In a unanimous decision on March 20, 2018, the United States Supreme Court held in Cyan, Inc. et al. v. Beaver County Employees Retirement Fund, et al., 583 U.S. ____ (2018) that state and federal courts retain concurrent jurisdiction to adjudicate class actions brought under the Securities Act of 1933 (the “Securities Act”) and such claims may not be removed to federal court. The opinion, delivered by Justice Elena Kagan, affirms the decision of the California Court of Appeals First Appellate District and settles a long-standing circuit split over whether the Securities Litigation Uniform Standards Act of 1998 (the “SLUSA”) divested state courts of subject matter jurisdiction over “covered class actions” where plaintiffs allege only Securities Act claims and no state law claims.

The decision was largely based on the statutory interpretation and legislative history of SLUSA—namely, its amendments to the jurisdictional provisions of the Securities Act. Indeed, the crux of this case lies in the interpretation of SLUSA’s amendment stating:

The district courts of the United States . . . shall have jurisdiction . . . , concurrent with State and Territorial courts, except as provided in section 77p of this title with respect to covered class actions, of all suits in equity and actions at law brought to enforce any liability or duty created by this subchapter. [1]

Defendants argued that this provision strips state courts of concurrent jurisdiction over Securities Act claims because of the “except as provided” clause’s reference to “covered class actions.” Plaintiffs argued that this provision maintains state courts’ jurisdiction over all suits – including “covered class actions” – alleging only Securities Act claims. Notably, the U.S. government, which filed an amicus brief at the Court’s request, took a third approach, arguing that SLUSA does not deprive state courts of concurrent jurisdiction over cases brought under the Securities Act but does allow defendants to remove these cases to federal court.

The Court found that class actions asserting only Securities Act claims are unaffected by SLUSA, and thus, can be brought in state court – Section 77p “says nothing, and so does nothing, to deprive state courts of jurisdiction over class actions based on federal law.” The Court concluded that “SLUSA’s text, read most straightforwardly,” leaves state court jurisdiction intact and, if Congress wanted to deprive state courts of jurisdiction, it could have inserted an exclusive federal jurisdiction provision. Additionally, the Court held that SLUSA does not permit defendants to remove class actions alleging only Securities Act claims from state to federal court. Finally, the Court concluded that, “[i]f further steps are needed, they are up to Congress.”

The practical impact of the Court’s ruling is a likely increase in Securities Act claims brought in state court, with defendants potentially having to litigate these federal securities claims in federal and state courts simultaneously and in various venues. Given that plaintiffs may continue to argue for the application of certain state courts’ more lenient pleading standards and discovery procedures, defendants may be exposed to protracted, expensive, and cumbersome litigation in various courts across the country.