sup ct 3In a June 27, 2017 order (here), the United States Supreme Court granted the petition of Cyan, Inc. for a writ of certiorari to consider the question of whether or not state courts retain concurrent jurisdiction for liability lawsuits under the ’33 Act, or whether as a result of changes to the relevant statutes under the Securities Litigation Uniform Standards Act of 1998 (SLUSA), state courts lack subject matter jurisdiction over ’33 Act suits. This case will address what has become a significant issue in IPO-related securities class action litigation, particularly in California, which is whether or not the plaintiffs’ state court securities class lawsuits can be removed to federal court or must be remanded back to state court.


Legal Background

In 1995, Congress passed the Private Securities Litigation Reform Act (PSLRA), which enacted a number of procedural reforms pertaining to securities class action litigation. It quickly turned out that in an effort to circumvent the PSLRA’s procedural requirements, a number of plaintiffs’ lawyer tried to file their clients’ lawsuits in state court, often under state law. In 1998, and in order to ensure that the lawsuits remained in federal court and subject to the PSLRA’s requirements, Congress passed SLUSA to preempt the state court jurisdiction and to require the lawsuits to go forward in federal court.


Even after the enactment of SLUSA, unanswered questions remained with respect to liability actions under the ’33 Act. Section 22(a) of the Securities Act of 1933 provides for concurrent state court jurisdiction for civil actions alleging violations of the ’33 Act’s liability provisions. Section 22(a) specifies further that when an action is brought in state court alleging a ’33 Act violation, the case shall not be removed to federal court.


These provisions were significantly litigated in connection with state court lawsuits filed during the financial crisis, as discussed here. One question in particular was whether the provisions of SLUSA, requiring “covered class actions” to be litigated in federal court pre-empts the concurrent state court jurisdiction provisions in the ’33 Act.  Suffice it to say here that the determinations of these issues have not been uniform, but that in the Ninth Circuit, the state of the law seems to be that ’33 Act cases filed in state court in reliance on Section 22’s concurrent jurisdiction provisions are not removable from state court to federal court notwithstanding the provisions of SLUSA.


As discussed here, on May 18, 2011, the California Intermediate Court of Appeal held in the Luther v. Countrywide Financial Corporation case that state courts have concurrent jurisdiction with federal courts to hear liability lawsuits under the Securities Act of 1933 and that more recent Congressional enactments did not eliminate the concurrent state court jurisdiction for the plaintiffs’ ’33 Act claims.


Background Regarding Cyan’s Cert Petition

Cyan completed its IPO in May 2013. Shortly after the IPO, Cyan was hit with a securities class action lawsuit that was filed in state court in California. Rather than seeking to remove the lawsuit to federal court, Cyan filed a motion for judgment on the pleadings, in which the company argued in light of SLUSA that the state court lacked subject matter jurisdiction. The California trial court denied the company’s motion. The state court intermediate appellate court denied the company’s writ of mandate and/or prohibition. The company then sought to pursue a petition of review to the California Supreme Court, which was denied. Thus, Cyan’s U.S. Supreme Court filing was in the form a petition for a writ of certiorari to the California Supreme Court.


Cyan’s petition sought to have the U.S. Supreme Court address the question of “Whether state courts lack subject matter jurisdiction over covered class actions that allege only ’33 Act claims.” In urging the Supreme Court to take up this question, Cyan argued that SLUSA withdrew state courts’ concurrent jurisdiction over class actions alleging ’33 Act claims. Cyan argued further that the decision of the trial court in this case, which the state appellate courts declined to review, “subverts SLUSA’s requirement that the [PSLRA’s] reforms have uniform application in all class actions under the ’33 Act.”


The petition contends that courts in other jurisdictions have concluded that SLUSA did eliminate concurrent state court jurisdiction for ’33 Act class action, meaning that different courts in different jurisdictions are reaching different conclusions on the same federal law issue, a circumstance the petition describes as “chaos.”


The plaintiff Beaver County Employees’ Retirement Fund initially declined to respond to Cyan’s petition, but the Court requested the plaintiff to respond. In its brief in opposition to the petition, the plaintiff questioned whether a grant of Cyan’s petition was procedurally proper, given that the California Supreme Court order was not a final ruling and that the Court had not ruled on the merits of the jurisdictional issues, but rather in an unpublished, interlocutory ruling determined only that its review of the Superior Court order was not appropriate. The plaintiff further argued that notwithstanding the provisions of SLUSA, state courts retain their concurrent jurisdiction over ’33 Act liability suits under Section 22. The plaintiff argued that SLUSA sought only to eliminate state court litigation under state law, not to eliminate the long-standing state court concurrent jurisdiction over ’33 Act suits.


The U.S. Supreme Court invited the Solicitor General to file a brief expressing the views of the United States on the issues presented. On May 23, 2017, the Solicitor General’s office, for the United States as amicus curiae, filed its brief in support of Cyan’s cert petition based on its view that, properly construed, the relevant statutory provisions provide for the removal to federal court of ’33 Act cases filed in state court and provides protection against the use of state-court lawsuits to circumvent the PSLRA’s substantive and procedural safeguards.  The Solicitor General also took the position that the U.S. Supreme Court had jurisdiction to hear the case on the merits. The SG’s brief emphasized the “confusion in the lower courts” on the question of the state court jurisdiction.



The question of whether or not state courts after SLUSA retain jurisdiction for ’33 Act liability lawsuits is a significant one. In recent years, a significant amount of IPO-related securities class action litigation has been filed in state court, particularly in California, as detailed in a recent guest post on this site.


As the numbers of these state court class action lawsuits under federal law has mounted in recent years, defendants (particularly those sued in California state court) have continued to try to extricate themselves from the state court forum and remove their cases to federal court. In some instances, defendants find themselves obliged to defend these state court lawsuits while also defending parallel or even identical federal court lawsuits raising essentially the same allegations.


In other words, this case raises important legal questions, and the answers to the questions potentially will address difficulties that increasingly are arising in connection with IPO-related securities litigation, difficulties that have in some instances led to duplicative litigation. More to the point, the question of whether post-SLUSA state courts retain their concurrent ’33 Act liability lawsuit jurisdiction has vexed the courts and litigants for years. This case offers the opportunity for these questions finally to be resolved.


The parties will now set about briefing the issues on the merits according to the Court’s briefing schedule. The case will be set for argument during the Court’s term commencing in October 2017,  with the Court’s decision on the merits presumably to be published sometime during the 2017-18 Court term.