A decision by Justice Elena Kagan and supported unanimously by the Court upheld a category of shareholder lawsuits that corporations were attempting to keep out of state courts, a significant ruling on behalf of shareholders who file class actions.
The Supreme Court ruled today that the 1998 amendments to the federal securities laws did not strip state courts of jurisdiction over class actions alleging violations of only the Securities Act of 1933. The Court further held that those amendments do not empower defendants to remove those federal-law cases from state to federal court.The Court’s unanimous decision in Cyan, Inc. v. Beaver County Employees Retirement Fund(No. 15-1439) ensures that, if a plaintiff chooses to file a state-court class action asserting only Securities Act claims arising from a public offering of a listed security, the case will remain in state court – and will not be subject to the procedural requirements that Congress imposed on federal-court securities class actions. The preservation of a state-court forum thus increases the difficulty of coordinating or consolidating related cases filed in multiple federal and state courts….The Court first ruled that § 77v(a)’s “except clause” – providing that state courts have concurrent jurisdiction of Securities Act claims “except as provided in section 77p of this title with respect to covered class actions” – “does nothing to deprive state courts of their jurisdiction to decide class actions brought under the [Securities] Act.” The Court construed the “except clause” to apply only to securities class actions based on state law. SLUSA preempts those claims and allows them to be removed to federal court, where they must be dismissed. “But the section says nothing, and so does nothing, to deprive state courts of jurisdiction over class actions based on federal law. That means the background rule of § 77v(a) – under which a state court may hear [Securities] Act suit[s] – continues to govern.”
The Court next held that SLUSA’s § 77p(c) does not authorize removal of Securities Act class actions from state to federal court. State-law securities class actions can be removed, but “federal-law suits like this one – alleging only [Securities] Act claims – are not ‘class action[s] . . . as set forth in subsection (b).’ So they remain subject to the [Securities] Act’s removal ban.”