Cyan, Inc. et al. v. Beaver County Employees Retirement Fund

DO SLUSA’S TEXT AND STRUCTURE PRECLUDE STATE SUITS?

Cyan asserts that the Securities Litigation Uniform Standards Act’s (“SLUSA”) text and structure indicate that state courts lack jurisdiction to hear Securities Act of 1933 (“Securities Act”) for covered class actions and, thus, this case. Cyan claims that SLUSA ended state courts’ historic concurrent jurisdiction with federal courts to hear Securities Act class actions as evidenced by the SLUSA amendments found in § 77v(a) and § 77p together. Cyan contends that § 77p(b) provides that pure, state-law covered class action claims of federal concern—i.e., state-law claims that do not involve any Securities Act claims, alleging an untrue statement, omission, or deceptive device in purchase with the sale of a covered security—cannot be brought in either state or federal courts. If the pure, state-law claim is brought in state court, then it can be removed by 15 U.S.C. § 77p(c) to federal court where it will be dismissed. Cyan states that § 77v(a) addresses covered class actions involving mixed claims—i.e., alleging both state-law and Securities Act claims. Cyan notes that the exception provides that a covered class action involving both a Securities Act federal claim (“arising under this subchapter”) and a claim under the scope of § 77p(c) (which requires state-law claims to be removed to federal court) can be removed. Cyan then concludes that in order to follow the “symmetrical and coherent regulatory scheme” the only category left to address is pure Securities Act covered class actions, and Congress filled the gap by excluding such cases from state courts’ jurisdiction. Otherwise, Cyan points out, claims that are solely based on Securities Act covered class actions can be brought in state court and remain there. This outcome is impossible, Cyan asserts, because Congress could not have intended to allow state-law claims and mixed covered class actions to be removable to federal courts but to except cases that solely involve Securities Act claims. Cyan claims that Beaver falsely uses 15 U.S.C. § 77p(b)’s preclusion provision to direct 77v(a)’s jurisdictional provision when preclusion and jurisdiction are entirely distinct concepts.

Beaver counters that SLUSA’s text and structure plainly allow state courts to hear Securities Act covered class actions. Beaver contends that the SLUSA § 77(v)(a) amendments clearly excluded cases involving state and federal law that violated § 77p from state jurisdiction and subjected them to removal to federal courts. Beaver asserts, however, that Congress did not intend to except all Securities Act covered class actions from state courts’ jurisdiction. Beaver maintains that if Congress wanted to except all Securities Act covered class actions from state jurisdiction in §77v(a) by solely using § 77p’s definition instead of § 77p in its entirety, Congress would have used a familiar phrase such as “as defined in” instead of “as provided in.” Specifically, Beaver argues that Congress would have cited the provision that defines covered class actions, 15 U.S.C. § 77p(f)(2), or would have given federal courts exclusive jurisdiction. . Beaver contends that in the same paragraph, however, Congress clearly uses “provided” to mean “supplied” in § 77v(a), and Congress usually uses consistent meaning with words that are in the same paragraph of a subsection. Beaver further asserts that no evidence supports Cyan’s interpretation. Beaver claims that when § 77v(a) solely references § 77p when describing exceptions to state jurisdiction, it would be odd to exclude federal-law claims since § 77p only deals with state-law claims. Beaver argues that Cyan lacks authority to assume that Congress cannot have a provision in § 77p to shape § 77v(a)’s jurisdictional provision and notes that laws are often written this way. Beaver maintains that Congress simply used § 77v(a)’s jurisdictional provision to exclude mixed cases involving state-law claims that were precluded by § 77p. Beaver asserts that Cyan would recognize that § 77v(a)’s anti-removal jurisdiction references 15 U.S.C. § 77p(c), and that this provision defines removal jurisdiction by referencing § 77p(b), the preclusion provision. According to Beaver, § 77v(a)’s incorporation of § 77p in its entirety is logically similar to § 77p(c)’s reference to § 77p(b).

Appearing at the request of the Supreme Court, the United States maintains that state courts have jurisdiction to hear Securities Act covered class action claims. The United States contends that § 77p should be read in its entirety, not just its definition of covered class actions, and that § 77p places no limitation on state courts hearing class actions alleging only federal-law claims. Also, the United States asserts that Cyan’s interpretation would lead to the incorrect conclusion that all Securities Act covered class action claims, even those involving non-covered securities and those that do not allege a material misstatement, omission of a material fact, or employment of a deceptive device regarding the purchase or sale of a covered security under § 77p(b), would be outside state jurisdiction.

DOES CONCURRENT JURISDICTION SERVE SLUSA’S PURPOSE AND HISTORY?

Cyan contends that SLUSA’s legislative history shows that Congress enacted SLUSA to exclude all Securities Act class actions from state courts’ jurisdiction. Cyan argues that Congress enacted SLUSA for three reasons: first, to effectuate the goals of the Private Securities Litigation Act of 1995 (“PSLRA”)—namely to stop litigation that was “draining value from the shareholders and employees of public companies.” According to Cyan, the PSLRA’s stringent requirements led many plaintiffs to file frivolous lawsuits in state court, and SLUSA was enacted to prevent plaintiffs from avoiding the PLSRA by limiting state’s concurrent jurisdiction over Securities Act covered-class-actions claims. Second, Cyan maintains that Congress enacted SLUSA to stem the influx of securities class actions brought in state courts. The third reason for SLUSA’s enactment, Cyan argues, was Congress’s desire for uniform standards for securities litigation. Cyan asserts that the federal interest is prominent in cases involving “nationally traded securities,” and thus Congress did not want disparate treatment among state courts regarding Securities Act claims. Cyan points out that SLUSA covers all covered class actions, including non-covered securities, but that this is not anomalous given that the Securities Exchange Act of 1934 made all Securities Exchange Act claims within the federal courts’ exclusive jurisdiction and the PSLRA’s protections apply to all Securities Act class actions, not just those involving covered securities. Cyan also maintains that SLUSA should be interpreted as excluding all Securities Act claims from state jurisdiction as this favors administrative simplicity, avoiding complex jurisdictional tests that lead to wasted time and money in litigation.

Beaver argues that Congress designed SLUSA to respect the jurisdiction of state courts and to address plaintiffs’ dodging of the PSLRA by bringing nationally traded-security claims under state law, but not removing all class action litigation to federal court. Beaver asserts that the SLUSA amendments in § 77v(a) were meant to conform to § 77p, limiting state court jurisdiction only to § 77p limitations. Beaver maintains that state courts had been hearing Securities Act cases for sixty years, as sanctioned by § 77v(a), and that the PLSRA modified federal and state courts’ handling of Securities Act cases and tightened procedures in the Securities Act itself. However, Beaver contends, the PSLRA was never intended to change state courts’ concurrent jurisdiction of Securities Act claims through procedural modifications in the same manner that was done with federal courts. One reason, Beaver claims, is because there is no evidence to indicate that Congress believed state courts were improperly adjudicating Securities Act claims or that the PSLRA encouraged more Securities Act class actions to be filed in state court. As a result, SLUSA’s purpose, according to Beaver, was only to prevent plaintiffs from bringing mixed Securities Act covered class actions rather than to remove all Securities Act covered class actions from state-court jurisdiction. Also, Beaver asserts that there is no evidence supporting the argument that SLUSA was enacted to address “uncovered” securities brought under a class action as Cyan asserts; rather, it addresses only covered securities under state law.

The United States argues that Securities Act class actions alleging conduct described in § 77p(b)(1) or § 77p(b)(2) are removable to federal courts. Considering the legislative history, the United States contends that before SLUSA enacted § 77p(c), § 77v(a) disallowed all Securities Act class action claims that were brought in state court from being removed to federal court. The United States maintains that this changed with the SLUSA amendments. The United States asserts that under § 77p(c), Congress allows any Securities Act covered class action claim—federal or state—that alleges either § 77p(b)(1) or § 77p(b)(2) to be removable to federal courts.