Last week, the unanimous Supreme Court in Cyan, Inc. v. Beaver County Employees Retirement Fund, No. 15-1439, 2018 WL 1384564 (U.S. Mar. 20, 2018) held that state courts have subject matter jurisdiction over class actions alleging claims under the Securities Act of 1933 (the “Securities Act”) and that such actions may not be removed from state to federal court.
Cyan resolves a dispute among state and federal courts regarding whether the Securities Litigation Uniform Standards Act of 1998 (“SLUSA”) divested state courts of jurisdiction over these actions.
The Supreme Court based its holding on a strict textual reading of SLUSA, concluding that Congress did not clearly express a desire to strip state courts of their historical jurisdiction over Securities Act claims. Cyan subjects defendants to increased uncertainty in Securities Act class actions, raising the specter of duplicative litigation in state and federal courts, as well as potentially weakening the procedural protections of the Private Securities Litigation Reform Act of 1995 (“PSLRA”), some of which may not be available in state courts. The decision contains an express invitation to Congress to close this loophole and may prompt additional companies to consider adopting forum selection by-laws.