Bass, Berry & Sims attorney Chris Lazarini examined a case in which the defendants claimed a state court did not have jurisdiction to hear a class action lawsuit alleging violations of the Securities Act of 1933. The court disagreed, pointing out that while exclusive jurisdiction to federal courts is expressed under the Securities Exchange Act of 1934, there is no similar language in the 1933 Act. Additionally, the court notes that nothing in the amendments to the 1933 Act adopted through the Private Securities Litigation Reform Act of 1995 or the Securities Litigation Uniform Standards Act of 1998 bars state courts from hearing class actions.
Chris provided the analysis for Securities Litigation Commentator (SLC). The full text of the analysis is below and used with permission from the publication. If you would like to receive additional content from the SLC, please visit the SLC website to sign up for the newsletter.
Fortunato vs. Akebia Therapeutics, Inc., No. 1584cv02665 (Mass Super., 2/21/17)
A state court has concurrent jurisdiction with federal courts to hear and decide class actions brought under the Securities Act of 1933.
In this putative class action, Plaintiff alleged that Akebia, its senior management and board, and the underwriter investment banks, issued IPO documents that were misleading because they did not disclose the results of an ongoing clinical drug trial that revealed multiple incidences of serious adverse events. Plaintiff sought recovery under sections 11, 12(a)(2), and 15 of the Securities Act of 1933 (the "'33 Act"). Defendants moved to dismiss, arguing that (1) the federal courts have exclusive jurisdiction over class actions under the '33 Act, (2) Plaintiff failed to plead his claims with sufficient particularity, and (3) even if the particularity hurdle did not exist or was overcome, Plaintiff failed to allege facts plausibly suggesting that the putative class is entitled to relief.
The Court first determines that it has concurrent jurisdiction with federal courts to hear and decide '33 Act claims. Referencing Congress' express grant of exclusive jurisdiction to federal courts over claims under the Securities Exchange Act of 1934, the Court notes the absence of similar jurisdictional language in the '33 Act. Furthermore, nothing in the amendments to the '33 Act adopted through the Private Securities Litigation Reform Act of 1995 ("PSLRA") or the Securities Litigation Uniform Standards Act of 1998 ("SLUSA") bars state courts from hearing class actions. Finally, the Court rejects Defendants' complaints about inconsistent results if '33 Act claims are tried in state courts. The Court opines that the multi-tiered federal court system is similarly prone to inconsistencies, and notes that the Supreme Court may establish uniformity through review of both state and federal court decisions.
Next, examining the nature of the claims, the Court rejects Defendants' argument that they sound in fraud and must be pled with particularity under Mass. R. Civ. P. 9(b). Instead, Plaintiff's claims sound in negligence and are not subject to any heightened pleading standard. Finally, examining the merits of the factual allegations, the Court notes the clinical trial was a double-blind, placebo-controlled, randomized trial and finds that Plaintiff fails to plausibly suggest that Defendants knew or could have known about the number of adverse results revealed during the clinical trial at the time of the IPO. Given the double-blind nature of the trial, and Plaintiff's failure to seek leave to amend, the Court also finds that an amendment would be futile and dismisses the claims with prejudice.
The jurisdictional issue may be resolved by the U.S. Supreme Court soon. See Cyan, Inc. v. Beaver County Employees Retirement Fund, No. 15-1439, where the Supreme Court, in considering the Petition for Writ of Certiorari, invited the Acting Solicitor General to file a brief expressing the views of the United States on the issue, and the latter recommended that the Court grant the writ.