Cyan, Inc. v. Beaver County Employees Retirement Fund
138 S.Ct. 1061, 2018 U.S. LEXIS 1912, 200 L. Ed. 2d 332 (2018)
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Rule of Law:
The Securities Litigation Uniform Standards Act of 1998 (SLUSA) does not strip state courts of concurrent jurisdiction over class actions that allege only claims under the Securities Act of 1933, nor does it permit defendants to remove such actions from state to federal court.
Facts:
- Cyan, Inc., a telecommunications company, conducted an initial public offering (IPO) of its stock.
- A group of investors, including the Beaver County Employees Retirement Fund (Investors), purchased shares of Cyan stock issued in the IPO.
- Following the IPO, the value of Cyan's stock declined.
- The Investors alleged that Cyan's offering documents, which were part of the IPO process, contained material misstatements and omissions about the company's business.
Procedural Posture:
- The Investors filed a class action lawsuit against Cyan, Inc. in the California Superior Court, a state trial court, alleging only violations of the Securities Act of 1933.
- Cyan filed a motion to dismiss the lawsuit for lack of subject matter jurisdiction, arguing SLUSA divested state courts of jurisdiction over such cases.
- The California Superior Court denied Cyan's motion to dismiss.
- The California Court of Appeal and the California Supreme Court (intermediate and highest state appellate courts, respectively) both denied Cyan's petitions for review.
- The U.S. Supreme Court granted Cyan's petition for a writ of certiorari to resolve a split among lower courts on the issue.
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Issue:
Does the Securities Litigation Uniform Standards Act of 1998 (SLUSA) strip state courts of jurisdiction over class actions that assert only claims under the Securities Act of 1933?
Opinions:
Majority - Justice Kagan
No, the Securities Litigation Uniform Standards Act of 1998 (SLUSA) does not strip state courts of jurisdiction over class actions asserting only claims under the Securities Act of 1933. The Court held that SLUSA’s text, structure, and purpose confirm that state courts retain concurrent jurisdiction over such '1933 Act-only' class actions. The original 1933 Act explicitly granted concurrent jurisdiction to state and federal courts and barred removal of cases filed in state court. SLUSA added an 'except clause' to the 1933 Act’s jurisdictional provision, §77v(a), stating jurisdiction is concurrent 'except as provided in section 77p... with respect to covered class actions.' The Court reasoned that §77p only 'provides' for the preclusion of state-law class actions, not federal-law class actions. Therefore, the except clause does not apply to 1933 Act claims. To hold otherwise would be to find that Congress made a 'radical' change to a 65-year-old jurisdictional practice through a 'technical and conforming amendment,' which the Court described as hiding an 'elephant in a mousehole.' Additionally, the Court held that SLUSA’s removal provision, §77p(c), only authorizes removal for the same state-law class actions that are precluded by §77p(b), meaning 1933 Act-only class actions remain non-removable.
Analysis:
This decision solidifies a significant strategic advantage for plaintiffs in securities litigation by preserving their ability to file class actions under the 1933 Act in state courts. By affirming that these cases are not removable, the Court ensures that defendants cannot unilaterally move them to federal court, where procedural rules established by the Private Securities Litigation Reform Act (PSLRA) might be more favorable to them. The ruling clarifies a long-standing circuit split and confines SLUSA's reach to its primary purpose: eliminating class actions based on state law, rather than federalizing all securities class actions. This outcome maintains a key feature of the 1933 Act's original plaintiff-friendly jurisdictional design.
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