Cyan, Inc. v. Beaver County Employees Retirement Fund
Did the Securities Litigation Uniform Standards Act of 1998 (SLUSA) strip state courts of their long-held concurrent jurisdiction over class actions that allege only federal Securities Act of 1933 claims?
The Decision
9-0 decision · Opinion by Elena Kagan · 2018
Majority Opinion— Elena Kaganconcurring ↓
The Supreme Court unanimously ruled in favor of Beaver County, holding that SLUSA did not strip state courts of their concurrent jurisdiction over covered class actions alleging only Securities Act of 1933 violations. The decision was 9–0, and the opinion was authored by Justice Elena Kagan.
The Court's reasoning centered on a close reading of the statutory text. Justice Kagan explained that SLUSA's main operative provision — Section 16(b) of the Securities Act — bars class actions 'based upon the statutory or common law of any State.' This language targets state-law claims, not claims arising under the federal Securities Act. The Court found no provision in SLUSA that expressly removes the concurrent jurisdiction that Section 22(a) of the Securities Act has granted to state courts since 1933.
Cyan's strongest textual argument relied on Section 16(d), which provides that nothing in 'this subsection' limits state court jurisdiction over actions 'not described' in subsections (b) or (c). Cyan argued this created a negative inference: if Congress felt it necessary to preserve state jurisdiction for actions not described in those subsections, it must have intended to eliminate jurisdiction for actions that are described there. The Court rejected this reasoning. It held that the word 'subsection' in Section 16(d) means exactly what it says — it refers to the entirety of Section 16, not to something narrower. The saving clause in 16(d) simply clarified that SLUSA's new provisions (which did make some changes to the legal landscape, such as barring state-law class actions) should not be read to spill over and affect other types of cases. It was not a hidden mechanism for stripping state courts of jurisdiction over federal claims.
The Court also noted that the amendments SLUSA made to Section 22(a) actually reinforced the conclusion that state court jurisdiction was preserved. SLUSA modified Section 22(a) to exempt certain class actions from its bar on removal to federal court — meaning SLUSA contemplated that some covered class actions would indeed remain in state court. If Congress had wanted to eliminate state court jurisdiction altogether, it would not have simultaneously enacted provisions that assumed those cases would stay there. The Court emphasized that stripping state courts of jurisdiction over federal Securities Act claims would have been a momentous change, and Congress does not typically hide such dramatic shifts in oblique statutory language.
Concurring Opinions
Justice Anthony Kennedy, joined by Justice Clarence Thomas, wrote a concurring opinion agreeing with the Court's reading of the statute but expressing concern about the practical consequences. Kennedy noted that the decision meant securities class actions could continue in state courts without the procedural protections Congress created in the PSLRA, and he suggested that Congress might wish to revisit whether this gap in its regulatory framework should be closed.
Background & Facts
Cyan, Inc. was a technology company that went public with an initial public offering (IPO) in 2013. After Cyan's stock price declined, the Beaver County Employees Retirement Fund — a Pennsylvania pension fund — along with other investors who had purchased shares in the IPO, sued Cyan in California state court. The investors claimed that Cyan's registration statement and prospectus (the documents a company files when it goes public) contained material misstatements and omissions that violated the Securities Act of 1933, a landmark federal law designed to protect investors by requiring truthful disclosures when companies sell stock to the public.
Since the Securities Act was first enacted in 1933, it had always given both federal and state courts the power to hear claims under it — a principle known as 'concurrent jurisdiction.' This meant investors could choose to sue in state court rather than federal court. In 1995, Congress passed the Private Securities Litigation Reform Act (PSLRA), which imposed tighter procedural requirements on securities class actions filed in federal court, such as heightened pleading standards and restrictions on discovery. Some plaintiffs' lawyers responded by shifting their class action filings to state courts, where these federal procedural hurdles did not apply. To close this perceived loophole, Congress passed the Securities Litigation Uniform Standards Act of 1998 (SLUSA), which barred certain securities class actions based on state law from being filed in state court.
Cyan argued that SLUSA went further than just blocking state-law claims — it contended that SLUSA also stripped state courts of jurisdiction over class actions alleging violations of the federal Securities Act of 1933 itself. In essence, Cyan wanted the case dismissed from California state court entirely. The California Superior Court disagreed and denied Cyan's motion to dismiss, finding that state courts retained their concurrent jurisdiction over Securities Act claims. The California Court of Appeal declined to review that decision.
The Supreme Court agreed to hear the case because it involved an important and unsettled question about where investors could bring federal securities claims, a question on which lower courts and state courts had reached different conclusions. The case had broad implications for the securities litigation landscape, potentially redirecting a large volume of class action cases into federal court if Cyan's reading of the statute prevailed.
The Arguments
Cyan argued that SLUSA amended the Securities Act in a way that stripped state courts of jurisdiction over 'covered class actions,' including those alleging only federal Securities Act claims. It contended that SLUSA's amendments should be read as channeling all securities class actions into federal court, where the procedural protections of the PSLRA would apply.
- SLUSA added a provision (Section 16(d)) stating that nothing in 'this subsection' limits state court jurisdiction over actions 'not described' in the section's key operative provisions — implying, by negative inference, that state court jurisdiction IS limited for actions that are described in those provisions.
- Congress's purpose in passing SLUSA was to prevent evasion of the PSLRA's protections, and allowing Securities Act class actions to remain in state court undermines that goal because PSLRA's procedural safeguards do not apply in state courts.
- The amendments SLUSA made to Section 22(a) of the Securities Act, which governs jurisdiction, should be read as narrowing the scope of concurrent state court jurisdiction for covered class actions.
Beaver County argued that SLUSA did not disturb the longstanding concurrent jurisdiction that state courts have always had over federal Securities Act claims. SLUSA's primary target was state-law securities class actions filed in state court, not federal Securities Act claims, and the statute's text does not strip state courts of power to hear the latter.
- The Securities Act's jurisdictional provision (Section 22(a)) has always granted state courts concurrent jurisdiction, and nothing in SLUSA's text expressly or clearly revokes that grant for federal Securities Act claims.
- SLUSA's operative provisions target class actions 'based upon the statutory or common law of any State' — that is, state-law claims — not claims under the federal Securities Act itself.
- Reading SLUSA to eliminate state court jurisdiction over federal Securities Act class actions would require ignoring the statute's plain text and attributing to Congress an intention it never expressed.