U.S. Supreme Court Schedules Oral Argument In Case That Raises Issue Of Whether State Courts Have Jurisdiction Over Securities Act Claims
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. California state courts in particular have become a forum of choice for plaintiffs asserting claims under the Securities Act, with the federal district courts in California largely rejecting removal attempts and the difficulty obtaining appellate review of remand decisions. The November 28, 2017 argument hopefully will provide valuable insight into the Justices’ thinking on this issue.