The U.S. Supreme Court backed one avenue for lawsuits over initial public offerings, letting shareholders use a federal securities law to press claims in state court.
The justices unanimously said Tuesday that a 1998 federal law didn't strip state courts of the power to hear claims pressed under the 1933 Securities Act. Companies argued unsuccessfully that those lawsuits need to proceed in federal courts, where corporate defendants tend to fare better.
The 1998 law "says nothing, and so does nothing, to deprive state courts of jurisdiction over class actions based on federal law," Justice Elena Kagan wrote for the court.
More than 50 companies had been sued under the 1933 law in California alone over the past six years, according to a brief filed in the case by companies including Alibaba Group Holding Ltd. The filings spiked after a 2011 California state court decision said claims could go forward.
The ruling is a loss for Ciena Corp.'s Cyan unit, which was fighting an investor lawsuit filed by the Beaver County (Pa.) Employees' Retirement Fund. The investors argued that Securities Act claims should be allowed to go forward in state court as long as they aren't accompanied by other types of allegations that the 1998 law funnels into federal court.
Cyan Inc. was sued in California state court over alleged flaws in the company's 2013 initial public offering documents. Cyan later challenged the pension fund's standing, arguing that the 1998 Securities Litigation Uniform Standards Act, enacted to prevent a perceived rush of class actions in state courts along with federal actions, bars state court jurisdiction when federal securities violations are alleged.