Supreme Court Grants Certiorari to Determine Whether State Courts Have Jurisdiction over Securities Act Claims
On June 27, 2017, the United States Supreme Court granted a petition for writ of certiorari in Cyan, Inc. v. Beaver County Employees Retirement Fund to decide an issue that has sharply divided federal district courts across the country—whether state courts have subject matter jurisdiction over class actions that exclusively allege claims under the Securities Act of 1933 (“Securities Act”).
In recent years, plaintiffs asserting Securities Act claims have flocked to state courts—particularly, those in California—in an attempt to circumvent the federal procedural requirements of the Private Securities Litigation Reform Act (“PSLRA”)
The Securities Act generally provides that actions can be filed in either state or federal court, and actions filed in state court cannot be removed.
The Cyan petition arises from a class action lawsuit filed in California Superior Court on behalf of purchasers of Cyan’s IPO stock. The complaint alleged claims solely under Sections 11, 12(a)(2) and 15 of the Securities Act. Defendants moved for judgment on the pleadings for lack of subject matter jurisdiction, arguing that SLUSA amended the Securities Act to withdraw state court jurisdiction over class actions alleging only Securities Act claims.
In May 2016, defendants filed a petition for writ of certiorari with the United States Supreme Court arguing, among other things, that the California courts’ interpretation of SLUSA is contrary to the Congressional intent behind the PSLRA and SLUSA.
The issue of whether state courts possess jurisdiction over Securities Act class actions is an important one, particularly for public companies, their officers and directors, and underwriters involved in public securities offerings. Since remand orders are generally non-appealable, federal appellate courts are unlikely to rule on this issue, let alone resolve the deep divide among district courts around the country. Cyan represents a rare opportunity for the Supreme Court to provide clarity on this divisive issue and stem the tide of Securities Act class actions filed in state court.