Case No. 15-1439 | Cal. Ct. App. Opinion
In 2013, Cyan filed an IPO and began trading stock on the New York Stock Exchange. The results were grim and shareholders sued in Superior Court as a class alleging violations of the Securities Act of 1933 (“’33 Act”), but not alleging any state-law claims.
In two acts, Congress attempted to curb abusive class-action litigation based on securities violations. First, in 1995, Congress enacted the Private Securities Litigation Reform Act (“PSLRA”), which amended federal securities laws to impose new class requirements like fee limitations, selection criteria for lead plaintiffs, and automatic stays of discovery pending any motion to dismiss. Second, in response to classes running to state courts, Congress enacted the Securities Litigation Uniform Standards Act (“SLUSA”), which amended the 33 Act and put limits on state court subject matter jurisdiction. Specifically, the Act allows concurrent state claims to continue except as provided by Section 16, which precludes covered class actions (any damages actions on behalf of more than 50 people) alleging state-law securities claims and permits the action to be removed and dismissed in federal court. Now, parties are asking the Court to clarify whether jurisdictional provisions in the SLUSA bar state courts from hearing mixed class and federal class actions or only mixed class actions.
These two statutes have created much confusion in federal district courts. Cyan’s petition for certiorari notes that “39 [federal district court decisions hold] that state courts have subject matter jurisdiction and 10 [hold] that state courts lack subject matter jurisdiction.”
The Court is now charged with interpreting the statutes. The shareholders argue that it would be too broad of an interpretation to say that the statute bars state courts from hearing all Section 16 covered actions. Cyan argues that Congress had a clear intention to curb class actions, and if the statute is only interpreted as barring mixed actions then it doesn’t live up to its congressional purpose. Whatever the Court decides, it will hopefully help cure the “chaos” in federal district court.