SCOTUS: State Courts Can Keep Federal Securities Class Actions

Companies lose SLUSA removal maneuver in unanimous decision

More companies might be stuck defending federal securities claims in state courts following a new decision by the U.S. Supreme Court.

Justice Elena Kagan delivered a unanimous decision from the Supreme Court March 20, ruling that an amendment to the Securities Act of 1933 doesn’t bar state courts from handling class actions under the act, nor does it enable their removal to federal court. Companies can no longer use the Securities Litigation Uniform Standards Act to bump certain securities actions from less advantageous state venues. As a result, the SLUSA ruling in Cyan, Inc. v Beaver County Employees Retirement Fund might encourage more plaintiffs to file 1933 Act class actions in state courts without the fear their suits will be removed to federal court.

After the stock market crash of 1929, Congress passed the Securities Act of 1933 to give investors a private right of action to sue issuers over fraudulent practices in their initial public offerings. Congress also enacted the Securities Act of 1934, which regulates not IPOs but subsequent trading activity. Another key difference between the two statutes is that only federal courts can hear 1934 actions, but both state and federal courts can adjudicate 1933 actions.

Both statutes would get a major amendment with the Private Securities Litigation Reform Act in 1995, which raised the bar on pleading standards and pre-discovery evidence requirements as a means of curbing frivolous class actions. Some of the reforms applied to both state and federal courts, but most were limited to federal.

To read this story and other complete articles featured in the April 2, 2017 print edition of Law Week Colorado, copies are available for purchase online