State Section 11 Litigation in the Post-Cyan Environment

Abstract

In Cyan, Inc. v. Beaver County Employees Retirement Fund, the Supreme Court interpreted the Securities Litigation Uniform Standards Act of 1998 (SLUSA) to preserve state courts’ jurisdiction to hear cases brought under the Securities Act of 1933, a question on which courts had been split. The result has been a dramatic increase in the filing of Section 11 cases in state court, for which there is often a parallel case brought in federal court against the same defendants based on the same alleged misstatements. To understand the practical implications of Cyan, we analyze data on Section 11 cases filed since 2011, a point at which several federal courts had ruled that Section 11 cases could be brought in state court. Our key findings are the following: state courts have dismissed Section 11 cases less frequently than have federal courts; the relative size of settlements in state and federal cases is ambiguous; when parallel cases are filed in state and federal court against the same defendant, dismissal of both cases is rare and settlement is common.