(CN) – The Supreme Court on Tuesday agreed to review a case asking it to resolve jurisdictional questions regarding securities class actions filed in state court.
At issue in the review are three different federal laws: the Securities Act of 1933, which was the first federal law to govern the sale of securities and which required disclosure of all information a potential buyer would want to know before making a purchase; the Private Securities Litigation Reform Act of 1995, which attempted to cut down on frivolous litigation by raising the bar for evidence needed to file a securities lawsuit; and the Securities Litigation Uniform Standards Act of 1998 (SLUSA), which limited the scope of securities class actions that could be filed in state court.
After the Reform Act passed, securities lawsuits were increasingly filed in state court to avoid its requirements, prompting Congress to enact SLUSA. The result, according to the petitioners seeking certiorari, is a jurisdictional quagmire in which securities class actions filed in state courts are often tossed from one court to another but never fully resolved.
In Cyan Inc. et al. v. Beaver County Employees Retirement Fund, shareholders sued Cyan when its stock unexpectedly plummeted. But because of questions over jurisdiction, California’s state courts refused to hear the case. The state’s appellate and Supreme Court also turned down review of the dismissal.
The interaction of the three laws has thrown federal courts into similar confusion, according to the Cyan Inc. petitioners, leading to removals to federal courts being “blessed” in one district and “sanctioned” in another.
“This petition presents a rare opportunity for this Court to resolve the chaos,” the petitioners argue in their request for certiorari.
“The uncertainty and divisions in the federal courts undermine the integrity of the judicial system, as like cases are not being treated alike. In these cases, the deciding factor – as litigants and the public readily perceive – is not a uniform principle of law but rather the particular judge assigned,” the petitioners argue.
The petitioners hope the U.S. Supreme Court can settle a “uniform principle of law” for their own case and the hundreds like it throughout the country. They do not seek review of the merits of their lawsuit.
The Supreme Court granted review on June 27, but did not issue its reasons for doing so.