For decades, the volume of securities class actions has grown. Initially most were filed in federal court,1 but the number of securities class actions filed in state court has increased steadily and in 2010 surpassed the number of federal court filings.2 Recognizing the "ways in which the class action device was being used to injure ‘the entire U.S. economy,’" Congress passed the Private Securities Litigation Reform Act (PSLRA) in 1995. The PSLRA, Pub. L. No. 104-67, 109 Stat. 737 (1995), introduced heightened procedural standards in federal court by: (1) limiting plaintiffs’ recovery of damages and attorney fees; (2) mandating a discovery stay until the resolution of any motion to dismiss; and (3) imposing heightened pleading requirements.3
Because these heightened standards applied only to the federal securities laws, plaintiffs avoided them by bringing actions under state law. To address this trend, Congress passed the Securities Litigation Uniform Standards Act of 1998 (SLUSA), which precludes state and federal courts from hearing certain covered class actions brought under state law. As the U.S. Supreme Court recognized, Congress enacted SLUSA, Pub. L. No. 105-353, 112 Stat. 3230 (1998), "[t]o stem th[e] ‘shif[t] from Federal to State courts’ and ‘prevent certain State private securities class action lawsuits alleging fraud from being used to frustrate the objectives of the [PSLRA].’"4 However, an apparent drafting error in SLUSA creates a loophole that (1) permits plaintiffs to file federal securities class actions in state court, and (2) prevents defendants from removing those actions to federal court.
