December 08, 2017

Members of the U.S. Supreme Court appeared stumped Nov. 28 over the meaning of a securities statute’s jurisdictional provisions, which Justice Samuel A. Alito Jr. called ‘‘just gibberish.’’

‘‘What are we supposed to do with this?’’ Alito asked. He proposed throwing out the provisions altogether, but other justices seemed to favor the position of securities class action plaintiffs who want to bring federal claims under the 1933 Securities Act in state court (Cyan Inc. v. Beaver Cty. Emp. Ret. Fund, U.S., No. 15-1439, argued 11/28/17). 

Investors generally view state courts as friendlier venues for securities class actions. Companies argue keeping all securities litigation in federal court helps maintain uniformity.

Tough One for Conservatives

It’s always hard to tell where the justices stand after oral argument, Washington securities lawyer Daniel Sommers told Bloomberg Law. But here, ‘‘the challenge is heightened because the justices were having a difficult time parsing through the statutory language at play in this case,’’ Sommers, of plaintiffs’ firm Cohen Milstein Sellers & Toll PLLC, said.

The statute at issue in the suit is Securities Act Section 77(v)(a) as amended by the Securities Litigation Uniform Standards Act. SLUSA was enacted in 1998 in a bid to prevent class securities fraud plaintiffs from bypassing stringent federal pleading requirements by framing their claims as state law violations.  Sommers said that the statute’s unclear wording, and self-referencing provisions, created problems for the more conservative justices. They ‘‘are being forced into the uncomfortable exercise of looking to legislative intent and legislative history in order to determine the proper outcome.’’

He said justices Sonia Sotomayor and Elena Kagan appeared the most supportive of the investor’s interpretation of the statute. Sommers attended the argument but isn’t involved in the case.

A defense attorney also present at argument agreed the case was a difficult one for the justices.

The full article can be read here.