Cyan, Inc. v. Beaver Cnty. Emps. Ret. Fund

• Decision Date: 20 March 2018
• Docket Number: No. 15–1439.,15–1439.
• Citation: 138 S.Ct. 1061,200 L.Ed.2d 332
• Parties: CYAN, INC., et al., Petitioners v. BEAVER COUNTY EMPLOYEES RETIREMENT FUND, et al.
• Court: U.S. Supreme Court

138 S.Ct. 1061

200 L.Ed.2d 332

CYAN, INC., et al., Petitioners

v.BEAVER COUNTY EMPLOYEES RETIREMENT FUND, et al.

No. 15–1439.

Supreme Court of the United States

Argued Nov. 28, 2017.

Decided March 20, 2018.

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 Goodrich, & Rosati Professional, Corporation, Palo Alto, CA, Neal Kumar Katyal, Mitchell P. Reich, Frederick Liu, Daniel J.T. Schuker, Allison K. Turbiville, Hogan Lovells US LLP, Washington, DC, Thomas P. Schmidt, Hogan Lovells US LLP, New York, NY, for Petitioners.

Andrew S. Love, John K. Grant, Robbins Geller Rudman & Dowd LLP, San Francisco, CA, Thomas C. Goldstein, Tejinder Singh, Goldstein & Russell, P.C., Bethesda, MD, Robert V. Prongay, Ex Kano S. Sams II, Glancy Prongay & Murray LLP, for Respondents.

Justice KAGAN delivered the opinion of the Court.

This case presents two questions about the Securities Litigation Uniform Standards Act of 1998 (SLUSA), 112 Stat. 3227. First, did SLUSA strip state courts of jurisdiction over class actions alleging violations of only the Securities Act of 1933 (1933 Act), 48 Stat. 74, as amended, 15 U.S.C. § 77a et seq. ? And second, even if not, did SLUSA empower defendants to remove such actions from state to federal court? We answer both questions no.

I

A

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 1933 Act required companies offering securities to the public to make "full and fair disclosure" of relevant information. Pinter v. Dahl, 486 U.S. 622, 646, 108 S.Ct. 2063, 100 L.Ed.2d 658 (1988). And to aid enforcement of those obligations, the statute created private rights of action. Congress authorized both federal and state courts to exercise jurisdiction over those private suits. See § 22(a), 48 Stat. 86 ("The district courts of the United States ... shall have jurisdiction[,] concurrent with State and Territorial courts, of all suits in equity and actions at law brought to enforce any liability or duty created by this title"). More unusually, Congress also barred the removal of such actions from state to federal court. Id., at 87 ("No case arising under this title and brought in any State court of competent jurisdiction shall be removed to any court of the United States"). So if a plaintiff chose to bring a 1933 Act suit in state court, the defendant could not change the forum.

Congress's next foray, the Securities Exchange Act of 1934 (1934 Act), operated differently. See 48 Stat. 881, as amended, 15 U.S.C. § 78a et seq. That statute regulated not the original issuance of securities but instead all their subsequent trading, most commonly on national stock exchanges. See Blue Chip Stamps v. Manor Drug Stores, 421 U.S. 723, 752, 95 S.Ct. 1917, 44 L.Ed.2d 539 (1975). The 1934 Act, this Court held, could also be enforced through private rights of action. See id., at 730, and n. 4, 95 S.Ct. 1917. But Congress determined that all those suits should fall within the "exclusive jurisdiction" of the federal courts. § 27, 48 Stat. 902–903. So a plaintiff could never go to state court to litigate a 1934 Act claim.

In 1995, the Private Securities Litigation Reform Act (Reform Act), 109 Stat. 737, amended both the 1933 and the 1934 statutes in mostly identical ways. Congress passed the Reform Act principally to stem "perceived abuses of the class-action vehicle in litigation involving nationally traded securities." Merrill Lynch, Pierce, Fenner & Smith Inc. v. Dabit, 547 U.S. 71, 81, 126 S.Ct. 1503, 164 L.Ed.2d 179 (2006). Some of the Reform Act's provisions made substantive changes to the 1933 and 1934 laws, and applied even when a 1933 Act suit was brought in state court. For instance, the statute created a "safe harbor" from federal liability for certain "forward-looking statements" made by company officials. 15 U.S.C. § 77z–2 (1933 Act); § 78u–5 (1934 Act). Other Reform Act provisions modified the procedures used in litigating securities actions, and applied only when such a suit was brought in federal court. To take one example, the statute required a lead plaintiff in any class action brought under the Federal Rules of Civil Procedure to file a sworn certification stating, among other things, that he had not purchased the relevant security "at the direction of plaintiff's counsel." § 77z–1(a)(2)(A)(ii) (1933 Act); § 78u–4(a)(2)(A)(ii) (1934 Act).

But the Reform Act fell prey to the law of "unintended consequence[s]." Dabit, 547 U.S., at 82, 126 S.Ct. 1503. As this Court previously described the problem: "Rather than face the obstacles set in their path by the Reform Act, plaintiffs and their representatives began bringing class actions under state law." Ibid. That "phenomenon was a novel one"—and an unwelcome one as well. Ibid. To prevent plaintiffs from circumventing the Reform Act, Congress again undertook to modify both securities laws.

The result was SLUSA, whose amendments to the 1933 Act are at issue in this case. Those amendments include, as relevant here, two operative provisions, two associated definitions, and two "conforming amendments" to the 1933 law's jurisdictional section. 112 Stat. 3230. (SLUSA's amendments to the 1934 Act include essentially the same operative provisions and definitions. See Dabit, 547 U.S., at 82, n. 6, 126 S.Ct. 1503. But Congress decided that the 1934 law's exclusive jurisdiction provision needed no conforming amendments.) The added material—now found in §§ 77p and 77v(a) and set out in full in this opinion's appendix—goes as follows.

First, § 77p(b) altogether prohibits certain securities class actions based on state law. That provision—which we sometimes (and somewhat prosaically) refer to as the state-law class-action bar—reads:

"No covered class action based upon the statutory or common law of any State ... may be maintained in any State or Federal court by any private party alleging—

"(1) an untrue statement or omission of a material fact in connection with the purchase or sale of a covered security; or

"(2) that the defendant used or employed any manipulative or deceptive device or contrivance 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) (cross-referencing § 77r(b)). So taken all in all, § 77p(b) completely disallows (in both state and federal courts) sizable class actions that are founded on state law and allege dishonest practices respecting a nationally traded security's purchase or sale.

Next, § 77p(c) provides for the removal of certain class actions to federal court, as well as for their subsequent disposition:

"Any covered class action brought in any State court involving a covered security, as set forth in subsection (b) of this section, shall be removable to the Federal district court for the district in which the action is pending, and shall be subject to subsection (b) of this section."

The first chunk of that provision identifies the removable cases, partly by way of a cross-reference ("as set forth in subsection (b)") to the just-described class-action bar. The final clause of the provision ("and shall be subject to subsection (b)") indicates what should happen to a barred class suit after it has been removed: The "proper course is to dismiss" the action. Kircher v. Putnam Funds Trust, 547 U.S. 633, 644, 126 S.Ct. 2145, 165 L.Ed.2d 92 (2006). As this Court has explained, § 77p(c)"avails a defendant of a federal forum in contemplation not of further litigation over the merits of a claim brought in state court, but of termination of the proceedings altogether." Id., at 645, n. 12, 126 S.Ct. 2145. The point of providing that option, everyone here agrees, was to ensure the dismissal of a prohibited state-law class action even when a state court "would not adequately enforce" § 77p(b)'s bar. Brief for United States as Amicus Curiae 3; see Brief for Petitioners 7; Brief for Respondents 20.

Finally, the 1933 Act's jurisdictional provision, codified at § 77v(a), now includes two new phrases framed as exemptions—SLUSA's self-described "conforming amendments." 112 Stat. 3230; see supra, at 1067. The less significant of the pair, for our purposes, reflects the allowance for removing certain class actions described above. Against the backdrop of the 1933 Act's general removal bar, see supra, at 1066, that added (italicized) material reads:

"Except as provided in section 77p(c) of this title, no case arising under this subchapter and brought in any State court of competent jurisdiction shall be removed to any court of the United States."

The more important of the conforming amendments in this case expresses a caveat to the general rule, see supra, at 1066, that state and federal courts have concurrent jurisdiction over all claims to enforce the 1933 Act. As amended (again, with the new material in italics), the relevant sentence now reads:

"The district courts of the United States ... shall have jurisdiction [,] concurrent with State and Territorial courts, except as provided in section 77p of this title with respect to covered class actions, of all suits in equity and actions at law brought to enforce any liability or duty created by this subchapter."

Throughout this opinion, we refer to the italicized words just above as the "except clause." Its meaning is at the heart of the parties' dispute in this Court.

B

The petitioners in this case are Cyan, a telecommunications company, and its officers and directors (together, Cyan). The respondents are three pension funds and an...