The U.S. Supreme Court on Tuesday seemed to agree on one aspect of a 1998 statute aimed at reforming securities litigation: It’s all gibberish.
An exasperated Justice Samuel Alito Jr. used the word “gibberish” three times during arguments in Cyan v. Beaver County Employees Retirement Fund. The California case asks the high court to interpret the language of the Securities Litigation Uniform Standard Act regarding state jurisdiction over securities class actions.
From the tenor of the argument though, the justices did not seem to have a clue. Other justices called the law “odd” or “obtuse.”
When Hogan Lovells partner Neal Katyal acknowledged that Congress had used obtuse language that nonetheless gave federal courts exclusive jurisdiction over class actions, Alito said, “That’s flattering. We have very smart lawyers here who have come up with creative interpretations, but this is gibberish. It is just gibberish.”
Katyal represented Cyan, a telecom company that went public in 2013 and was sued by shareholders.
Later in the argument, Alito was still frustrated. “Is there a certain point at which we say this means nothing, we can’t figure out what it means, and therefore it has no effect, it means nothing?”
Class action defendants hope it means something— and from their point of view, that something should preclude state jurisdiction.
Figuring out the law’s meaning is a hot issue, especially in California. State court rulings there allow concurrent state and federal jurisdiction over class actions, even though one aim of the Securities Litigation Uniform Standards Act, or SLUSA, was to shut down state class actions with more than 50 members. Companies defending against class actions don’t want to be in state courts, where cases can get bogged down and discovery costs soar.
A brief filed by Alibaba Group Holding Ltd. that was cited during argument Tuesday told the court that California’s interpretation has resulted in “an explosion of state court Securities Act class actions,” with more than 50 securities issuers being sued in California courts alone.
Lawyers on both sides labored to persuade the court that their reading of the statute was the most accurate, no matter how poorly Congress had drafted the law.
“Maybe if you look at it one way, it’s gibberish, maybe some of you could have written it better, but it still has to be given some meaning,” said Katyal, former acting U.S. solicitor general in the Obama administration.
Representing the class action plaintiffs, Tom Goldstein of Washington’s Goldstein & Russell gamely stated, “These words actually mean something. They may target a null set. They may not accomplish anything.” But, he added, the obtuse language does not erase “a long-standing form of jurisdiction” that includes state courts.
The court’s level of confusion may lead the justices to favor Cyan, said Morrison & Foerster securities litigation partner Anna Erickson White, who attended the hourlong argument.
“They were definitely grappling with the statute,” she said, “and that puts more emphasis on the intent of the statute,” which she said was to curb abusive class actions—in part by keeping the litigation out of state courts.
Win or lose, it was an important day for Katyal. At the same time he was arguing before the justices, a brief he filed in Trump v. Hawaii, a challenge to the Trump travel ban, was released.
In addition, Katyal’s Cyan argument was his 33rd before the court, surpassing the late Thurgood Marshall’s 32 arguments. The 47-year-old Katyal, a Chicago native born to Indian parents, will have risen to the Supreme Court lectern more times than any other minority lawyer in history.