SCOTUS Watch: Relief for Defendants in State Securities Suits?

March 15, 2018

Is relief on the way for defendants targeted in state court class actions based on alleged violations of the Securities Act of 1933? It is a hot topic given the high level of class action securities litigation in general—plaintiffs filed 412 federal securities class action lawsuits in 2017, affecting 8.4 percent of U.S. exchange-listed companies, a historically high rate fueled by a doubling in federal class actions involving M&A transactions according to a Cornerstone Research report.

In Cyan, Inc. v. Beaver County Employees Retirement Fund,the issue before the U.S. Supreme Court is whether state courts lack jurisdiction over class actions that allege only Securities Act claims. The hope of corporate defendants is that the venue for such cases will shift exclusively to federal courts, which have a higher propensity to dismiss class action securities cases—32 percent in federal courts versus six percent in California, according to an amicus curiae brief filed by the Securities Industry and Financial Markets Association.

This battle over venue has raged ever since the Private Securities Litigation Reform Act of 1995 pushed cases into state courts, an unintended consequence that was supposed to be corrected by the Securities Litigation Uniform Standards Act of 1998 (SLUSA), which sought to curb state actions. During oral arguments in Cyan on November 28, 2017, the Justices expressed frustration at SLUSA’s unclear language, referring to it as “obtuse” and “gibberish,” making it difficult to predict how the Court will rule. The Court is expected to render its decision by the end of its current term in June 2018.

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