SCOTUS Rules State Courts Can Continue to Hear Certain Securities Class Actions

In a decision published on March 20, 2018, the U.S. Supreme Court unanimously ruled that state courts have jurisdiction over securities class action lawsuits alleging breaches of law solely under the Securities Act of 1933 (“the ’33 Act”).

In the case, investors brought suit in California state court against a corporation that made an initial public offering as to disclosures made in a registration statement filed under the ‘33 Act.  The corporation, Cyan, Inc., sought to dismiss the case, arguing that the state court did not have subject matter jurisdiction under the Securities Litigation Uniform Standards Act of 1998 (SLUSA).  The court sided with the investors, and the Supreme Court granted certiorari to hear two questions of law: (1) whether SLUSA stripped state courts of jurisdiction over “covered class actions” (as defined by the statute as a class action where damages are sought on behalf of more than 50 persons); and (2) whether SLUSA enabled defendants to remove ’33 Act claims to federal court.

To answer the first question, the Court was required to interpret a statutory provision that Justice Samuel Alito referred to during oral arguments in November 2017 as “just gibberish”: whether the “except” clause of SLUSA—which added to the ’33 Act language to explain that state and federal courts shall have concurrent jurisdiction, “except as provided in section 77p . . . with respect to covered class actions”—stripped state courts of their power to adjudicate ‘33 Act claims in covered class actions.  

In a 32-page opinion, the Court held that (1) SLUSA did not deprive state courts of their jurisdiction to adjudicate covered class actions; and that (2) SLUSA does not allow defendants to remove class actions under the ’33 Act to federal court.  Justice Kagan wrote: “The critical question for this case is therefore whether §77p limits state-court jurisdiction over class actions brought under the 1933 Act.  It does not.  Section 77p bars certain securities class actions based on state law but it says nothing, and so does nothing, to deprive state courts of jurisdiction over class action based on federal law.

About Faruqi & Faruqi, LLP

Faruqi & Faruqi focuses on complex civil litigation, including securities, antitrust, consumer and wage and hour class actions, as well as shareholder derivative suits.  The firm is headquartered in New York, and maintains offices in California, Delaware, Pennsylvania and Georgia.

Since its founding in 1995, Faruqi & Faruqi has served as lead or co-lead counsel in numerous high-profile cases which ultimately provided significant recoveries to investors, consumers, and employees.

To contact the author of this blog or the offices of Faruqi & Faruqi, please call us at (877) 476-7797.

About James Madison Kim

James Kim’s practice is focused on securities litigation.  James is a law clerk in the firm’s New York office.

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