CHICAGO – (September 8, 2017)— DRI–The Voice of the Defense Bar has filed an amicus brief in Cyan, Inc. v. Beaver County Employees Retirement Fund, Supreme Court No. 15-1439. The United States Supreme Court granted certiorari in Cyan to determine whether state courts lack subject matter jurisdiction over covered class actions that allege only Securities Act of 1933 claims. The brief was filed by DRI’s Center for Law and Public Policy.
Respondents, shareholders of Cyan stock, filed a class action in the Superior Court of California, County of San Francisco, on behalf of purchasers of Cyan’s IPO stock after an announcement of weaker-than-expected results. Respondents sought strict liability remedies under the Securities Act of 1933 alone; no state law claims were raised. Accordingly, Petitioners moved for judgment on the pleadings for lack of subject matter jurisdiction, but the Superior Court denied the motion. Petitioners’ subsequent petition for writ relief to the Court of Appeal of the State of California, First District was denied without opinion.
Supporting Petitioners (Cyan), the DRI amicus brief argues that under the Securities Litigation Uniform Standards Act of 1998 (SLUSA), “covered class actions” (a damages action filed on behalf of more than 50 people)—like the one at issue here—that allege only violations of the Securities Act of 1933, are to be litigated in federal court only.
Based on the legislative history of securities laws from 1933 to present, the DRI amicus brief advocates that the SLUSA was designed to curb plaintiffs’ efforts to circumvent the protections of the earlier-enacted Private Securities Litigation Reform Act of 1995 (Reform Act). Specifically, plaintiffs flocked to state courts where the federal Reform Act’s provisions were not routinely applied, to avoid the protections granted to defendants by the Reform Act. In response, Congress enacted the SLUSA to make federal court “the exclusive venue for most securities class action lawsuits.”
The DRI brief warns that an affirmance of the Superior Court’s decision will create a host of problems for individuals and businesses. These problems include clever plaintiffs searching for “hellhole” or “magic” jurisdictions in which to file their claims. Such jurisdictions lack the qualities associated with the rule of law and often render incomprehensible verdicts against defendants. This leads to an associated problem: settlement of even meritless claims for fear of a sizeable and debilitating verdict. Moreover, this risk of liability often hinders publicly held companies from attracting and maintaining qualified board members, which can have a direct negative impact on a company’s performance.
For all these reasons, and to adhere to the legislative intent of the SLUSA, the DRI amicus brief urges the Supreme Court to reverse the decision and hold that covered class actions that are limited to claimed violations of the Securities Act of 1933 be litigated in federal court only.
The DRI amicus brief was authored by Mary Massaron and Hilary A. Ballentine of Plunkett Cooney, Bloomfield Hills, Michigan. Ms. Massaron is a past president of DRI. Ms. Ballentine is the Immediate Past President of the Michigan Defense Trial Counsel. They are available for interview or for expert comment through the contact information above.
For the full text of the amicus brief, click here.