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Cyan v. Beaver County Employees Retirement Fund (Decision March 20, 2018)

Cyan sought to stretch the meaning of the SLUSA, and the Supreme Court was not convinced.

Cyan, a telecommunications company, faces a class action suit by the company’s shareholders (led by the Beaver County Employees Retirement fund). In its efforts to get the case dismissed, Cyan sought to use the Securities Litigation Uniform Standards Act (SLUSA). The SLUSA limits the jurisdiction of state courts in securities class action cases. This case was indeed filed in state court, and Cyan argued the SLUSA would bar it.

Before we get into the details of the SLUSA, let’s discuss the history leading up to it.

History of securities actions

When the Securities Act was passed in 1933, it enabled individuals to file lawsuits if they had been harmed by a company’s deception in its public offering statements. It came off the heels of the major stock market crash of 1929. Enabling suits by private individuals (not just the government) allowed shareholders to help enforce the laws.

Years down the road, Congress recognized that shareholders were bringing too many class actions, to the point of abusing the class action vehicle. To curb the abuse, in 1995, Congress passed a law (the Private Securities Litigation Reform Act) establishing more restrictions on plaintiffs in securities class actions. Congress – the federal lawmaker – applied these restrictions to the federal securities laws (including the Securities Act of 1933), but the 1995 act did not add any additional restrictions on plaintiffs bringing securities suits under state law.

So then plaintiffs had a choice – they could use federal law and accept the additional restrictions, or choose state law and be more relaxed. Obviously, they started filing securities suits under state law, in state courts, and avoided the restrictions.

Congress had to get another step ahead. That’s when the SLUSA (the law relevant in this case) was passed.

The SLUSA said: Plaintiffs, if you have a securities class action claim that could work under federal law, then you cannot file it under state law; you must use federal law. In implementing this rule, it said: state courts do not have jurisdiction over state law securities class actions that could work under federal law.

This case

This case is not a state law securities class action. It is a federal law securities class action. But it was filed in state court. Cyan says the SLUSA also extinguished state court jurisdiction for federal law securities class actions. How so?

To skip straight to the tl;dr (too long; didn’t read) version:

The act’s jurisdictional section is less than perfect when it describes which class actions cannot be in state courts. Cyan tried to argue that the jurisdictional section referred to all class actions (including federal) as those which must be dismissed from state courts.

It didn’t work. The Court ruled against Cyan and confirmed that federal securities class actions can proceed in state court.

See the opinion for the textual analysis. The Court also rejected Cyan’s arguments that the purpose of the SLUSA supported its reading.


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Cyan v. Beaver County Employees Retirement Fund (Decision March 20, 2018)

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About the Author

Mariam Morshedi

Mariam Morshedi

Mariam Morshedi is the Founder and Executive Director of Subscript Law. Before starting Subscript Law, she practiced civil rights law for AARP Foundation, where she litigated housing, consumer and disability rights issues.

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