The U.S. Supreme Court on Tuesday will consider whether federal law bars state courts from hearing certain securities class actions, but the business community’s hopes of restricting such access may hinge on convincing the most conservative justices to look past their preferred way of interpreting the law, lawyers said.
Oral arguments in the matter of Cyan Inc. v. Beaver County Employees Retirement Fund will give the justices the chance to decide whether state courts can hear so-called covered class actions based on the federal Securities Act of 1933 — or whether a 1998 law aimed at curbing abusive securities suits mandated that such claims be heard only in federal court.
The issue is important to business interests that hope the Supreme Court will shut down what they see as a thriving cottage industry in California state courts, in which shareholder attorneys target newly public companies with allegedly frivolous and often duplicative claims over drops in their stock price.
Yet to win its case, Cyan, a former telecommunications company, may need to overcome an obstacle in some of the court’s most conservative members. Justices Clarence Thomas, Samuel Alito and Neil Gorsuch are lately renowned for their efforts to interpret laws strictly according to their text, rather than trying to divine congressional intent behind them. But a significant part of the argument in favor of Cyan’s position revolves around what Congress aimed to do when it passed reforms to the nation’s securities laws two decades ago.
"Cyan relies very heavily on policy arguments to support its reading of the statutes in the case," said Daniel Sommers, co-chair of the securities litigation practice at Cohen Milstein Sellers & Toll PLLC. "Typically those arguments would not sit well with justices who typically begin and end their analysis with the plain language of the statute."
Sommers, who represents shareholders in suits, said while state-based securities suits tend to be over relatively small dollar amounts, a win for Cyan could have a dramatic effect on the securities litigation landscape. "For many decades, it really hasn't been questioned that a 1933 Act claim can be brought in state and federal court," he said.
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