WASHINGTON – The U.S. Supreme Court has asked the solicitor general to weigh
in on a jurisdiction question for a federal securities lawsuit out of California.
The case of Cyan Inc. vs. Beaver County Employees Retirement
Fund is currently in front of the nation’s highest court. The issue at hand is
whether state courts lack subject matter jurisdiction over specific class
Gavel | Public Domain Pictures
The case could set a precedent for where class actions are
“It will change the way (class action suits) are brought to
court,” Attorney Boris Feldman told the Northern California Record. “If the Supreme Court takes the case and we
prevail, than it will knock out Section 11 suits in state court, which will be
a big deal.”
Feldman, who represents Cyan Inc. in the federal case, said
Section 11 cases deal with false or misleading IPO perspectives.
The original class action began in 2013 after investors said
Cyan Inc. failed to warn them that the company’s revenues were dependent on two
limited life projects, and that both projects were coming to a close. Investors
argued the company was required to disclose those facts before giving stock
Under the Securities Act of 1933,
class actions suits are to be litigated in
state court. Subsequent laws, including the Securities Litigation Uniform
Standard Act (SLUSA), altered the rules for covered class action lawsuits to be
tried in federal courts. Federal judges were left to decide whether SLUSA
eliminated state jurisdiction altogether, which makes the case of Cyan Inc.
especially important to case law.
Feldman said the threshold for Section 11 cases is much
higher in federal court than it is in state court.
“We’re pretty confident that if the Cyan case had been
brought in federal court it would’ve been tossed on its ear,” he said.
Advocates for reform argue that more litigation could harm
efforts to raise capital and promote entrepreneurship.
This can be especially harmful to areas of California such
as Silicon Valley, where tech start-ups and entrepreneurs face turbulent and unpredictable financial landscapes.
Feldman argues that SLUSA should overrule the Securities Act
of 1933, and by California still allowing class action suits such as the one
brought against Cyan Inc., it’s only hurting the state’s overall economy.
“Our state is an IPO factory, and whenever the price dips
from the IPO price you can get sued in state court,” he said. “We think it’s
beneficial to them that if they’re sued they can only be sued in federal court.
Federal judges are pretty good about throwing out suits that don’t have merit.”
He said he is hopeful the Supreme Court will take up the
case and rule in favor of Cyan Inc., not just for the company itself but to
eliminate the risk burgeoning companies that offer IPOs face.
“We were encouraged that (the U.S. Supreme Court) is looking
at it seriously enough that they’ve asked the solicitor general to share his
views,” he said. “But beyond that, who knows?"