants”) of a major aerospace company (the “Company”).  Seafarers Pension Plan v. Bradway, No. 20-2244, 2022 WL 70841 (7th Cir. Jan. 7, 2022).  Relying on a bylaw that gave the Company the right to insist that any derivative actions be filed in the Delaware Court of Chancery, Defendants obtained a forum non conveniens dismissal in the United States District Court for the Northern District of Illinois.  The Seventh Circuit reversed, holding that the Company’s bylaw could not be applied to Section 14(a) claims, which are subject to exclusive federal jurisdiction.

On August 30, 2021, Judge Lewis A. Kaplan of the Southern District of New York granted a motion to dismiss a claim under Section 10(b) of the Securities Exchange Act of 1934 (“Exchange Act”) and Rule 10b-5 thereunder against a cannabis company (“Company”), its senior secured lender (“Financing Company”), and certain executives at both companies.  In re iAnthus Capital Holdings Inc. Securities Litigation, 1:20-cv-03135 (S.D.N.Y. Aug. 30, 2021).  Plaintiffs, in consolidated purported class actions and an individual action brought by a shareholder, alleged the Company failed to disclose the nature of its relationship with the Financing Company, which allegedly obtained approximately half of the equity of the Company after the Company defaulted on its loan.  The Court granted defendants’ motion to dismiss plaintiffs’ first amended class action complaint (“Amended Complaint”), holding that plaintiffs failed to allege their transactions with the Company satisfied the jurisdictional limitations of the Exchange Act established by the Supreme Court in Morrison v. Nat’l Australia Bank Ltd., 561 U.S. 247, 267 (2010).  The Court permitted plaintiffs to move for leave to further amend.

On March 25, 2021, the United States Supreme Court unanimously affirmed decisions by the Montana and Minnesota Supreme Courts holding that their lower courts had properly exercised specific personal jurisdiction over an automobile company in product liability suits arising from accidents in those states involving the company’s vehicles, even though those particular vehicles had not been designed, manufactured, or sold in those states.  Ford Motor Co. v. Montana Eighth Jud. Dist. Ct., Nos. 19-368, 19-369, 2021 WL 1132515 (U.S. Mar. 25, 2021).  In a consolidated appeal, the company challenged the State supreme court decisions, arguing that specific personal jurisdiction is only proper where there is a strict causal relationship between the defendant’s activities in the forum state and the plaintiff’s claim.  The Court rejected the company’s argument, holding that the exercise of personal jurisdiction in those states was proper under the circumstances.

On January 25, 2021, the United States Court of Appeals for the Second Circuit affirmed the dismissal of claims under Section 10(b) of the Securities Exchange Act of 1934 (the “Exchange Act”) against a Bermudan capital investment company (the “Company”) and its Chief Executive Officer and Chairman.  Cavello Bay Reinsurance Ltd. v. Shubin Stein et al., No. 20-1371 (2d Cir. Jan. 25, 2021). 
 

Looking ahead, we preview cases currently pending before the Supreme Court—which have already been accepted for review by the Court, and in some cases have already been argued—that may be of particular interest to readers of the Need-to-Know Litigation Weekly.  These cases pertain to various topics in Securities Litigation, Antitrust, IP Litigation, and jurisdictional questions of broad interest.
 

On April 22, 2020, Judge Kiyo Matsumoto of the Eastern District of New York issued an order and notice of venue to parties in a securities action against a foreign coffee chain (the “Company”), placing parties on notice of the Court’s decision to transfer the action to the Southern District of New York if the parties failed to present compelling legal and factual reasons against the transfer; the transfer order went into effect two days later.  Sterckx v. Luckin Coffee Inc. et al., No. 20-cv-01677 (E.D.N.Y. April 22, 2020).  The Court rejected plaintiffs’ argument against transfer based on a provision in a governing agreement pursuant to which the Company consented and submitted to the “jurisdiction of any state or federal court in the State of New York.”
 

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On March 30, 2020, the United States Court of Appeals for the Second Circuit held that business registration under the New York Business Corporation Law (the “BCL”) Section 1301 does not “constitute consent to general personal jurisdiction in New York.”  Chen v. Dunkin’ Brands, Inc., No. 18-cv-3087 (2d Cir. Mar. 30, 2020).  The Court accordingly affirmed the dismissal of a putative class action asserting various state consumer protection law claims against a fast food franchise chain (the “Company”).  The Court’s opinion was based in part on a consideration of the Supreme Court’s decision in Daimler AG v. Bauman, 571 U.S. 117 (2014), which held that a state’s exercise of general personal jurisdiction over foreign corporations would be unconstitutional if it did not establish that the corporation had “continuous and systematic” contact with the state rendering it “essentially at home in the forum.”
 

On January 28, 2020, Judge Dean D. Pregerson of the United States District Court for the Central District of California denied defendant’s motion to dismiss a putative securities class action brought against a multinational technology and communications corporation headquartered in Tokyo, Japan, in connection with American Depositary Receipts (“ADRs”) which were not sponsored by the foreign issuer and were traded on over-the-counter markets.  Stoyas v. Toshiba Corp., No. 15-cv-4194 (C.D. Cal. 2020).  The Court had previously dismissed plaintiffs’ first amended complaint and denied leave to amend.  The Court’s dismissal of plaintiffs’ claims under Section 10(b) of the Securities Exchange Act of 1934 (“Exchange Act”), and Rule 10b-5 promulgated thereunder, was based on the Supreme Court’s seminal decision in Morrison v. National Australia Bank Ltd., 561 U.S. 247 (2010), which held that Section 10(b) and SEC Rule 10b-5 only apply to (i) the purchase or sale of a security listed on a U.S. securities exchange, or (ii) the purchase or sale of any other security in the United States. 
 

On August 29, 2019, the United States Court of Appeals for the Second Circuit affirmed the dismissal of an action under the Commodities Exchange Act (“CEA”) alleging that defendants manipulated the foreign benchmark for the price of Brent crude oil by using fraudulent bids, offers and transactions.  Prime International Trading Ltd, et al., v. BP PLC, et al., No. 17-2233 (2d Cir. Aug. 29, 2019).  The Court held that the CEA provisions at issue did not apply extraterritorially because they lacked a “clear statement of extraterritorial effect” and the alleged misconduct was predominantly foreign.

On June 18, 2019, Judge Richard Berman of the United States District Court for the Southern District of New York dismissed a putative securities class action brought by a Cayman Islands branch of a Brazilian bank against a Brazilian mining company (the “Company”) and its Brazilian parent companies on behalf of investors in certain of the Company’s bonds. Banco Safra S.A. - Cayman Islands Branch v. Samarco Mineracao S.A., et al, 1:16-cv-08800 (S.D.N.Y. June 18, 2019). Plaintiff alleged that defendants made misrepresentations about the safety of the Company’s mining operations in the wake of an “environmental disaster” in Brazil involving the bursting of one of the Company’s dams in violation of Section 10(b) of the Securities Exchange Act of 1934 (the “Exchange Act”) and Rule 10b-5 thereunder. Plaintiff also alleged violations of Section 20(a) of the Exchange Act, along with claims for common law fraud, aiding and abetting fraud, and negligent misrepresentation. The bonds at issue were not listed on a U.S. securities exchange and had been initially offered only outside the United States, and plaintiff’s alleged purchases were largely made in the secondary market. The Court, in dismissing the amended complaint, held that plaintiff failed to allege a U.S. domestic securities transaction as required to overcome the presumption against the extraterritorial application of the U.S. securities laws.

On May 28, 2019, the Supreme Court held in a 5-4 decision authored by Justice Thomas that a third-party counterclaim defendant was not permitted to remove class action claims against it under the general removal statute, 28 U.S.C. § 1441 (“Section 1441”), or the Class Action Fairness Act, 28 U.S.C. § 1453 (“CAFA”).  Home Depot U. S. A., Inc. v. Jackson, No. 17-1471, 587 U.S. ___ (2019).  The Court held that the term “defendant” in the two removal provisions at issue applies only to “the party sued by the original plaintiff” and should not be expanded to include third-party counterclaim defendants.  As noted in our prior post when the case was argued before the Supreme Court, this decision is the first time the Supreme Court has discussed the scope of Shamrock Oil & Gas Corp. v. Sheets, 313 U.S. 100 (1941), which addressed analogous language in Section 1441’s predecessor and held that a plaintiff who originally filed an action in state court would not be permitted to later remove it to federal court as a “defendant” once counterclaims were filed against it.

On May 15, 2019, Judge Charles T. Lee of the Connecticut Superior Court at Stamford granted a protective order staying discovery pending a motion to strike in an action alleging violations of the Securities Act of 1933 (the “Securities Act”) against an issuer, certain officers and the underwriters (“Defendants”) in connection with an initial public offering.  City of Livonia Retiree Health & Disability Benefits Plan v. Pitney Bowes Inc., No. X08 FST CV 18 6038160 S (Conn. Super. Ct. May 15, 2019).  In Cyan Inc. v. Beaver Cty. Employees Ret. Fund, 138 S. Ct. 1061 (2018) (“Cyan”), the Supreme Court of the United States held that the substantive protections of the Private Securities Litigation Reform Act (“PSLRA”) necessarily apply “wherever” an action proceeds.  Relying on this, the Connecticut court determined that 15 U.S.C. § 77z-1(b)(1) of the Securities Act, which provides for a stay of discovery during the pendency of a motion to dismiss, applies to actions filed in state court.  Though there have been decisions going both ways on the issue of whether the PSLRA discovery stay applies in state court, this is the first opinion to analyze the issue thoroughly in the wake of Cyan and should serve as persuasive authority in other jurisdictions.

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.

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).

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.
 

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

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”).

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.

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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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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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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​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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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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​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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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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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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​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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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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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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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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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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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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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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