Merrill Lynch, Pierce, Fenner & Smith Inc. v. Manning
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Merrill Lynch, Pierce, Fenner & Smith Inc. v. Manning is a case decided by the Supreme Court of the United States in 2016. The high court ruled that the jurisdictional test — any test used to determine which court a case may be heard in — of the Securities Exchange Act of 1934 is the same as the general test for federal jurisdiction, and that complaints that refer to federal securities regulations but do not bring specific claims under federal securities law are not required to be considered in federal court.[1]
Background
In 2006 and 2007, the stock of Escala Group, Inc., a company traded on the NASDAQ, fell. Greg Manning owned stock in Escala, and alleged, along with other stockholders, that Merrill Lynch, a division of Bank of America, had devalued its stock through naked short selling of Escala, a practice in which one borrows stock from a broker and sells it on the market without delivering shares back to the buyer. According to the Securities and Exchange Commission (SEC), this practice can be used to intentionally devalue a company's stock, and is regulated by the SEC to prevent abuse.[1][2]
Case history
Manning and other shareholders filed suit against Merrill Lynch in New Jersey state court, alleging violations of several state laws regarding securities sales. Manning also claimed that Merrill Lynch had violated Regulation SHO, an SEC regulation, but did not bring a specific claim under this law. Merrill Lynch moved the case to federal courts, arguing that Manning's allegations were brought to enforce liabilities under the Securities Exchange Act of 1934. Manning requested to move the case back to state court, arguing that no statute gave federal courts authority to decide on his state law claims, but this motion was denied by a federal district court. The case was heard by the United States Court of Appeals for the 3rd Circuit, which held that the case did not arise under federal law because the claims were brought under New Jersey state law. Consequently, the appeals court found that the district court was not the appropriate venue for the case. The case was appealed to the Supreme Court. On June 30, 2015, the Supreme Court of the United States agreed to hear the case.[3]
Decision
On May 16, 2016, in an 8-0 decision, the Supreme Court ruled that the case could be tried in state courts despite the fact that Manning made some allegations under federal law. The court held that the jurisdictional tests established in the Section 27 of the Securities Exchange Act of 1934 were the same as jurisdictional tests for other matters of federal law, and that cases that assert a violation of the act do not require the federal government to consider the complaint. The majority decision was written by Justice Elena Kagan and joined by Justices John Roberts, Anthony Kennedy, Ruth Bader Ginsburg, Stephen Breyer, and Samuel Alito. Justice Clarence Thomas filed a concurrence joined by Justice Sonia Sotomayor.[1][3]
Kagan wrote the following for the majority opinion:
| “ | Our holding requires remanding Manning’s suit to state court. The Third Circuit found that the District Court did not have jurisdiction of Manning’s suit under §1331 because all his claims sought relief under state law and none necessarily raised a federal issue. See supra, at 3. Merrill Lynch did not challenge that ruling, and we therefore take it as a given. And that means, under our decision today, that the District Court also lacked jurisdiction under §27.[4] | ” |
See also
External links
Footnotes
- ↑ 1.0 1.1 1.2 Harvard Law Review, "Merrill Lynch, Pierce, Fenner & Smith Inc. v. Manning," November 10, 2016
- ↑ Securities and Exchange Commission, "Key Points About Regulation SHO," accessed March 29, 2017
- ↑ 3.0 3.1 SCOTUSBlog, "Merrill Lynch, Pierce, Fenner & Smith, Inc. v. Manning," accessed March 29, 2017
- ↑ Note: This text is quoted verbatim from the original source. Any inconsistencies are attributable to the original source.
