In Cyan, Inc. v. Beaver County Employees Retirement Fund, No. 15–1439, 583 U.S.___ (Mar. 20, 2018), shareholders of Cyan brought claims under the ’33 Act in state court after shares they bought in an initial public offering declined in value. Cyan moved to dismiss the lawsuit, arguing that the state court lacked jurisdiction over the case because SLUSA conferred exclusive jurisdiction on federal courts to hear qualifying ’33 Act class action claims relating to stock traded on national securities exchanges.
The Court rejected Cyan’s interpretation of SLUSA’s amendments to the ’33 Act. In finding no evidence in the text of the statute supporting Cyan’s argument, the Court stated that if Congress had wanted to deprive state courts of jurisdiction over ’33 Act class actions, it could have inserted an exclusive federal jurisdiction provision (like the one contained in the Securities Exchange Act of 1934) into the ’33 Act. The Court noted that the ’33 Act, as originally enacted, expressly gave concurrent jurisdiction to state and federal courts over ’33 Act claims. The Court held that the amendments enacted through SLUSA did nothing to change that grant of concurrent jurisdiction with regard to ’33 Act claims. The Court reasoned that “§77p bars certain securities class actions based on state law . . . [b]ut the section says nothing, and so does nothing, to deprive state courts of jurisdiction over class actions based on federal law.” Id. at 8 (emphasis original).
Many of Cyan’s arguments revolved around concern regarding the proliferation of securities class actions in state courts in recent years. Cyan pointed to both the Private Securities Litigation Reform Act and SLUSA as evidence of congressional concern about the substantial increase in securities litigation. Cyan argued that barring securities class actions brought under the ’33 Act from being heard in state court furthered the aims of SLUSA.
The Court recognized the perceived abuses of class actions in litigation involving nationally traded securities. But although it acknowledged that Cyan might have been right about the over-arching congressional intent behind SLUSA, the Court concluded that Congress “wrote the statute it wrote—meaning, a statute going so far and no further,” id. (quotations omitted), and that that statute did not remove the concurrent jurisdiction Congress had originally granted. The Court noted that it “has long rejected the notion that whatever furthers the statute’s primary objective must be the law.” Id. at *15 (quotations omitted).
In addition to Cyan’s arguments, the Solicitor General filed an amicus curiae brief arguing that although securities class actions under the ’33 Act could be brought in either state or federal court (as the Court ultimately agreed), defendants should be able to remove such actions to appropriate federal courts. Id. at *18–19. The Court rejected this argument as well, holding that lawsuits alleging only ’33 Act claims cannot be removed from state court to federal court. Id. at 19. As a starting point, the Court noted that the ’33 Act bars claims filed under it from being removed from state court to federal court. Id. at *2. It then concluded that SLUSA only changed that non-removal provision to allow precluded state-law securities class action claims to be removed, and it did so to ensure that such claims would then be summarily dismissed by the federal courts. Id. In rejecting the Solicitor General’s position, the Court concluded that a “straightforward reading . . . is that removal is limited to those actions precluded by section (b) [i.e. class action securities claims filed under state law].” Id. at *20 (quotations omitted).
By confirming the ability of plaintiffs to bring ’33 Act class actions in state court, the Court has allowed plaintiffs’ law firms to use state courts to sidestep many of the procedural rules established by Congress for class action securities lawsuits in federal court under the PSLRA and has allowed similar cases to be brought simultaneously in both state and federal courts without a mechanism to consolidate or coordinate such cases. The result may be the continued proliferation not only of state-court ’33 Act class actions, but of defendants having to litigate the same cases in both state and federal courts at the same time. Despite that unfortunate result, the Court’s decision demonstrates that the way to eliminate that problem would be a simple amendment by Congress to the ’33 Act to eliminate concurrent jurisdiction over ’33 Act class actions.
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