Friday, May 26, 2017

Acting SG urges justices to hear SLUSA case, provide uniformity

By Mark S. Nelson, J.D.

The Acting U.S. Solicitor General has asked the Supreme Court to take a case raising the question of whether a state court may hear a case that is a covered class action but raises only claims brought under the Securities Act. The justices invited the government to present its views on the Securities Litigation Uniform Standards Act of 1998, which sought to clarify jurisdictional issues left open following enactment of the Private Securities Litigation Reform Act of 1995. According to the government, a decision by the justices could bring uniformity to a muddled aspect of securities litigation (Cyan, Inc. v. Beaver County Employees Retirement Fund, May 23, 2017).

What does “except” mean? The underlying case involved a law suit filed in state court over disclosures made in registration statements and prospectuses and involved only claims under the Securities Act without any state law claims. The defendant below (petitioner in the Supreme Court), Cyan, Inc., lost its bid for judgment on the pleadings in the California Superior Court based on that court’s reading of a California appellate court opinion that previously held that concurrent jurisdiction in cases like this one still exists post-SLUSA. The California Court of Appeal denied Cyan’s petition for writ of mandate, and the state’s supreme court denied Cyan’s petition for review.

Securities Act Sections 16 and 22 work in tandem, albeit in a complex manner, to close a post-PSLRA loophole that many feared could lead to abusive litigation, although the specific question presented in Cyan’s petition to the Supreme Court remains unsettled:
Whether state courts lack subject matter jurisdiction over "covered class actions" . . . that allege only claims under the Securities Act of 1933.
The government characterized Cyan’s argument as going too far by asserting that Section 22’s “except” clause refers to Section 16’s definition of “covered class action.” Likewise, the government found fault in the respondent’s explanation, which was lacking in detail, but nevertheless offered an interpretation that would impose a bar only on state-law actions.

According to the government, the respondent’s view is better because Cyan’s view is out of synch with the words Congress used in the law. The government suggested that Congress may have drafted the “except” clause to deal with hybrid class actions or to ensure that general jurisdictional provisions in the Securities Act could not be used to undermine SLUSA.

Obstacles to cert grant? Despite the government’s urging the court to take the case, there may be formidable hurdles to a certiorari grant. The government, for example, relies heavily on Supreme Court Rule 10(c), which explains that the court may grant certiorari when a state or federal court decides an important federal law question that the justices ought to resolve but, for a multitude of reasons, have not done so.

The government concedes there is no split of authority among federal appeals courts (although one case is pending in the Ninth Circuit), nor is there a split among the states’ highest courts. But the government does note a split among federal district courts, especially between district courts in New York and California.

But there also is “some uncertainty” about whether the California court in Cyan’s case disposed of the company’s petition on federal or on adequate and independent state grounds. Still, the government emphasized that the practical realities of SLUSA litigation reduce the chances that lower courts will produce reviewable decisions and Cyan’s case offers the justices an opportunity to clarify Securities Act jurisdiction.

The case is No. 15-1439.