U.S. Supreme Court building. Photo by Diego M. Radzinschi.

In a blow for the defense bar, the U.S. Supreme Court on Tuesday unanimously rejected arguments that state courts do not have jurisdiction over certain types of investor class actions that have especially dogged tech companies in California.

Defense lawyers have been waging a losing battle over the past half-decade, mainly in California but also in New York and other states, to keep securities fraud class actions out of state courts — where they say federal safeguards meant to curb abusive class actions do not apply.

Last year, the U.S. Supreme Court took the unusual step of granting review in a case that came straight from state trial court in San Francisco. There is no formal circuit split on the underlying issue, although that's in large part because courts have not treated orders remanding a case back to state court as appealable.

On Tuesday, Justice Elena Kagan wrote for a unanimous court in Cyan v. Beaver County Employees Retirement Fund that state courts maintain jurisdiction over class actions brought under the federal Securities Act of 1933. She rejected contentions that the 1998 Securities Litigation Uniform Standards Act, or SLUSA, had stripped that away.

“SLUSA's text, read most straightforwardly, leaves in place state courts' jurisdiction over 1933 Act claims, including when brought in class actions,” Kagan wrote.

The case turned on statutory interpretation of SLUSA, which stamped out securities class actions brought under state law. The question that remained was whether, in so doing, it also prevented all class actions under federal law from being brought in state court. Kagan wrote that, however complex it may seem, the meaning of the statute was clear.

“Faced with such recalcitrant statutory language, Cyan stakes much of its case on legislative purpose and history,” she wrote. “Even assuming clear text can ever give way to purpose, Cyan would need some monster arguments on this score to create doubts about SLUSA's meaning. The points Cyan raises come nowhere close to that level.”

Under the 1933 Act, companies can be sued for releasing false or misleading information in connection to an initial offering of a stock; Section 11 of the law holds them strictly liable even for mistakes that were not intentional fraud.

Neal Katyal of Hogan Lovells argued at the Supreme Court for Cyan, a Northern California telecom company that was sued in 2014 after its IPO, while Thomas Goldstein of Goldstein & Russell argued for the investors. Cyan is represented in the underlying litigation by Wilson Sonsini Goodrich & Rosati.

“Many more Section 11 suits are likely to be filed, whenever the stock of a company that went public drops below the IPO price,” Wilson Sonsini partner Boris Feldman said in an email reacting to the ruling. He added that the next “legal battleground” will be over whether a company's incorporating documents can still force suits to be filed in federal court.

Darren Robbins of Robbins Geller Rudman & Dowd, which represents the investors in the underlying case, called the decision a “big win for the rule of law.”

While noting that the number of class actions filed in federal court far outnumbers those brought in state court, Robbins said the decision was still important. “The practical implication is not large, but that doesn't change the significance of the ruling because it allows a victim plaintiff to choose between a state or federal court,” he said.

According to a study by Cornerstone Research earlier this year, 1933 Act filings in state court dropped significantly in 2017, possibly in anticipation of the Cyan decision going the other way.