On May 23, 2017, the Acting Solicitor General (“ASG”) filed a brief on behalf of the United States as amicus curiae urging the Supreme Court to grant the petition for a writ of certiorari in Cyan, Inc. v. Beaver County Employees Retirement Fund, No. 15-1439, to resolve confusion in lower courts as to whether the Securities Litigation Uniform Standards Act of 1998 (“SLUSA”) divests state courts of jurisdiction over cases that allege only claims under the Securities Act of 1933 (“Securities Act”). The issue has been a significant one. California state courts in particular have become a forum of choice for plaintiffs asserting claims under the Securities Act, and procedural bars on interlocutory review of decisions denying motions to dismiss or remand have precluded significant appellate review. The Supreme Court had invited the ASG to share its views on the matter in October 2016. In responding to that invitation, the ASG urged the Supreme Court to grant certiorari and to hold that SLUSA (i) does not preclude state court jurisdiction over such cases but (ii) renders them removable to federal court.
The underlying action in Cyan began in June 2014, when purported purchasers of Cyan’s stock filed a putative class action in California state court alleging violations of Sections 11, 12(a)(2), and 15 of the Securities Act. No state law claims were asserted. Defendants moved for judgment on the pleadings, arguing that SLUSA deprived the state court of subject matter jurisdiction. The trial court denied defendants’ motion, and defendants’ petitions for writs of mandamus and for review were denied by the California Appellate and Supreme Courts, respectively. Defendants filed their petition for a writ of certiorari in May 2016.
In arguing in favor of certiorari, the ASG noted that in light of the procedural hurdles to appellate review there is no current split of authority among federal appellate courts or state courts of final review and that there remains a question as to the finality of the underlying decision because of its unusual procedural stance. The ASG contended that the Court should nevertheless resolve the issue in light of the frequency with which it arises, “confusion in lower courts and the obstacles to appellate resolution.”
On the merits, the ASG first contended that SLUSA does not preclude state courts from exercising concurrent jurisdiction over Securities Act claims. Section 77v(a) of the Securities Act provides that “[t]he district courts of the United States … shall have jurisdiction of offenses and violations under this subchapter … and, concurrent with State and Territorial courts, except as provided in section 77p of this title with respect to covered class actions, of all suits in equity and actions at law brought to enforce any liability or duty created by this subchapter.” Petitioner argued that the italicized language (the “except clause”) refers specifically to Section 77p(f). Section 77p(f) defines “covered class action” to include any suit in which more than 50 people seek damages and common questions predominate, meaning, according to petitioner, that any such “covered class action” is excepted from Section 77v(a)’s general rule of concurrent jurisdiction. The ASG argued, however, that this interpretation ignores the text of Section 77p(f), which contains no explicit “exception to the general rule of concurrent jurisdiction.” Moreover, the ASG maintained that such a reading would be inconsistent with SLUSA’s underlying purpose because it would result in depriving state courts of jurisdiction over class actions that do not involve “covered securities” within the meaning of SLUSA (i.e., securities listed on a registered U.S. national exchange). Thus, even while conceding that respondents did not posit a convincing interpretation of the except clause, the ASG argued that the clause should not be read to preclude jurisdiction.
The ASG also contended, however, that although SLUSA does not preclude the exercise of concurrent jurisdiction by state courts over putative class actions asserting only Securities Act claims, Section 77p(c) should be interpreted to mean that such suits may be removed to federal court. Section 77p(c) provides that “covered class actions” involving “covered securities” may be removed from state to federal court. The ASG contended that allowing for removal of such actions that allege the type of misconduct described in Section 77p(b)—i.e., a material misstatement or omission or the use of a manipulative or deceptive device or contrivance in connection with the purchase or sale of a covered security—would be consistent with the purposes of SLUSA because it would protect defendants from state-court circumvention of the protections afforded by the Private Securities Litigation Reform Act. And although petitioner had not sought removal, meaning the question was not “squarely presented,” the ASG urged the Supreme Court to address the removal question in considering SLUSA’s overall “structure and purpose” and because the matter could otherwise evade review in light of the unappealability of remand decisions.
The United States’ advocating for certiorari probably increases the likelihood that the Supreme Court will grant review and resolve a question of SLUSA interpretation that has sharply divided lower state and federal courts.
