SAN FRANCISCO The U.S. Supreme Court on Tuesday agreed to takeup a case that could impact a strain of securities class actionsthat have dogged tech companies in Silicon Valley.
The central controversy in Cyan, Inc. v. Beaver CountyEmployees Retirement Fund is whether lawsuits brought underfederal securities law over alleged false statements prior to aninitial public offering can move forward in state court or if theymust be removed to federal court.
Although it's a weedy legal issue, lawyers that defend techcompanies argue that the lack of clarity has had majorconsequences. A string of decisions on the question have allowed anend-run around federal legislative reforms meant to curb abusivesecurities suits, they claim.
Since 2011, plaintiffs firms have had more success in gettingtheir cases to move forward in state courtsmainly inCaliforniawhere the defense bar says that lenient pleadingstandards and looser rules around discovery exert greater pressureon companies to settle.
"We are grateful that the Supreme Court has granted our petitionand agreed to resolve the current division between the lower courtson this important issue," said Boris Feldman, a partner at Wilson Sonsini Goodrich &Rosati in Silicon Valley who represents Cyan, a Northern Californiatelecom company that was sued in 2014 after its IPO.
"We look forward to explaining to the Court why we believe thatour interpretation of the SLUSA statute is correct," he added,referring to the 1998 Securities Litigation Uniform Standards Act.The legislation shut down securities class actions brought understate law, but the statute is less clear about whether all suitsshould be routed to federal court.
The decision to grant review of Cyan is unusual in that the casecomes straight from a California state trial court in SanFrancisco. There is no formal circuit split on the underlying issueof where securities fraud class actions belong, although that's inlarge part because courts have not treated orders remanding a caseback to state court as appealable.
The plaintiffs in the case, represented by securities classaction firms Robbins Gellar Rudman & Dowd and Glancy Prongay& Murray, had argued that Cyan's petition for review should bedenied because of the "interlocutory posture" of the case, andnoted that both a California state appeals court and the state highcourt denied to review the trial court's ruling.
"It is no surprise that the state supreme court would decline tostep in to review an interlocutory jurisdictional objection in theabsence of any conflict in its lower courts," they wrote in a brief. "But that hardly provides a basis for thisCourt to do so given that the question has been decided by only oneappellate court anywhere in the nation."