Recent years have seen significant growth in Securities Act of 1933 ("1933 Act") class actions filed in California state courts, based on conflicting readings of the jurisdictional provisions of the Securities Litigation Uniform Standards Act ("SLUSA"). SLUSA was designed, among other things, to prevent certain state private securities class action lawsuits alleging fraud from being used to frustrate the objectives of the Private Securities Litigation Reform Act of 1995 ("PSLRA"). However, the jurisdictional provisions of SLUSA proved to be vague and unclear, resulting in a circuit split. Some courts had found that SLUSA covered class actions filed in state court alleging only 1933 Act claims must be heard in federal courts. In Cyan, Inc. v. Beaver County Employees Retirement Fund, the Supreme Court unanimously held that state courts have jurisdiction over class actions that allege federal violations under the 1933 Act and defendants are not permitted to remove such actions from state court to federal court for lack of subject matter jurisdiction. In Cyan, the Court was charged with interpreting the jurisdictional provisions of the SLUSA to determine the jurisdictions of such claims. Justice Kagan concluded: "SLUSA's text, read most straightforwardly, leaves in place state courts' jurisdiction over 1933 Act claims, including when brought in class actions." Thus, the Court determined SLUSA did not strip state courts of jurisdiction over class actions alleging violations under the 1933 Act. Furthermore, the court concluded that SLUSA did not empower defendants to remove such actions from state to federal court. State courts will continue to exercise concurrent jurisdiction over class actions that allege federal violations under the 1933 Act. The Supreme Court cured a circuit split and the decision may lead to more securities class actions alleging 1933 Act violations to be brought in state courts.
Originally published May 4, 2018
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