Tuesday, July 05, 2016

'33 Act class actions belong in federal court, say SIFMA, Chamber

By Anne Sherry, J.D.

SIFMA, the Chamber of Commerce, and the National Venture Capital Association are urging the Supreme Court to decide whether states retain concurrent jurisdiction over Securities Act class actions. California state courts are now a "magnet" for '33 Act class actions following the 2011 Countrywide decision, the groups argue in an amicus brief. This shift to state courts "is exactly what Congress sought to prevent when it enacted SLUSA" (Cyan, Inc. v. Beaver County Employees Retirement Fund, June 27, 2016).

Cyan, Inc. petitioned the Supreme Court for a writ of certiorari last month after a California trial court held that it has jurisdiction over a class action against Cyan. (Cyan also exhausted its state-court appeals.) The action, which involves weaker-than-expected results following the company's IPO, alleges only federal claims under the Securities Act. The trial court explained that it is bound by Luther v. Countrywide Financial Corp. (Cal. App. 2011), which held that the Securities Litigation Uniform Standards Act continued, rather than withdrew, state-court jurisdiction over covered class actions.

Amicus support. The industry groups support Cyan's effort to get the case in front of the High Court. The case squarely presents the question of whether state courts have jurisdiction over Securities Act covered class actions, a purely legal and fully dispositive issue. This is a rare opportunity to decide an important federal question, amici argue, because when the issue has been addressed in federal district court, procedural or practical roadblocks have prevented appeal.

In the groups' view, the California decision conflicts with the plain language and purpose of SLUSA. The court read a jurisdictional amendment's exception to concurrent jurisdiction as excepting only state law claims precluded and removable under two Securities Act provisions—but the cited provisions already have that effect. The court's statutory interpretation is erroneous because it would render the exception superfluous.

Countrywide, if left unchecked, will harm capital markets, amici continue. They note that 38 Securities Act class actions have been filed in California state courts since the decision, and nearly all of these have named underwriters as defendants. Prior to Countrywide but after SLUSA, only six such class actions were filed in 12 years. The groups cite the uncertainty about which jurisdiction governs market conduct as a major contributing factor to corporations' taking their business overseas. The amicus brief suggests that state courts are less likely to dismiss class actions and that discovery in state court drives up litigation expenses. Under the Countrywide decision, nothing stops plaintiffs from pursuing parallel class actions in state and federal court—and the costs of duplicate defenses are borne by the marketplace.

The case is No. 15-1439.

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