Cyan Restoration Robotics & Dropbox Securities Litigation California Court Order to Enforce Delaware Federal Forum Provision

In three separate cases, California Superior Courts have upheld federal forum provisions in governing corporate documents to preclude state court lawsuits under 15 U.S.C. § 77z-1 of the Security Act of 1993 (“Securities Act”) This is important because the Courts’ decisions it increases reasons companies incorporated in Delaware to use federal forum provisions to avoid simultaneous and duplicative state and federal lawsuits. The three cases were:

  • Cyan Inc. v. Beaver County Employees Retirement Fund, 138 S.Ct. 1061 (2018)
  • Wong v. Restoration Robotics, Inc., No. 18CIV02609, 2020 Cal. Super. LEXIS 227 (Cal. Sup. Ct. Sept. 1, 2020)
  • In re Uber Technologies, Inc. Securities Litigation, No. CGC-19-579544 (Cal. Super. Ct. Nov. 16, 2020)

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Cyan Inc. v. Beaver County Employees Retirement Fund, 138 S.Ct. 1061 (2018)

Respondents, three pension funds and an individual (Investors), purchased shares of stock in petitioner Cyan, Inc., in an initial public offering. After the stock declined in value, the Investors brought a damages class action against Cyan in state court, alleging 1933 Act violations. They did not assert any claims based on state law.

Cyan moved to dismiss for lack of subject matter jurisdiction, arguing that SLUSA’s “except clause” stripped state courts of power to adjudicate 1933 Act claims in “covered class actions.” The Investors maintained that SLUSA left intact state courts’ jurisdiction over all suits–including “covered class actions”–alleging only 1933 Act claims.

The state courts agreed with the Investors and denied Cyan’s motion to dismiss. This Court granted certiorari to decide whether SLUSA deprived state courts of jurisdiction over “covered class actions” asserting only 1933 Act claims.

The Court also addresses a related question raised by the federal Government as amicus curiae and addressed by the parties in briefing and argument: whether SLUSA enabled defendants to remove 1933 Act class actions from state to federal court for adjudication.

Held:

  1. SLUSA did nothing to strip state courts of their longstanding jurisdiction to adjudicate class actions brought under the 1933 Act. Pp. ___ – ___, 200 L. Ed. 2d, at 342-349.

    (a) SLUSA’s text, read most straightforwardly, leaves this jurisdiction intact. The background rule of §77v(a)-in place since the 1933 Act’s passage–gives state courts concurrent jurisdiction over all suits “brought to enforce any liability or duty created by” that statute. And the except clause–“except as provided in section 77p of this title with respect to covered class actions”–ensures that in any case in which §77v(a) and [**337] §77p conflict, §77p will control. The critical question for this case is therefore whether §77p limits state-court jurisdiction over class actions brought under the 1933 Act. It does not. Section 77p bars certain securities class actions based on state law but it says [*1064] nothing, and so does nothing, to deprive state courts of jurisdiction [***5] over class actions based on federal law. That means §77v(a)s background rule–under which a state court may hear the Investors’ 1933 Act suit–continues to govern.
    Cyan argues that the except clause’s reference to “covered class actions” points the reader to §77p(f)(2), which defines that term to mean a suit seeking damages on behalf of more than fifty persons–without mentioning anything about whether the suit is based on state or federal law. But that view cannot be squared with the except clause’s wording for two independent reasons. First, the except clause points to “section 77p” as a whole–not to paragraph 77p(f)(2). Had Congress intended to refer to §77p(f)(2)s definition alone, it presumably would have done so. See NLRB v. SW General, Inc., 580 U. S. ___, ___, 137 S. Ct. 929, 197 L. Ed. 2d 263. Second, a definition, like §77p(f)(2), does not “provide[]” an “except[ion],” but instead gives meaning to a term–and Congress well knows the difference between those two functions. Not one of the 30-plus provisions in the 1933 and 1934 Acts using the phrase “except as provided in . . .” cross-references a definition.
    Structure and context also support the Court’s reading of the except clause. Because Cyan treats the broad definition of “covered class action” as altering §77v(a)s jurisdictional grant, its construction would prevent [***6] state courts from deciding any 1933 Act class suits seeking damages for more than fifty plaintiffs, thus stripping state courts of jurisdiction over suits about securities raising no particular national interest. That result is out of line with SLUSA’s overall scope. Moreover, it is highly unlikely that Congress upended the 65-year practice of state courts’ adjudicating all manner of 1933 Act cases (including class actions) by way of a mere conforming amendment. See Director of Revenue of Mo. v. CoBank ACB, 531 U. S. 316, 324, 121 S. Ct. 941, 148 L. Ed. 2d 830. Pp. ___ – ___, 200 L. Ed. 2d, at 343-345.
    (b) Cyan’s reliance on legislative purpose and history is unavailing. Pp. ___ – ___, 200 L. Ed. 2d, at 345-349.
    (1) Cyan insists that the only way for SLUSA to serve the Reform Act’s objectives was by divesting state courts of jurisdiction over all sizable 1933 Act class actions. Specifically, it claims that its reading is necessary to prevent plaintiffs from circumventing the Reform Act’s procedural measures, which apply only in federal court, by bringing 1933 Act class actions in state court.
    But Cyan ignores a different way in which SLUSA served the Reform Act’s objectives–which the Court’s view of the statute fully effects. The Reform Act included substantive sections protecting defendants in suits brought under the federal securities laws. [***7] Plaintiffs circumvented those provisions by bringing their complaints of securities misconduct under state law instead. Hence emerged SLUSA’s bar [**338] on state-law class actions (and its removal provision to ensure their dismissal)–which guaranteed that the Reform Act’s heightened substantive standards would govern all future securities class litigation. SLUSA’s preamble states that the statute is designed “to limit the conduct of securities class actions under state law, and for other purposes,” 112 Stat. 3227, and this Court has underscored, over and over, SLUSA’s “purpose to preclude certain vexing state-law class actions.” Kircher v. Putnam Funds Trust, 547 U. S. 633, 645, n. 12, 126 S. Ct. 2145, 165 L. Ed. 2d 92. That object–which SLUSA’s text actually reflects–does not depend on stripping state courts of jurisdiction over 1933 Act class suits, as Cyan proposes. For wherever those suits go forward, the Reform [*1065] Act’s substantive protections necessarily apply.
    SLUSA also went a good distance toward ensuring that federal courts would play the principal role in adjudicating securities class actions by means of its revisions to the 1934 Act. Because federal courts have exclusive jurisdiction over 1934 Act claims, forcing plaintiffs to bring class actions under the 1934 statute instead of state [***8] law also forced them to file in federal court. Pp. ___ – ___, 200 L. Ed. 2d, at 345-347.
    (2) Cyan finally argues that the except clause would serve no purpose at all unless it works as Cyan says. But Congress could have envisioned the except clause as the ultimate fail-safe device, designed to safeguard §77ps class-action bar come whatever might. Congress has been known to legislate in that hyper-vigilant way, to “remov[e] any doubt” as to things not particularly doubtful in the first instance. Marx v. General Revenue Corp., 568 U. S. 371, 383-384, 133 S. Ct. 1166, 185 L. Ed. 2d 242. If ever it had reason to legislate in that fashion, it was in SLUSA-whose very impetus lay in the success of class action attorneys in “bypass[ing] . . . the Reform Act.” Kircher, 547 U. S., at 636, 126 S. Ct. 2145, 165 L. Ed. 2d 92. And regardless of any uncertainty surrounding Congress’s reasons for drafting the except clause, there is no sound basis for giving that clause a broader reading than its language can bear, especially in light of the dramatic change such an interpretation would work in the 1933 Act’s jurisdictional framework. Pp. ___ – ___, 200 L. Ed. 2d, at 347-349.

  2. SLUSA does not permit defendants to remove class actions alleging only 1933 Act claims from state to federal court. The Government argues that §77p(c) allows defendants to remove 1933 Act class actions to federal court as long as they allege the kinds of misconduct [***9] listed in §77p(b). But most naturally read, §77p(c) refutes, not supports, the Government’s view. Section 77p(c) allows for removal of “[a]ny covered class action brought in any State court involving a covered security, as set forth in subsection (b).” The covered class actions “set forth” in §77p(b) are state-law class actions alleging securities misconduct. Federal-law suits are not “class action[s] . . . as set forth in subsection (b).” Thus, they remain subject to the 1933 Act’s removal ban. This Court has held as much, concluding that §§77p(b) and 77p(c) apply to the exact same universe of class actions. Kircher, 547 U. S., at 643-644, 126 [**339] S. Ct. 2145, 165 L. Ed. 2d 92. The “straightforward reading” of those two provisions is that removal under §77p(c) is “limited to those [actions] precluded by the terms of subsection (b).” Id., at 643, 126 S. Ct. 2145, 165 L. Ed. 2d 92. Pp. ___ – ___, 200 L. Ed. 2d, at 349-353.

    Affirmed.

Wong v. Restoration Robotics, Inc., No. 18CIV02609

In Wong v. Restoration Robotics Inc. et al., the Superior Court of the State of California held that federal forum provisions for the Securities Act of 1933 (the “1933 Act”) claims are not illegal under California law and may be used to sidestep the bar on removal of Securities Act claims following Cyan.

Restoration Robotics is a Delaware company with an exclusive federal forum provision in its charter. After a company shareholder brought Securities Act claims in state court against the company and certain of its directors, officers, underwriters and investors, the defendants moved to enforce the federal forum provision and dismiss the case.

Plaintiffs brought a putative class action in California state court, and Restoration Robotics moved to dismiss. Restoration Robotics was a Delaware corporation with its principal place of business in California. Restoration Robotics’ Amended and Restated Certification of Incorporation designated federal district courts as the exclusive forum for all lawsuits asserting a cause of action under the 1933 Act. 

On September 1, 2020, Judge Marie S. Weiner of the San Mateo County, California Superior Court held that an exclusive federal forum provision was enforceable under California law. Relying on a then current decision from the Delaware Court of Chancery, which held that Delaware law does not permit companies to adopt federal forum provisions, the court initially denied the motion.

The court denied the motion to dismiss and then granted a motion to reconsider based on the Delaware Supreme Court’s decision in Sciabacucchi.  On reconsideration, the California Superior court found the FFP to be enforceable and dismissed the case. Class Action – Motion to Dismiss – Wong v Restoration Robotics


In re Uber Technologies, Inc. Securities Litigation, No. CGC-19-579544

Uber is a Delaware corporation headquartered in California. On February 11, 2020, shareholders of Uber filed a complaint alleging claims under the Securities Act in California Superior Court for San Francisco County. Uber moved to dismiss the complaint pursuant to a FFP in its charter, which the California Superior Court granted on November 16, 2020.

California Superior Court found that the FFP was valid and enforceable. Like in Restoration Robotics, the Uber decision focused on the fact that the FFP was contained in Uber’s charter and “was approved by a majority of its shareholders” and plaintiffs offered “no evidence to show that the FFP was unexpected or unreasonable.” Class Action – In re Dropbox Securities Litigation