Cyan Decision: No Relief for Defendants in State Securities Suits

April 13, 2018

Last month, The Ticker discussed Cyan, Inc. v. Beaver County Employees Retirement Fund, asking whether relief was on the way for defendants targeted in state court class actions based on alleged violations of the Securities Act of 1933. In a unanimous decision delivered on March 20, the Court answered with a resounding “no,” delivering a major victory to the plaintiffs’ bar.

In Cyan, the issue before the Court was whether state courts lacked jurisdiction over class actions that allege only Securities Act claims, with corporate defendants hoping that the venue for such cases would shift exclusively to federal courts, which have a higher propensity to dismiss class action securities cases. The case revolved around the statutory interpretation of the Securities Litigation Uniform Standards Act of 1998 (SLUSA). Despite SLUSA’s unclear language, the Court managed to arrive at a 9-0 verdict: “SLUSA did nothing to strip state courts of their longstanding jurisdiction to adjudicate class actions alleging only 1933 Act violations. Neither did SLUSA authorize removing such suits from state to federal court.”

The implications of the Cyan decision are grim for public companies and their D&O insurance carriers. A blog post by Woodruff-Sawyer, an insurance brokerage and consulting firm, states that the decision “surely has the plaintiffs’ bar popping champagne” and predicts that insurance carriers are likely to raise deductibles and premium rates for D&O liability insurance for public companies. One mitigating strategy for pre-IPO companies: consider including federal forum selection provisions in your charter documents.

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