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(Article from Securities Law Alert, July 2017) 

For more information, please visit the Securities Law Alert Resource Center

On June 27, 2017, the Supreme Court granted certiorari in Cyan v. Beaver County Employees Retirement Fund (No. 15-1439) to consider whether the Securities Litigation Uniform Standards Act of 1998 (“SLUSA”) eliminated state court jurisdiction over covered class actions alleging only claims under the Securities Act of 1933.

After the Private Securities Litigation Reform Act of 1995 imposed heightened pleading requirements for federal securities fraud class actions, plaintiffs began filing securities fraud class actions in state courts asserting violations of state law. Congress responded by enacting SLUSA, which provides that “[n]o 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” securities fraud. 15 U.S.C. § 77p(b). SLUSA further provides that “[a]ny covered class action brought in any State court involving a covered security, as set forth in subsection (b), shall be removable to Federal district court.” 15 U.S.C. § 77p(c). 

Prior to SLUSA’s enactment, federal and state courts had concurrent jurisdiction over actions asserting claims under the Securities Act of 1933 pursuant to 15 U.S.C. § 77v(a). SLUSA amended Section 77v(a) to add the italicized language: “The district courts of the United States . . . shall have jurisdiction . . . concurrent with State and Territorial courts, except as provided in [S]ection 77p of this title with respect to covered class actions.” SLUSA also amended Section 77v(a)’s removal bar as follows: “Except as provided in [S]ection 77p(c) of this title, no case arising under” the Securities Act of 1933 “shall be removed to any court of the United States.”

Courts have differed on the meaning of the reference to Section 77p in Section 77v(a)’s concurrent jurisdictional provision. In Luther v. Countrywide Financial Corp., 125 Cal. Rptr. 3d 716 (Cal. Ct. App. 2011), the California Court of Appeal rejected defendants’ contention that Section 77v(a) precludes concurrent jurisdiction over all “covered class actions” as defined in Section 77p(f)(2). The California Court of Appeal reasoned that Section 77v(a) does not refer to Section 77p(f)(2) but instead “refers to [S]ection 77p without limitation.” Section 77p addresses “covered class actions” asserting state law claims. The California Court of Appeal concluded that even as amended by SLUSA, Section 77v(a) provides state courts with concurrent jurisdiction over class actions asserting only claims under the Securities Act.

Most district courts in the First, Seventh, Ninth and Eleventh Circuits have remanded class actions alleging only Securities Act claims.[1] However, district courts in the Second, Third, Fourth, Fifth, and Tenth Circuits have largely denied remand on the grounds that federal courts have exclusive jurisdiction over such actions.  

In Cyan, the Court granted certiorari to address the question of whether Section 77v(a) provides state courts with concurrent jurisdiction over “covered class actions” (as defined in Section 77p(f)(2)) that allege only Securities Act claims.