Bass, Berry & Sims attorneys Shayne Clinton and Britt Latham authored an article for Law360 providing insight on the implications of the U.S. Supreme Court’s decision in Cyan Inc. v. Beaver County Employees Retirement Fund on investors’ ability to pursue alleged violations of the Securities Act of 1933 (1933 Act) in state and federal courts. As Shayne and Britt noted in the article, with the U.S. Supreme Court’s decision opening up more forums to securities class action plaintiffs, newly public companies or other registered offerors will face possible duplicative actions in state and federal courts. However, as they discussed, companies are not left without any weapons in the arsenal.
The Supreme Court ruled in Cyan that, while the Securities Litigation Uniform Standards Act of 1998 (SLUSA) does not allow certain state law claims, SLUSA does not strip state courts of their jurisdiction to hear class actions solely brought under the 1933 Act. The Court also ruled that such class actions cannot be removed from state to federal court.
“Now, when investors challenge certain initial public offerings or other registered offerings, plaintiffs can go directly to any state court where the company is subject to jurisdiction,” explained the authors. “With the ruling opening up more forums to plaintiffs, new public companies or other registered offerors will face possible duplicative actions in state and federal courts.”
While there are certain risks and costs of multijurisdictional lawsuits for issuers and underwriters, corporate defendants conducting offerings still have certain safeguards in defending 1933 Act claims in state courts. Moreover, there are other ways companies can try to avoid uncertainties with state courts deciding 1933 Act claims. For example, some Delaware companies that have recently completed IPOs have adopted a clause in their certificates of incorporation requiring shareholders to bring 1933 Act claims only in federal court.
Congress can also address concerns with or perceived gaps in legislation stemming from Cyan. “To alleviate concerns to the public markets of increased costs and risks possibly resulting from the Cyan decision, Congress could choose to step in and adopt more legislation or revise existing legislation to grant federal courts either exclusive or removal jurisdiction over class actions alleging certain 1933 Act claims,” noted Shayne and Britt.
The full article, “Safeguards Against State, Parallel Proceedings Post-Cyan,” was published by Law360 on May 8, 2018, and is available online.