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HEADLINE NEWS:
Securities Act Class Action: SLUSA Nixes State Jurisdiction
Mitchell A. Lowenthal and Timothy M. Haggerty - Cleary Gottlieb Steen and Hamilton LLP
New York Law Journal. November 29, 2006
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EXCERPT: SLUSA [Securities Litigation Uniform Standards Act of 1998] was intended to ensure that securities class actions met the rigors of the PSLRA [Private Securities Litigation Reform Act of 1995]. Thus, the comments of Senator Christopher J. Dodd, R-Conn., a chief co-sponsor of SLUSA: There is one development since the enactment of the reform law that has the potential to undermine our good work and send us back to the days of litigation frenzy. This development is the significant increase in securities fraud class actions filed in state court. [FN33] The problem that Congress targeted was identical whether the state court plaintiffs raised claims under the Securities Act or state law. In other words, these lawsuits were not frustrating the purposes of the PSLRA because they were brought under state law; rather, they were frustrating the purposes of the PSLRA because they were brought in state courts. [FN34] Moreover, Congress sought to eliminate the confusion, inconsistencies and opportunities for abuse and opportunism that arise when the same claims are subject to different standards. [FN35] When a court concludes that a class action alleging only Securities Act claims may proceed in state or federal court, the court also concludes that these identical actions may proceed in state and federal court. Thus, the PSLRA, which requires the appointment of a single 'lead' plaintiff, may be disarmed by opportunistic litigants looking for the most favorable forum. Courts have noted the practical and logical flaws of this conclusion, warning that 'concurrent class actions in state and federal court asserting substantially similar claims...could lead to considerable confusion if not outright inconsistent results.' [FN36] Conclusion Some courts have ruled that 'the legislative history and common sense' compel what SLUSA's plain text directs: 'the removability of class actions filed in state court asserting claims exclusively under the [Securities] Act.' [FN37] Others have ruled to the contrary. The current split of authority can be eliminated if all courts look to the jurisdictional provision that has heretofore been ignored. |
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