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Cyan v. Beaver County Employees Retirement Fund

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Supreme Court of the United States
Cyan v. Beaver County Employees Retirement Fund
Term: 2017
Important Dates
Argument: November 28, 2017
Decided: March 21, 2018
Outcome
California First District Court of Appeal affirmed
Vote
9 - 0
Majority
Elena Kagan • Chief Justice John G. Roberts • Anthony Kennedy • Clarence Thomas • Ruth Bader Ginsburg • Stephen Breyer • Samuel Alito • Sonia Sotomayor • Neil Gorsuch


Cyan v. Beaver County Employees Retirement Fund is a case argued during the October 2017 term of the U.S. Supreme Court. Argument in the case was held on November 28, 2017. The case came on a writ of certiorari to the California First District Court of Appeal.

The issue in this case had caused some confusion in lower courts. In its brief arguing for certiorari, the United States stated "this Court’s review is warranted in light of the substantial confusion in the lower courts about whether state courts have jurisdiction over covered class actions that allege only 1933 Act claims. As the petition explains, some federal district courts, including a number of courts in New York, have ruled that Section 77v(a) ... divests state courts of jurisdiction over covered class actions brought to enforce the 1933 Act. Other district courts, including a number of courts in California, have reached the opposite conclusion. Contrary to respondent’s suggestion, the confusion in the lower courts has not dissipated in recent years."[1] Though the case had not generated a split among federal appeals courts, the U.S. Supreme Court often hears an appeal in order to address differences in interpretation among any federal courts under Rule 10 of the court's rules of procedure.

HIGHLIGHTS
  • The case: In 1998, Congress enacted the Securities Litigation Uniform Standards Act (SLUSA). The law modified the 1933 Securities Act to remove state court jurisdiction over most class action securities lawsuits seeking damages for more than 50 people, which the law defined as a covered class action. In 2014, a covered class action was filed in a California superior court. The petitioner moved to dismiss the lawsuit, arguing that the state court did not have jurisdiction. Citing a binding state appeals court precedent, the judge denied the motion. A California appeals court and the California Supreme Court both denied review of the judge's decision.
  • The issue: Do state courts have jurisdiction over any covered class actions alleging claims solely arising under the 1933 Securities Act?
  • The outcome: The U.S. Supreme Court unanimously affirmed the lower court ruling, holding that state courts retain jurisdiction over 1933 Act claims.[2]


    • In brief: In 1995, after Congress enacted new requirements related to the filing of class-action securities lawsuits, many such suits were filed in state courts in order to avoid the new requirements. In response, Congress passed the Securities Litigation Uniform Standards Act in 1998. The law modified the 1933 Securities Act to remove state court jurisdiction over most class action securities lawsuits seeking damages for more than 50 people, which the law defined as a covered class action. In 2014, the Beaver County Employees Retirement Fund et al. filed a covered class action in a California superior court against Cyan Inc. Cyan's parent company, arguing that the state court did not have jurisdiction, moved to dismiss the lawsuit. The state superior court judge, citing a California appeals court precedent, denied the motion, holding that the state appellate court decision did not mandate dismissal. A California appeals court and the California Supreme Court both denied review of the judge's decision. Argument in the case was held on November 28, 2017.

    You can review the lower court's opinion here.[3]

    Background

    This was a case about whether federal courts have exclusive jurisdiction to adjudicate class actions alleging only claims arising under the Securities Act of 1993, or whether federal and state courts have concurrent jurisdiction over such actions.

    In 1995, Congress enacted the Private Securities Litigation Reform Act (hereafter, PSLRA). According to the United States, the PSLRA was a response to the "concern that the salutary purposes of private securities litigation were being 'undermined by ... abusive and merciless suits.'"[1] The PSLRA put in place a number of new requirements related to class action lawsuits filed under federal securities laws, including heightened pleading standards, new selection criteria for lead plaintiffs in a class action, and an automatic judicial stay of discovery pending a judicial ruling on a motion to dismiss the lawsuit.[1][4][5]

    After the PSLRA was enacted, "Congress observed that 'a number of securities class action lawsuits ... shifted from Federal to State courts,' which ... 'prevented that Act from fully achieving its objectives.'"[1] In response to the increase in the number of securities class actions filed in state courts, Congress enacted the Securities Litigation Uniform Standards Act (hereafter, SLUSA) in 1998. The SLUSA made three substantive revisions to the Securities Act of 1933 for what the legislation defined as a covered class action. Under the SLUSA, a covered class action included certain securities lawsuits in which damages were sought on behalf for more than 50 people.[1]

    First, the SLUSA prevented litigants from repleading any covered class action in state court. Second, the SLUSA permitted covered class actions filed in state court to be removed to federal court. Third, the SLUSA removed most concurrent federal and state jurisdiction over lawsuits to enforce the 1933 Securities Act, except for those filed under 15 U.S.C. § 77p(c).[1]

    In 2014, a group of class action litigants led by the Beaver County Employees Retirement Fund (hereafter, Fund), the lead respondent in this case, filed a securities class action lawsuit in a California superior court against Cyan Inc. Cyan was a network support products provider. In its filing, the Fund alleged that Cyan, in its registration statement for an initial public offering (IPO) as a publicly traded company, violated Chapter 11 of the Securities Act of 1933 by filing an "inaccurate and misleading registration statement and prospectus that didn't disclose anticipated issues with the company's revenue stream, leading to a stock drop after analysts downgraded their price targets."[6]

    Ciena Corporation, which acquired Cyan in 2015, moved to dismiss the lawsuit, alleging the California state court did not have jurisdiction in the case under the SLUSA. The state superior court judge, Curtis Karnow, denied Ciena's motion. Karnow claimed that he was bound a California appellate court decision, Luther v. Countrywide Financial, which held that the SLUSA did not prohibit concurrent state and federal court jurisdiction over covered class actions as defined by the SLUSA. According to the United States, in Luther, "the California Court of Appeal stated that it would look 'to all of section 77p[] and see what it provides ‘with respect to covered class actions,’ and that Section 77p does not 'provide[]' anything that is relevant to a covered class action alleging only federal-law claims."[1] A California appeals court and the California Supreme Court both denied review of Judge Karnow's decision.[6]

    The legal provisions

    The key legal provisions in this case involved two key modifications to the 1933 Securities Act through the SLUSA. The first was under 15 U.S.C § 77v(a). That section read in relevant part, "The district courts of the United States and the United States courts of any Territory shall have jurisdiction of offenses and violations under this subchapter and under the rules and regulations promulgated by the Commission in respect thereto, and, concurrent with State and Territorial courts, except as provided in section 77p of this title with respect to covered class actions..." (emphasis added).

    The second provision was found under 15 U.S.C. § 77p(b) and (c). Those provisions read,

    “

    (b) Class action limitations
    No covered class action based upon the statutory or common law of any State or subdivision thereof 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.

    (c) Removal of covered class actions
    Any covered class action brought in any State court involving a covered security, as set forth in subsection (b), shall be removable to the Federal district court for the district in which the action is pending, and shall be subject to subsection (b).[7]

    		”

    In its brief for certiorari, the United States asserted that these provisions did not disturb a state court's right to adjudicate covered class actions raising claims arising under state law. Cyan argued, however, that these provisions preempted state court adjudication of all covered class actions. The key distinction before the U.S. Supreme Court was the extent of the except clause provision under 15 U.S.C § 77v(a) and the scope of the authority to remove a case from state to federal court under 15 U.S.C. § 77p(c).

    Guidance on this point was requested by the United States specifically. In its brief, the United States said, "Because petitioners did not seek to remove this case to federal court, but instead asked the state court to dismiss on jurisdictional grounds, the question whether removal under Section 77p(c) would have been permissible is not squarely presented here. In construing Section 77v(a)’s 'except' clause, however, the Court could and should consider the structure and purposes of the overall statutory scheme. In particular, the force of petitioners’ concern about the potential for state-court circumvention of PSLRA requirements depends substantially on whether SLUSA provides alternative protections against such circumvention. In resolving this case, the Court therefore could provide helpful guidance to lower courts about the scope of Section 77p(c)’s removal authorization."[1]

    Petitioner's challenge

    Cyan Inc., the petitioner, challenged the holding of the California courts that state courts have jurisdiction over covered class actions alleging claims solely arising under the 1933 Securities Act.

    Certiorari granted

    On May 24, 2016, Cyan Inc., the petitioner, initiated proceedings in the Supreme Court of the United States in filing a petition for a writ of certiorari to the California First District Court of Appeal. The U.S. Supreme Court granted the request for certiorari on June 27, 2017. Argument in the case was held on November 28, 2017.[4]

    Question presented

    Question presented:

    "Whether state courts lack subject matter jurisdiction over covered class actions that allege only '33 Act claims."[4]

    Audio

    • Audio of oral argument:[8]



    Transcript

    • Transcript of oral argument:[9]

    Outcome

    Decision

    A unanimous Supreme Court affirmed the lower court's decision.[2]

    Opinion of the court

    Justice Elena Kagan authored the opinion for a unanimous court. Kagan wrote, "SLUSA’s text, read most straightforwardly, leaves in place state courts’ jurisdiction over 1933 Act claims, including when brought in class actions." Kagan continued:

    “ Under our reading of SLUSA, all covered securities class actions must proceed under federal law, most (i.e., those alleging 1934 Act claims) must proceed in federal court; some (i.e., those alleging 1933 Act claims) may proceed in state court. We do not know why Congress declined to require as well that 1933 Act class actions be brought in federal court; perhaps it was because of the long and unusually pronounced tradition of according authority to state courts over 1933 Act litigation. But in any event, we will not revise that legislative choice, by reading a conforming amendment and a definition in a most improbable way, in an effort to make the world of securities litigation more consistent or pure.[2][10][7] ”


    Kagan concluded:

    “ SLUSA did nothing to strip state courts of their longstanding jurisdiction to adjudicate class actions alleging

    only 1933 Act violations. Neither did SLUSA authorize removing such suits from state to federal court. We accordingly affirm the judgment below.[2][7]

    		”

    Text of the opinion

    See also

    Footnotes

    1. ↑ 1.0 1.1 1.2 1.3 1.4 1.5 1.6 1.7 Supreme Court of the United States, Cyan v. Beaver County Employees Retirement Fund - Brief for the United States as amicus curiae in support of granting certiorari, May 2017
    2. ↑ 2.0 2.1 2.2 2.3 United States Supreme Court, "Cyan v. Beaver County Employees Retirement Fund Opinion," March 20, 2018
    3. ↑ California Court of Appeals, First Appellate District, Division Four, Cyan, Inc., et al. v. The Superior Court of the City and County of San Francisco and Beaver County Employees Retirement Fund et al. as real parties in interest, December 10, 2015
    4. ↑ 4.0 4.1 4.2 Supreme Court of the United States, Cyan v. Beaver County Employees, June 27, 2017
    5. ↑ CooleyPubCo.com, "SCOTUS grants cert in case involving whistleblower statute and case involving state court jurisdiction over ’33 Act cases," June 28, 2017
    6. ↑ 6.0 6.1 Law360.com, "High Court Urged To Knock Back State Securities Suits," May 26, 2016
    7. ↑ 7.0 7.1 7.2 Note: This text is quoted verbatim from the original source. Any inconsistencies are attributable to the original source.
    8. ↑ Supreme Court of the United States, Cyan v. Beaver County Employees Retirement Fund, argued November 28, 2017
    9. ↑ Supreme Court of the United States, Cyan, Inc., et al. v. Beaver County Employees Retirement Fund et al., argued November 28, 2017
    10. ↑ Internal citations omitted.
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