June 28, 2016

Willkie submits brief on behalf of SIFMA, the U.S. Chamber of Commerce and the National Venture Capital Association.

On June 27, 2016, Willkie submitted an amicus curiae brief to the Supreme Court of the United States on behalf of the Securities Industry and Financial Markets Association (“SIFMA”), the Chamber of Commerce of the United States of America (the “Chamber”), and the National Venture Capital Association (“NVCA”) in support of the petition for writ of certiorari in Cyan, Inc., et al. v. Beaver County Employees Retirement Fund, et al., No. 15-1439.  The question presented in Cyan is whether state courts lack subject matter jurisdiction over covered class actions that allege only claims under the Securities Act of 1933 (the “’33 Act”).

The ’33 Act imposes liability on issuers and underwriters (and certain individuals and companies who control them) for false and misleading statements in securities offering materials.  Although the ’33 Act has enhanced the integrity of the U.S. financial markets in certain respects, it also has created opportunities for abuse by class action plaintiffs’ lawyers who bring costly class action strike suits seeking a quick settlement.  The Securities Litigation Uniform Standards Act of 1998 (“SLUSA”) sought to prevent such abuse by requiring that ’33 Act class actions be brought in federal court.

Notwithstanding SLUSA’s clear statutory direction, California state courts have held that they still have concurrent jurisdiction over ’33 Act claims.  In the five years since the California Supreme Court handed down the first such decision, 38 class action lawsuits alleging claims under the ’33 Act have been filed in California state court.  Twenty-six of these cases have been filed in either San Mateo or Santa Clara county state court, in the heart of California’s Silicon Valley.  This exponential growth in state court litigation, and the fear of being hauled into state court in California to defend protracted and expensive class action lawsuits, has hindered startups and entrepreneurs in accessing the nation’s capital markets in order to raise the cash they need to launch and grow their businesses.

The amicus brief argues that certiorari should be granted because if left unchecked, the proliferation of ’33 Act class actions in state courts will have severe negative consequences for the nation’s capital markets.  The decision below sows uncertainty among issuers and underwriters concerning how the law that governs their conduct will be construed and applied. Increased uncertainty increases the risk to issuers and underwriters of raising capital in the United States, and this increased risk is ultimately passed on to investors in myriad ways.  Furthermore, opportunities for meaningful federal judicial review of this important federal question are limited by statute.  Finally, the decision below conflicts with SLUSA’s plain language and purpose.

This matter was handled by partners James Dugan and Mary Eaton and associates Frank Scaduto and Vincent Iannece.

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