On November 28, 2017, the Supreme Court heard argument in Cyan, Inc. v. Beaver County Employees Retirement Fund, a case involving a dispute over the concurrent jurisdiction of federal and state courts regarding class-action lawsuits that allege securities law violations.
In 1995, Congress enacted the Private Securities and Litigation Reform Act (PSLRA) to address various abuses then taking place with respect to securities litigation. When plaintiffs then proceeded to file securities actions in state rather than federal courts in an effort to avoid PSLRA restrictions, Congress enacted the Securities Litigation Uniform Standards Act of 1998 (SLUSA), to “prevent certain State private securities class action lawsuits alleging fraud from being used to frustrate the objectives of the [PSLRA].” Among other things, SLUSA amended the concurrent jurisdiction of federal and state courts over enforcement suits under the 1933 Securities Act to except “covered class actions,” which were otherwise provided for in Section 77p(c) of the Act. That section precludes covered class actions alleging state-law securities claims and permits precluded actions to be removed to and dismissed in federal court.
In 2014, Beaver County Employees Retirement Fund brought a “covered class action” against Cyan, Inc. in California Superior Court, alleging violations of the 1933 Securities Act’s disclosure requirements. The Fund alleged no state law claims, only the federal Securities Act violations. Arguing that the state courts lacked subject matter jurisdiction over the federal claims in the wake of SLUSA, Cyan sought judgment on the pleadings. The Superior Court denied relief, following precedent from the California Court of Appeal (Second District) indicating that “concurrent jurisdiction of a covered class action alleging only claims under the 1933 Act ‘survived the amendments’ that SLUSA had made to that statute.” The California Court of Appeal (First District) affirmed the Superior Court, and the Supreme Court of California denied further review.
The U.S. Supreme Court then granted certiorari to resolve whether state courts lack subject matter jurisdiction over “covered class actions” that allege only claims under the Securities Act of 1933.
To discuss the case, we have Thaya Brook Knight, Associate Director of Financial Regulation Studies at the Cato Institute.