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Supreme Court Holds that the Securities Litigation Uniform Standards Act Does Not Strip State Courts of Their Jurisdiction over Class Actions Raising Only 1933 Act Violations

On March 20, 2018, the United States Supreme Court issued a unanimous decision in Cyan, Inc. v. Beaver County Employees Retirement Fund, holding that the Securities Litigation Uniform Standards Act of 1998 (“SLUSA”) did not strip state courts of their jurisdiction to adjudicate class actions brought under the Securities Act of 1933 (the “1933 Act”).  The Court’s decision upheld the original language of the 1933 Act, authorizing both state and federal courts to exercise jurisdiction over actions brought under the 1933 Act, and barring removal of actions brought in state court under the 1933 Act. 

In 1995, Congress passed amendments to the 1933 Act to stem perceived class action abuses in securities litigation.  To circumvent these reforms, however, plaintiffs began filing securities class actions under state law.  To address this, Congress passed SLUSA.  SLUSA prohibits certain “covered class actions,” defined as securities class actions where the size of the class is more than 50 persons, and the claims are founded in state law that allege dishonest practices respecting a nationally traded commodity.  SLUSA requires covered class actions to be removed to federal court, where they are to be dismissed.

The Cyan Court granted certiorari to settle the issue of whether SLUSA deprived state courts of jurisdiction over class actions raising only 1933 Act claims, and whether SLUSA provided a mechanism for defendants to remove such actions from state to federal court.  Finding that SLUSA applies only to class actions raising state law claims, the Court held that “SLUSA did nothing to strip courts of their longstanding jurisdiction to adjudicate class actions brought under the 1933 Act.”  Likewise, the Court held that SLUSA did not “authorize removing such suits from state to federal court.”  Accordingly, the Court held that state courts can continue to hear class actions brought under the 1933 Act.

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