Introduction

The landmark decision in Cyan, Inc., et al. v. Beaver County Employees Retirement Fund, et al., 138 S. Ct. 1061 (2018), addressed pivotal questions concerning the jurisdictional reach of the Securities Litigation Uniform Standards Act of 1998 (SLUSA). The case centered on whether SLUSA stripped state courts of jurisdiction over class actions alleging solely violations of the Securities Act of 1933 (1933 Act) and whether SLUSA permitted defendants to remove such actions from state to federal court. The Supreme Court ultimately affirmed that SLUSA does not remove state court jurisdiction in these instances nor does it provide blanket removal powers to defendants.

Summary of the Judgment

The Supreme Court, in an opinion delivered by Justice Kagan, held that SLUSA does not preclude state courts from exercising jurisdiction over class actions that allege only violations of the 1933 Act. Additionally, SLUSA does not grant defendants the authority to unilaterally remove these state court actions to federal court. The Court underscored that SLUSA’s language specifically targets state-law class actions involving securities misconduct related to covered securities, leaving intact the jurisdictional breadth of state courts for purely federal claims under the 1933 Act.

Analysis

Precedents Cited

The Court referenced several key precedents to frame its decision:

• PINTER v. DAHL, 486 U.S. 622 (1988): Established the requirement for full and fair disclosure in securities offerings under the 1933 Act.
• BLUE CHIP STAMPS v. MANOR DRUG STORES, 421 U.S. 723 (1975): Clarified the scope of the 1934 Act, distinguishing it from the 1933 Act by focusing on secondary trading of securities.
• KIRCHER v. PUTNAM FUNDS Trust, 547 U.S. 633 (2006): Held that SLUSA’s removal provisions apply strictly to class actions precluded by SLUSA’s state-law class-action bar.
• Chadbourne & Parke LLP v. Troice, 571 U.S. 377 (2014): Affirmed that SLUSA does not address securities not traded on national exchanges, emphasizing state court jurisdiction in such cases.
• Merrill Lynch, Pierce, Fenner & Smith Inc. v. Dabit, 547 U.S. 71 (2006): Discussed SLUSA’s intent to limit certain class actions to federal court.

Legal Reasoning

The Court meticulously dissected SLUSA’s statutory language, focusing on the "except clause" added to §77v(a). This clause was interpreted as a limitation rather than an expansion of state courts’ jurisdiction. The petitioner, Cyan, attempted to argue that this clause should be read to remove state court jurisdiction over all 1933 Act class actions and permit their removal to federal courts. However, the Court found that:

• The "except clause" refers specifically to §77p, which details exclusions related to state-law class actions involving covered securities.
• Definitions within SLUSA, such as "covered class action," do not inherently expand the scope of the exception but rather qualify the types of class actions affected.
• Legislative history and the purpose of SLUSA, aimed at preventing plaintiffs from evading federal substantive protections by filing in state courts, do not necessitate a blanket removal of jurisdiction from state courts.
• The Court emphasized the presumption in favor of concurrent jurisdiction, which SLUSA did not explicitly override for federal-law class actions under the 1933 Act.

Furthermore, the Court addressed and rebuffed arguments concerning SLUSA’s removal provisions, clarifying that removal to federal court is only permissible for state-law class actions precluded by SLUSA, not for federal-law class actions.

Impact

The decision in Cyan, Inc. v. Beaver County Employees Retirement Fund has significant implications for securities litigation and the interplay between federal and state courts:

• Preservation of State Court Jurisdiction: State courts retain the authority to hear class actions solely based on the 1933 Act, ensuring that plaintiffs can choose their forum without being compelled into federal courts.
• Limitation on Removal: Defendants cannot remove 1933 Act class actions to federal courts unless they also fall under SLUSA’s specific exceptions related to state-law claims.
• Clarity in Jurisdictional Boundaries: The ruling provides a clearer demarcation of when SLUSA applies, reducing the uncertainty and judicial inconsistency that previously plagued the interpretation of SLUSA’s scope.
• Influence on Future Legislation: The decision underscores the importance of precise statutory language and may influence how future legislation is drafted to address jurisdictional issues in class actions.

Complex Concepts Simplified

SLUSA (Securities Litigation Uniform Standards Act of 1998)

SLUSA was enacted to prevent plaintiffs from circumventing federal securities laws by filing class action lawsuits in state courts. It imposes stricter standards on securities class actions brought under state law, particularly those involving misrepresentations or deceptive practices related to covered securities.

Covered Class Action

A "covered class action" under SLUSA is defined as a class lawsuit where damages are sought on behalf of more than 50 individuals, and common questions of law or fact predominate over individual issues. Importantly, SLUSA limits such actions to those involving securities traded on national exchanges and based on state law claims.

Removal

Removal refers to the process by which a defendant can request that a lawsuit filed in state court be transferred to federal court. SLUSA restricts removal to only those state-law class actions that are precluded by its provisions, meaning not all state court actions are eligible for removal under SLUSA.

Conclusion

The Supreme Court’s decision in Cyan, Inc. v. Beaver County Employees Retirement Fund reinforces the continued role of state courts in adjudicating certain securities class actions under the 1933 Act. By affirming that SLUSA does not strip state courts of jurisdiction over purely federal-law claims nor broadly authorize removal to federal courts, the Court maintained a balance between state and federal judicial systems. This ruling upholds the principle of concurrent jurisdiction and ensures that plaintiffs retain flexibility in choosing the most appropriate forum for their securities litigation, thereby preserving access to justice within state court systems.