Business Insurance quoted Haynes and Boone, LLP Partner Dan Gold on the U.S. Supreme Court’s ruling in Cyan Inc. et al. v. Beaver County Employees Retirement Fund et al. that held amendments to the federal Securities Act of 1933 do not give federal courts exclusive jurisdiction over securities-offerings litigation.
Business Insurance reported that the March 20 decision holding such cases can be heard in state court and that defendants may not move state-filed cases to federal court is expected to lead to increased litigation against companies and possibly increase directors and officers liability rates.
According to the report, several pieces of legislation form the background for the ruling. The Securities Act of 1933 created private rights of action related to the enforcement of securities offerings, while the Securities Exchange Act of 1934 regulated subsequent trading, according to the ruling.
In 1995, the Private Securities Litigation Reform Act amended both acts to stem perceived abuse of the class actions in securities litigation. In an effort to avoid these reforms, plaintiffs began filing securities class actions under state law. In response, Congress passed the Securities Litigation Uniform Standards Act of 1998, according to the ruling.
Mead, Washington-based Cyan, a video game company that had been sued in state court in connection with its initial public offering, argued that a clause in the SLUSA stripped state courts of the power to decide claims under the 1933 Act.
A California state appellate court ruled against Cyan, and after the California Supreme Court did not accept the case for review, it was appealed to the U.S. Supreme Court. The high court held that state courts retain concurrent jurisdiction over class action suits alleging violation of the Securities Act of 1933.
“Plaintiffs perceive state courts as more favorable for them than federal courts. Defendants take the opposite view,” said Daniel H. Gold, a partner with Haynes and Boone, LLP in Dallas. “The Supreme Court ruling is certainly a favorable decision for plaintiffs in terms of having their choice of forum.”
“We’ll have to see how D&O insurers react and whether they perceive this as increasing the risk with these types of claims,” said Mr. Gold.
Excerpted from Business Insurance. To read the full article, click here.