Cyan, Inc. v. Beaver County Employees Retirement Fund
The Supreme Court unanimously ruled that a 1998 federal law aimed at curbing abusive securities lawsuits did not take away state courts' long-standing power to hear class-action lawsuits based on the 1933 Securities Act.
The Court also held that companies sued this way in state court cannot move those cases into federal court, preserving investors' choice of forum for this type of securities claim.
How it got here: A California state trial court denied Cyan's motion to dismiss for lack of jurisdiction, and state appellate courts declined review, so Cyan sought Supreme Court review.
The Case in Depth
What happened
Investors, including several pension funds, bought stock in Cyan, Inc.'s initial public offering. After the stock's value dropped, they sued Cyan in California state court as a group, claiming Cyan's offering documents contained false statements in violation of the 1933 Securities Act. They brought no state-law claims. Cyan argued state courts no longer had power to hear such large group lawsuits.
The question before the Court
Can investors still sue in state court over a stock offering under the 1933 Securities Act, even when many people join together in a class action?
The Court's answer
Yes — the Court ruled that a 1998 federal law (SLUSA), passed to curb abusive state-law securities class actions, did not strip state courts of their long-standing power to hear class actions based on the federal 1933 Securities Act itself. The disputed provision only barred and allowed removal of class actions based on state law, not ones brought purely under the 1933 Act.
The Court also rejected the federal government's proposed middle ground, holding that companies sued this way in state court cannot remove those cases to federal court either, because the removal provision is tied to the same state-law bar and does not reach purely federal claims.
Curious how the Court got there? See the step-by-step legal reasoning →
Why it matters
Companies that go public and are later sued by shareholders over their offering documents can still be sued in state court, in cases with many plaintiffs, without being able to force the case into federal court. This preserves state courts as a major venue for securities class actions and keeps intact protections investors have relied on for decades.
What changes now
This is a final merits ruling that resolved a split among state and federal courts. The California state court's denial of Cyan's motion to dismiss for lack of jurisdiction is affirmed, so the investors' class action can proceed there. Going forward, similar 1933 Act class actions can continue to be filed and litigated in state court without being removable to federal court, unless Congress amends the law.
What this does not decide
The Court did not decide whether Congress should change the law to move these cases to federal court, only what the current statute says. It also left open why Congress included the disputed 'except clause,' suggesting a couple of possible explanations without settling on one.
How the Court got there
The legal reasoning, step by step
- The Court examined the 1933 Act's jurisdictional provision, which has long let both state and federal courts hear private lawsuits enforcing the Act, and asked whether a later law, the 1998 Securities Litigation Uniform Standards Act (SLUSA), carved out an exception for large class actions.
- SLUSA added an 'except clause' saying state-federal shared jurisdiction applies 'except as provided in' a separate section that bars certain class actions. The Court found that separate section only bars class actions based on state law, not those based on the federal 1933 Act itself.
- Cyan argued the except clause instead pointed to a definition of 'covered class action' covering any lawsuit with more than 50 plaintiffs, regardless of whether it's based on state or federal law. The Court rejected this because the except clause referenced the entire section, not just the definition, and a definition doesn't create an 'exception' to a jurisdictional rule.
- The Court found this reading also fit better with the law's broader structure and purpose, since Congress would not likely have ended 65 years of state courts hearing all 1933 Act cases through an unremarkable 'conforming amendment' rather than a clear, direct change.
- Turning to a related question about moving cases to federal court, the Court held that a separate removal provision only allows moving class actions that are barred under the state-law provision - and lawsuits based purely on federal law are not barred there, so they cannot be removed to federal court either.
Doctrinal impact
Cases affected by this decision
Reaffirms Kircher v. Putnam Funds Trust (547 U. S. 633)
The Court relied on Kircher's holding that removal and the state-law class-action bar apply to the same lawsuits.