WASHINGTON (CN) – Telecommunications company Cyan failed Tuesday to have the U.S. Supreme Court quash a securities class action it faces in California.
The unanimous ruling tackles a law called the Securities Litigation Uniform Standards Act of 1998, which Congress passed to patch loopholes in its last stab at ending class-action abuses, the 1995 Private Securities Litigation Reform Act.
Critical to the failure of the 1995 Reform Act was that some of its provisions applied only when a suit was brought in federal court. Artful plaintiffs soon began bringing their class actions under state law to avoid the Reform Act’s obstacles.
The 1998 law, abbreviated in Tuesday’s ruling as the SLUSA, meanwhile gave state and federal courts concurrent jurisdiction to all claims seeking enforcement of the Securities Act of 1993 — the first law passed in the wake of the 1929 stock market crash, which created private rights of action.
Still the SLUSA contains exceptions, namely that a case cannot be removed to a federal court unless the state court where the case was filed “would not adequately enforce” another provision that bars sizable class actions founded on state law and allege dishonest practices respecting the purchase or sale of a nationally traded security.
The investors who sued Cyan meanwhile brought their case in California Superior Court, insisting that nothing about the SLUSA blocked them from alleging only 1993 Act claims in state courts.
Cyan took its appeal to the U.S. Supreme Court last year after striking out at every level of the state court case.
The U.S. Supreme Court affirmed the ruling against it as well on Tuesday.
“The statute says what it says — or perhaps better put here, does not say what it does not say,” Justice Elena Kagan wrote for the court. “State-court jurisdiction over 1933 Act claims thus continues undisturbed.”
Kagan emphasized that accepting Cyan’s construction of the SLUSA “would prevent state courts from deciding any 1933 Act class suits seeking damages for more than 50 plaintiffs,” including those where the security is not traded on a national stock exchange.
Such securities “are ‘primarily of state concern,’ and SLUSA ‘maintains state legal authority’ to address them,” Kagan wrote.
“Except that under Cyan’s view, SLUSA would not,” the 24-page ruling continues. “Instead, the law would strip state courts of jurisdiction over suits about securities raising no particular national interest. That result is out of line with SLUSA’s overall scope.”
If Cyan’s reading were correct, Kagan added, Congress intended through the SLUSA to completely unravel state-court jurisdiction that had otherwise been in place for 65 years.
“To think Cyan right, we would have to believe that Congress upended that entrenched practice not by any direct means, but instead by way of a conforming amendment,” Kagan wrote.
Quoting the 2001 decision Director of Revenue of Mo. v. CoBank ACB, however, Kagan said that “Congress does not make ‘radical — but entirely implicit — change[s]’ through ‘technical and conforming amendments.’”
“Or to use the more general (and snappier) formulation of that rule,” Kagan continued, “relevant to all ‘ancillary provisions,’ Congress does not ‘hide elephants in mouseholes.’”