Securities Litigation

In Cyan, Inc. v. Beaver County Employees Retirement Fund, the Supreme Court resolved two critical issues for class action claims brought under the Securities Act of 1933 (1933 Act). First, the Supreme Court held that state courts retain jurisdiction to adjudicate class actions brought under the 1933 Act. Second, the Supreme Court held that defendants may not remove class actions alleging only 1933 Act claims.

Cyan has its origin in an initial public offering. Cyan, a telecommunications company, and its officers and directors (the Petitioners), offered and sold shares of Cyan stock. Three pension funds and an individual (the Respondents) purchased shares and later brought suit under the 1933 Act, alleging that Cyan's offering documents contained material misstatements. The Petitioners moved to dismiss the suit for lack of subject matter jurisdiction, arguing that the Securities Litigation Uniform Standards Act of 1998 (SLUSA) stripped state courts of the power to adjudicate 1933 Act claims in "covered class actions." The trial court denied the Petitioners' motion to dismiss, and appellate California courts denied review of the trial court.

The Petitioners petitioned for certiorari, and the Supreme Court granted that petition. In a brief as amicus curiae, the Federal Government further argued that SLUSA enabled defendants to remove 1933 Act class actions.

In a unanimous opinion, the Supreme Court affirmed the trial court and rejected both the Petitioners' argument and the Government's argument. Specifically, the Court held: (1) SLUSA did not strip state courts of jurisdiction over class actions alleging only violations of the 1933 Act, and (2) SLUSA did not empower defendants to remove those class actions from state to federal court. In both holdings, the Supreme Court adopted a straightforward reading of SLUSA, rejecting arguments based on convoluted readings and history. And in so doing, the Court clarified splits between state courts and federal courts concerning jurisdiction and any ambiguity as to removability of 1933 Act claims.