The Evolution of Securities Class Action Law: Cyan v. Beaver County (2018)

When the Securities Litigation Uniform Standards Act (SLUSA) was passed in 1998, it moved Rule 10b-5 class actions to federal courts, but it was strangely unclear whether it also moved Section 11 class actions to federal courts. This basic question about the scope of SLUSA confused judges and lawyers for twenty years. In the oral argument for Cyan v. Beaver County, one Supreme Court justice described the text of SLUSA as "gibberish".

Before Cyan, courts were inconsistent in how they dealt with this ambiguity in SLUSA. The 1933 Act had an anti-removal provision, which meant that claims under the 1933 Act could be litigated in state courts—but not if the law had been changed by SLUSA. When the Class Action Fairness Act was passed in 2005, it added to the confusion. CAFA granted federal jurisdiction over some securities lawsuits, but not over others. There continues to be litigation over what areas were granted federal jurisdiction by CAFA and whether CAFA trumps the 1933 Act. It is also possible to argue that, taken together, the Private Securities Litigation Reform Act (PSLRA), SLUSA, and CAFA are evidence of Congress’ intent to have virtually all securities class actions litigated in federal court. Indeed, it is quite reasonable to speculate that the only reason some securities class actions were excluded from CAFA was that Congress thought it had already handled them in the PSLRA and SLUSA.

Cyan v. Beaver County (2018)

A group of investors brought a class action in California state court against Cyan, a telecommunications company, alleging that its registration statement contained material misstatements in violation of Section 11 of the 1933 Act. Cyan attempted to have the case removed to federal court, which is expected to be a more favorable forum. Cyan v. Beaver County came before the Supreme Court over the question that had caused so much confusion: can Section 11 cases be litigated in state court?

The Supreme Court finally settled the issue, holding that SLUSA does not apply to Section 11 claims, which means that Section 11 claims can be brought in state court. Read the full article to better understand the impact this case had on plaintiff selection of favorable state forums for Section 11 claims.??