SAN FRANCISCO — The U.S. Supreme Court on Tuesday agreed to take up a case that could impact a strain of securities class actions that have dogged tech companies in Silicon Valley.
The central controversy in Cyan v. Beaver County Employees Retirement Fund is whether lawsuits brought under federal securities law over alleged false statements prior to an initial public offering can move forward in state court or if they must be removed to federal court.
Although it’s a weedy legal issue, lawyers that defend tech companies argue that the lack of clarity has had major consequences. A string of decisions on the question have allowed an end-run around federal legislative reforms meant to curb abusive securities suits, they claim.
Since 2011, plaintiffs firms have had more success in getting their cases to move forward in state courts—mainly in California—where the defense bar says that lenient pleading standards and looser rules around discovery exert greater pressure on companies to settle.
“We are grateful that the Supreme Court has granted our petition and agreed to resolve the current division between the lower courts on this important issue,” said Boris Feldman, a partner at Wilson Sonsini Goodrich & Rosati in Silicon Valley who represents Cyan Inc., a Northern California telecom company that was sued in 2014 after its IPO.
“We look forward to explaining to the court why we believe that our interpretation of the SLUSA statute is correct,” he added, referring to the 1998 Securities Litigation Uniform Standards Act. The legislation shut down securities class actions brought under state law, but the statute is less clear about whether all suits should be routed to federal court.
The decision to grant review of Cyan is unusual in that the case comes straight from a California state trial court in San Francisco. There is no formal circuit split on the underlying issue of where securities fraud class actions belong, although that’s in large part because courts have not treated orders remanding a case back to state court as appealable.
The plaintiffs in the case, represented by securities class action firms Robbins Geller Rudman & Dowd and Glancy Prongay & Murray, had argued that Cyan’s petition for review should be denied because of the “interlocutory posture” of the case, and noted that both a California state appeals court and the state high court denied to review the trial court’s ruling.
“It is no surprise that the state Supreme Court would decline to step in to review an interlocutory jurisdictional objection in the absence of any conflict in its lower courts,” they wrote in a brief. “But that hardly provides a basis for this court to do so given that the question has been decided by only one appellate court anywhere in the nation.”
That 2011 decision by a California appeals court in a case called Luther v. Countrywide Financial held that SLUSA continued to give state court jurisdiction over certain federal securities claims. Specifically, it allowed state court cases brought under Section 11 of the 1933 Securities Act, which makes companies liable for false information in an IPO registration statement, even if it was an unintentional mistake.
Andrew Love, counsel of record for Robbins Gellar in the case, said via email that SLUSA “did not expressly or impliedly eliminate long-standing concurrent state court jurisdiction for class actions.”