Enforcement of Exclusive Federal Forum Provisions
State court enforcement of exclusive federal forum provisions for 1933 Act claims is the final step to issuers and other participants in securities offerings subject to the 1933 Act curbing duplicative state court litigation, and recent California decisions provide important guidance toward that objective.
December 09, 2020 at 12:00 PM
8 minute read
Two years after the U.S. Supreme Court ruled that state courts have concurrent jurisdiction over securities class actions brought under the Securities Act of 1933 (the 1933 Act), and that such actions are not removable to federal court, Delaware corporations are increasingly addressing the "Cyan problem"—the risk to companies conducting IPOs or follow-on offerings of facing parallel, multi-jurisdictional 1933 Act class action filings—by adopting in the certificate of incorporation a provision designating federal courts as the exclusive forum for resolution of claims under the 1933 Act. The ability of a corporation to exercise control over the venue for 1933 Act litigation serves to reduce the threat of duplicative and multi-forum securities litigation, and steer 1933 Act litigation into federal courts more accustomed to addressing federal securities laws. In two recent decisions, California Superior Courts issued the first rulings applying federal forum provisions to dismiss state court class actions asserting claims under the 1933 Act, rejecting challenges that such provisions are unenforceable under California law. State court enforcement of exclusive federal forum provisions for 1933 Act claims is the final step to issuers and other participants in securities offerings subject to the Act curbing duplicative state court litigation, and these California decisions provide important guidance toward that objective.
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