Supreme Court to Consider Whether Class Actions Under The Securities Act Of 1933 May Be Brought In State Courts

The Supreme Court announced last week that it will take up the question of whether state courts have subject matter jurisdiction over class actions under the Securities Act of 1933 (the Securities Act). 

Cyan, Inc. v. Beaver Cty. Employees Ret. Fund, --- S. Ct. ---- No. 15-1439, 2017 WL 2742854, at *1 (June 27, 2017). The first cases to adopt the view that the Securities Litigation Uniform Standards Act of 1998 (SLUSA) divested state courts of jurisdiction over class actions that allege only Securities Act claims were litigated by Cleary Gottlieb over a decade ago. See Rovner v. Vonage Holdings Corp., No. CIV.A. 07-178 (FLW), 2007 WL 446658 (D.N.J. Feb. 7, 2007); Rubin v. Pixelplus Co., No. 06-CV-2964 (ERK), 2007 WL 778485 (E.D.N.Y. Mar. 13, 2007). Over the past two decades, however, federal district courts have been divided over whether SLUSA prohibits federal Securities Act class actions from being brought in state courts. Because state courts do not apply the strict requirements of the Private Securities Litigation Reform Act of 1995 (PSLRA) that are applied in federal court, the divide has resulted in an “inconsistent patch-work of decisions [that] fundamentally undermines the goals animating the PSLRA and SLUSA: consistent federal adjudication of class actions asserting claims arising under federal securities laws.” Mitchell A. Lowenthal et al., infra, 17 U. PENN. J. BUS. L. at 745. Further, due to procedural limitations on review of district courts’ decisions to remand a matter to state court, no federal appeals court has addressed the question. The Supreme Court’s decision is thus expected to bring much-needed clarity to this major question of statutory interpretation.