__ U.S. __, 15-1439, Cyan, Inc. v. Beaver County Employees Retirement Fund

Docket Nº:15-1439
Citation:__ U.S. __, 138 S.Ct. 1061, 200 L.Ed.2d 332, 86 U.S.L.W. 4131, 27 Fla.L.Weekly Fed. S 121
Opinion Judge:KAGAN, Justice.
Party Name:CYAN, INC., et al., Petitioners v. BEAVER COUNTY EMPLOYEES RETIREMENT FUND, et al.
Attorney:Neal K. Katyal, Washington, DC, for Petitioners. Allon Kedem, for the United States as amicus curiae, by special leave of the Court, in support of affirmance. Thomas C. Goldstein, Bethesda, MD, for Respondents. Boris Feldman, Ignacio E. Salceda, Gideon A. Schor, Aaron J. Benjamin, Wilson Sonsini ...
Case Date:March 20, 2018
Court:United States Supreme Court

The Securities Act of 1933 creates private rights of action pertaining to securities offerings, grants both federal and state courts jurisdiction over those suits, and bars their removal from state to federal court. The 1995 Private Securities Litigation Reform Act includes substantive reforms, applicable in all courts, and procedural reforms, applicable only in federal court. To avoid the new obstacles, plaintiffs began... (see full summary)


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138 S.Ct. 1061, 200 L.Ed.2d 332, 86 U.S.L.W. 4131, 27 Fla.L.Weekly Fed. S 121

CYAN, INC., et al., Petitioners



No. 15-1439

United States Supreme Court

March 20, 2018

Argued Nov. 28, 2017.

[138 S.Ct. 1062] Syllabus [*]

In the wake of the 1929 stock market crash, Congress enacted two laws, in successive years, to promote honest practices in the securities markets. The Securities Act of 1933 (1933 Act) creates private rights of action to aid the enforcement of obligations pertaining to securities offerings. The Act authorizes both federal and state courts to exercise jurisdiction over those private suits and, more unusually, bars the removal of such suits from state to federal court. The Securities Exchange Act of 1934 (1934 Act), which regulates not the original issuance of securities but all their subsequent trading, is also enforceable through private rights of action. But all suits brought under the 1934 Act fall within the exclusive jurisdiction of the federal courts.

In 1995, the Private Securities Litigation Reform Act (Reform Act) amended both Acts, in order to stem perceived abuses of the class-action vehicle in securities litigation. The Reform Act included both substantive reforms, applicable in state and federal court alike, and procedural reforms, applicable only in federal court. Rather than face these new obstacles, plaintiffs began filing securities class actions under state law.

[138 S.Ct. 1063] To prevent this end run around the Reform Act, Congress passed the Securities Litigation Uniform Standards Act of 1998 (SLUSA), whose amendments to the 1933 Act are at issue in this case. As relevant here, those amendments include two operative provisions, two associated definitions, and two " conforming amendments."

First, 15 U.S.C. § 77p(b) completely disallows (in both state and federal courts) " covered class actions" alleging dishonest practices " in connection with the purchase or sale of a covered security." According to SLUSA’s definitions, the term " covered class action" means a class action in which " damages are sought on behalf of more than 50 persons." § 77p(f)(2). And the term " covered security" refers to a security listed on a national stock exchange. § 77p(f)(3). Next, § 77p(c) provides for the removal of certain class actions to federal court, where they are subject to dismissal. Finally, SLUSA’s " conforming amendments" add two new phrases to § 77v(a), the 1933 Act’s jurisdictional provision. The first creates an exception to § 77v(a)’s general removal bar through the language " [e]xcept as provided in section 77p(c)." The other— the key provision in this case— expresses a caveat to the general rule that state and federal courts have concurrent jurisdiction over all claims to enforce the 1933 Act. With this conforming amendment, § 77v(a) now provides that state and federal courts shall have concurrent jurisdiction, " except as provided in section 77p ... with respect to covered class actions." The Court refers to this provision as the " except clause."

Respondents, three pension funds and an individual (Investors), purchased shares of stock in petitioner Cyan, Inc., in an initial public offering. After the stock declined in value, the Investors brought a damages class action against Cyan in state court, alleging 1933 Act violations. They did not assert any claims based on state law. Cyan moved to dismiss for lack of subject matter jurisdiction, arguing that SLUSA’s " except clause" stripped state courts of power to adjudicate 1933 Act claims in " covered class actions." The Investors maintained that SLUSA left intact state courts’ jurisdiction over all suits— including " covered class actions" — alleging only 1933 Act claims. The state courts agreed with the Investors and denied Cyan’s motion to dismiss. This Court granted certiorari to decide whether SLUSA deprived state courts of jurisdiction over " covered class actions" asserting only 1933 Act claims. The Court also addresses a related question raised by the federal Government as amicus curiae and addressed by the parties in briefing and argument: whether SLUSA enabled defendants to remove 1933 Act class actions from state to federal court for adjudication.



1. SLUSA did nothing to strip state courts of their longstanding jurisdiction to adjudicate class actions brought under the 1933 Act. Pp. 1069 - 1075.

(a) SLUSA’s text, read most straightforwardly, leaves this jurisdiction intact. The background rule of § 77v(a)— in place since the 1933 Act’s passage— gives state courts concurrent jurisdiction over all suits " brought to enforce any liability or duty created by" that statute. And the except clause— " except as provided in section 77p of this title with respect to covered class actions" — ensures that in any case in which § 77v(a) and § 77p conflict, § 77p will control. The critical question for this case is therefore whether § 77p limits state-court jurisdiction over class actions brought under the 1933 Act. It does not. Section 77p bars certain securities class actions based on state law but it says [138 S.Ct. 1064] nothing, and so does nothing, to deprive state courts of jurisdiction over class actions based on federal law. That means § 77v(a)’s background rule— under which a state court may hear the Investors’ 1933 Act suit— continues to govern.

Cyan argues that the except clause’s reference to " covered class actions" points the reader to § 77p(f)(2), which defines that term to mean a suit seeking damages on behalf of more than fifty persons— without mentioning anything about whether the suit is based on state or federal law. But that view cannot be squared with the except clause’s wording for two independent reasons. First, the except clause points to " section 77p" as a whole— not to paragraph 77p(f)(2). Had Congress intended to refer to § 77p(f)(2)’s definition alone, it presumably would have done so. See NLRB v. S.W. General, Inc., 580 U.S. __, __, 137 S.Ct. 929, 197 L.Ed.2d 263. Second, a definition, like § 77p(f)(2), does not " provide[ ]" an " except[ion]," but instead gives meaning to a term— and Congress well knows the difference between those two functions. Not one of the 30-plus provisions in the 1933 and 1934 Acts using the phrase " except as provided in ..." cross-references a definition.

Structure and context also support the Court’s reading of the except clause. Because Cyan treats the broad definition of " covered class action" as altering § 77v(a)’s jurisdictional grant, its construction would prevent state courts from deciding any 1933 Act class suits seeking damages for more than fifty plaintiffs, thus stripping state courts of jurisdiction over suits about securities raising no particular national interest. That result is out of line with SLUSA’s overall scope. Moreover, it is highly unlikely that Congress upended the 65-year practice of state courts’ adjudicating all manner of 1933 Act cases (including class actions) by way of a mere conforming amendment. See Director of Revenue of Mo. v. CoBank ACB, 531 U.S. 316, 324, 121 S.Ct. 941, 148 L.Ed.2d 830. Pp. 1069 - 1072.

(b) Cyan’s reliance on legislative purpose and history is unavailing. Pp. 1071 - 1075.

(1) Cyan insists that the only way for SLUSA to serve the Reform Act’s objectives was by divesting state courts of jurisdiction over all sizable 1933 Act class actions. Specifically, it claims that its reading is necessary to prevent plaintiffs from circumventing the Reform Act’s procedural measures, which apply only in federal court, by bringing 1933 Act class actions in state court.

But Cyan ignores a different way in which SLUSA served the Reform Act’s objectives— which the Court’s view of the statute fully effects. The Reform Act included substantive sections protecting defendants in suits brought under the federal securities laws. Plaintiffs circumvented those provisions by bringing their complaints of securities misconduct under state law instead. Hence emerged SLUSA’s bar on state-law class actions (and its removal provision to ensure their dismissal)— which guaranteed that the Reform Act’s heightened substantive standards would govern all future securities class litigation. SLUSA’s preamble states that the statute is designed " to limit the conduct of securities class actions under state law, and for other purposes," 112 Stat. 3227, and this Court has underscored, over and over, SLUSA’s " purpose to preclude certain vexing state-law class actions." Kircher v. Putnam Funds Trust, 547 U.S. 633, 645, n. 12, 126 S.Ct. 2145, 165 L.Ed.2d 92. That object— which SLUSAs text actually reflects— does not depend on stripping state courts of jurisdiction over 1933 Act class suits, as Cyan proposes. For wherever those suits go forward, the Reform [138 S.Ct. 1065] Act...

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