Cyan, Inc. v. Beaver County Employees Retirement Fund

          Argued November 28, 2017

         ON WRIT OF CERTIORARI TO THE COURT OF APPEAL OF CALIFORNIA, FIRST APPELLATE DISTRICT

In the wake of the 1929 stock market crash, Congress enacted two laws, in successive years, to promote honest practices in the securities markets. The Securities Act of 1933 (1933 Act) creates private rights of action to aid the enforcement of obligations pertaining to securities offerings. The Act authorizes both federal and state courts to exercise jurisdiction over those private suits and, more unusually, bars the removal of such suits from state to federal court. The Securities Exchange Act of 1934 (1934 Act), which regulates not the original issuance of securities but all their subsequent trading, is also enforceable through private rights of action. But all suits brought under the 1934 Act fall within the exclusive jurisdiction of the federal courts.

In 1995, the Private Securities Litigation Reform Act (Reform Act) amended both Acts, in order to stem perceived abuses of the class-action vehicle in securities litigation. The Reform Act included both substantive reforms, applicable in state and federal court alike, and procedural reforms, applicable only in federal court. Rather than face these new obstacles, plaintiffs began filing securities class actions under state law.

To prevent this end run around the Reform Act, Congress passed the Securities Litigation Uniform Standards Act of 1998 (SLUSA), whose amendments to the 1933 Act are at issue in this case. As relevant here, those amendments include two operative provisions, two associated definitions, and two "conforming amendments."

First, 15 U.S.C. §77p(b) completely disallows (in both state and federal courts) "covered class actions" alleging dishonest practices "in connection with the purchase or sale of a covered security." According to SLUSAs definitions, the term "covered class action" means a class action in which "damages are sought on behalf of more than 50 persons." §77p(f)(2). And the term "covered security" refers to a security listed on a national stock exchange. §77p(f)(3). Next, §77p(c) provides for the removal of certain class actions to federal court, where they are subject to dismissal. Finally, SLUSA's "conforming amendments" add two new phrases to §77v(a), the 1933 Act's jurisdictional provision. The first creates an exception to §77v(a)'s general removal bar through the language "[e]xcept as provided in section 77p(c)." The other-the key provision in this case-expresses a caveat to the general rule that state and federal courts have concurrent jurisdiction over all claims to enforce the 1933 Act. With this conforming amendment, §77v(a) now provides that state and federal courts shall have concurrent jurisdiction, "except as provided in section 77p . . . with respect to covered class actions." The Court refers to this provision as the "except clause."

Respondents, three pension funds and an individual (Investors), purchased shares of stock in petitioner Cyan, Inc., in an initial public offering. After the stock declined in value, the Investors brought a damages class action against Cyan in state court, alleging 1933 Act violations. They did not assert any claims based on state law. Cyan moved to dismiss for lack of subject matter jurisdiction, arguing that SLUSA's "except clause" stripped state courts of power to adjudicate 1933 Act claims in "covered class actions." The Investors maintained that SLUSA left intact state courts' jurisdiction over all suits- including "covered class actions"-alleging only 1933 Act claims. The state courts agreed with the Investors and denied Cyan's motion to dismiss. This Court granted certiorari to decide whether SLUSA deprived state courts of jurisdiction over "covered class actions" asserting only 1933 Act claims. The Court also addresses a related question raised by the federal Government as amicus curiae and addressed by the parties in briefing and argument: whether SLUSA enabled defendants to remove 1933 Act class actions from state to federal court for adjudication.

         Held:

1. SLUSA did nothing to strip state courts of their longstanding jurisdiction to adjudicate class actions brought under the 1933 Act. Pp. 7-18.

(a) SLUSA's text, read most straightforwardly, leaves this jurisdiction intact. The background rule of §77v(a)-in place since the 1933 Act's passage-gives state courts concurrent jurisdiction over all suits "brought to enforce any liability or duty created by" that statute. And the except clause-"except as provided in section 77p of this title with respect to covered class actions"-ensures that in any case in which §77v(a) and §77p conflict, §77p will control. The critical question for this case is therefore whether §77p limits state-court jurisdiction over class actions brought under the 1933 Act. It does not. Section 77p bars certain securities class actions based on state law but it says nothing, and so does nothing, to deprive state courts of jurisdiction over class actions based on federal law. That means §77v(a)'s background rule-under which a state court may hear the Investors' 1933 Act suit-continues to govern.

Cyan argues that the except clause's reference to "covered class actions" points the reader to §77p(f)(2), which defines that term to mean a suit seeking damages on behalf of more than fifty persons- without mentioning anything about whether the suit is based on state or federal law. But that view cannot be squared with the except clause's wording for two independent reasons. First, the except clause points to "section 77p" as a whole-not to paragraph 77p(f)(2). Had Congress intended to refer to § 77p (f)(2)'s definition alone, it presumably would have done so. See NLRB v. SW General, Inc., 580 U.S. ___, ___. Second, a definition, like §77p(f)(2), does not "provide!]" ^an "except[ion], " but instead gives meaning to a term-and Congress well knows the difference between those two functions. Not one of the 30-plus provisions in the 1933 and 1934 Acts using the phrase "except as provided in . . ." cross-references a definition.

Structure and context also support the Court's reading of the except clause. Because Cyan treats the broad definition of "covered class action" as altering §77v(a)'s jurisdictional grant, its construction would prevent state courts from deciding any 1933 Act class suits seeking damages for more than fifty plaintiffs, thus stripping state courts of jurisdiction over suits about securities raising no particular national interest. That result is out of line with SLUSA's overall scope. Moreover, it is highly unlikely that Congress upended the 65-year practice of state courts' adjudicating all manner of 1933 Act cases (including class actions) by way of a mere conforming amendment. See Director of Revenue of Mo. v. CoBank ACB, 531 U.S. 316, 324. Pp. 8-12.

(b) Cyan's reliance on legislative purpose and history is unavailing. Pp. 12-18.

(1) Cyan insists that the only way for SLUSA to serve the Reform Act's objectives was by divesting state courts of jurisdiction over all sizable 1933 Act class actions. Specifically, it claims that its reading is necessary to prevent plaintiffs from circumventing the Reform Act's procedural measures, which apply only in federal court, by bringing 1933 Act class actions in state court.

But Cyan ignores a different way in which SLUSA served the Reform Act's objectives-which the Court's view of the statute fully effects. The Reform Act included substantive sections protecting defendants in suits brought under the federal securities laws. Plaintiffs circumvented those provisions by bringing their complaints of securities misconduct under state law instead. Hence emerged SLUSA's bar on state-law class actions (and its removal provision to ensure their dismissal)-which guaranteed that the Reform Act's heightened substantive standards would govern all future securities class litigation. SLUSA's preamble states that the statute is designed "to limit the conduct of securities class actions under state law, and for other purposes, " 112 Stat. 3227, and this Court has underscored, over and over, SLUSA's "purpose to preclude certain vexing state-law class actions." Kircher v. Putnam Funds Trust, 547 U.S. 633, 645, n. 12. That object-which SLUSA's text actually reflects-does not depend on stripping state courts of jurisdiction over 1933 Act class suits, as Cyan proposes. For wherever those suits go forward, the Reform Act's substantive protections necessarily apply.

SLUSA also went a good distance toward ensuring that federal courts would play the principal role in adjudicating securities class actions by means of its revisions to the 1934 Act. Because federal courts have exclusive jurisdiction over 1934 Act claims, forcing plaintiffs to bring class actions under the 1934 statute instead of state law also forced them to file in federal court. Pp. 12-15.

(2) Cyan finally argues that the except clause would serve no purpose at all unless it works as Cyan says. But Congress could have envisioned the except clause as the ultimate fail-safe device, designed to safeguard §77p's class-action bar come whatever might. Congress has been known to legislate in that hyper-vigilant way, to "remov[e] any doubt" as to things not particularly doubtful in the first instance. Marx v. General Revenue Corp., 568 U.S. 371, 383-384. If ever it had reason to legislate in that fashion, it was in SLUSA-whose very impetus lay in the success of class action attorneys in "bypass[ing] . . . the Reform Act." Kircher, 547 U.S., at 636. And regardless of any uncertainty surrounding Congress's reasons for drafting the except clause, there is no sound basis for giving that clause a broader reading than its language can bear, especially in light of the dramatic change such an interpretation would work in the 1933 Act's jurisdictional framework. Pp. 15-18.

2. SLUSA does not permit defendants to remove class actions alleging only 1933 Act claims from state to federal court. The Government argues that §77p(c) allows defendants to remove 1933 Act class actions to federal court as long as they allege the kinds of misconduct listed in §77p(b). But most naturally read, §77p(c) refutes, not supports, the Government's view. Section 77p(c) allows for removal of "[a]ny covered class action brought in any State court involving a covered security, as set forth in subsection (b)." The covered class ac- tions "set forth" in §77p(b) are state-law class actions alleging securities misconduct. Federal-law suits are not "class action[s] ... as set forth in subsection (b)." Thus, they remain subject to the 1933 Act's removal ban. This Court has held as much, concluding that §§77p(b) and 77p(c) apply to the exact same universe of class actions. Kircher, 547 U.S., at 643-644. The "straightforward reading" of those two provisions is that removal under §77p(c) is "limited to those [actions] precluded by the terms of subsection (b)." Id., at 643. Pp. 18-24.

         Affirmed.

          OPINION

          KAGAN, JUSTICE.

         This case presents two questions about the Securities Litigation Uniform Standards Act of 1998 (SLUSA), 112 Stat. 3227. First, did SLUSA strip state courts of jurisdiction over class actions alleging violations of only the Securities Act of 1933 (1933 Act), 48 Stat. 74, as amended, 15 U.S.C. §77a et seq.? And second, even if not, did SLUSA empower defendants to remove such actions from state to federal court? We answer both questions no.

         I

         A

         In the wake of the 1929 stock market crash, Congress enacted two laws, in successive years, to promote honest practices in the securities markets. The 1933 Act required companies offering securities to the public to make "full and fair disclosure" of relevant information. Pinter v. Dahl, 486 U.S. 622, 646 (1988). And to aid enforcement of those obligations, the statute created private rights of action. Congress authorized both federal and state courts to exercise jurisdiction over those private suits. See §22(a), 48 Stat. 86 ("The district courts of the United States . . . shall have jurisdiction[] concurrent with State and Territorial courts, of all suits in equity and actions at law brought to enforce any liability or duty created by this title"). More unusually, Congress also barred the removal of such actions from state to federal court. Id., at 87 ("No case arising under this title and brought in any State court of competent jurisdiction shall be removed to any court of the United States"). So if a plaintiff chose to bring a 1933 Act suit in state court, the defendant could not change the forum.

         Congress's next foray, the Securities Exchange Act of 1934 (1934 Act), operated differently. See 48 Stat. 881, as amended, 15 U.S.C. §78a et seq. That statute regulated not the original issuance of securities but instead all their subsequent trading, most commonly on national stock exchanges. See Blue Chip Stamps v. Manor Drug Stores, 421 U.S. 723, 752 (1975). The 1934 Act, this Court held, could also be enforced through private rights of action. See id., at 730, and n. 4. But Congress determined that all those suits should fall within the "exclusive jurisdiction" of the federal courts. §27, 48 Stat. 902-903. So a plaintiff could never go to state court to litigate a 1934 Act claim.

         In 1995, the Private Securities Litigation Reform Act (Reform Act), 109 Stat. 737, amended both the 1933 and the 1934 statutes in mostly identical ways. Congress passed the Reform Act principally to stem "perceived abuses of the class-action vehicle in litigation involving nationally traded securities." Merrill Lynch, Pierce, Fenner & Smith Inc. v. Dabit, 547 U.S. 71, 81 (2006). Some of the Reform Act's provisions made substantive changes to the 1933 and 1934 laws, and applied even when a 1933 Act suit was brought in state court. For instance, the statute created a "safe harbor" from federal liability for certain "forward-looking statements" made by company officials. 15 U.S.C. §77z-2 (1933 Act); §78u-5 (1934 Act). Other Reform Act provisions modified the procedures used in litigating securities actions, and applied only when such a suit was brought in federal court. To take one example, the statute required a lead plaintiff in any class action brought under the Federal Rules of Civil Procedure to file a sworn certification stating, among other things, that he had not purchased the relevant security "at the direction of plaintiff's counsel." §77z-1(a)(2)(A)(ii) (1933 Act); §78u-4(a)(2)(A)(ii) (1934 Act).

         But the Reform Act fell prey to the law of "unintended consequence[s]." Dabit, 547 U.S., at 82. As this Court previously described the problem: "Rather than face the obstacles set in their path by the Reform Act, plaintiffs and their representatives began bringing class actions under state law." Ibid. That "phenomenon was a novel one"-and an unwelcome one as well. Ibid. To prevent plaintiffs from circumventing the Reform Act, Congress again undertook to modify both securities laws.

         The result was SLUSA, whose amendments to the 1933 Act are at issue in this case. Those amendments include, as relevant here, two operative provisions, two associated definitions, and two "conforming amendments" to the 1933 law's jurisdictional section. 112 Stat. 3230. (SLUSA's amendments to the 1934 Act include essentially the same operative provisions and definitions. See Dabit, 547 U.S., at 82, n. 6. But Congress decided that the 1934 law's exclusive jurisdiction provision needed no conforming amendments.) The added material-now found in §§77p and 77v(a) and set out in full in this opinion's appendix- goes as follows.

         First, §77p(b) altogether prohibits certain securities class actions based on state law. That provision-which we sometimes (and somewhat prosaically) refer to as the state-law class-action bar-reads:

"No covered class action based upon the statutory or common law of any State . . . may be maintained in any State or Federal court by any private party alleging- "

(1) an untrue statement or omission of a material fact in connection with the purchase or sale of a covered security; or

"(2) that the defendant used or employed any manipulative or deceptive device or contrivance in connection with the purchase or sale of a covered security."

         According to SLUSA's definitions, the term "covered class action" means a class action in which "damages are sought on behalf of more than 50 persons." §77p(f)(2). And the term "covered security" refers to a security listed on a national stock exchange. §77p(f)(3) (cross-referencing §77r(b)). So taken all in all, §77p(b) completely disallows (in both state and federal courts) sizable class actions that are founded on state law and allege dishonest practices respecting a nationally traded security's purchase or sale.

         Next, §77p(c) provides for the removal of certain class actions to federal court, as well as ...