Argument analysis: Justices frustrated by “gibberish” in statutes limiting state-court adjudication of securities class actions
on Nov 28, 2017 at 9:02 pm
The key word in today’s argument in Cyan, Inc. v. Beaver County Employees Retirement Fund was “gibberish” – the characterization by several of the justices of the text Congress provided in the Securities Litigation Uniform Standards Act of 1998. The argument revealed the justices’ frustration at the statute’s sloppy craftsmanship.
The case involves the interplay between two sections of the federal securities laws. 15 U.S.C. § 77v states that the “district courts … shall have jurisdiction … , concurrent with State … courts, except as provided in section 77p of this title with respect to covered class actions, of … actions … to enforce any liability … created by [the Securities Act of 1933].” However, as I explained in more detail in my preview, nothing in Section 77p restricts the jurisdiction of state courts over actions to enforce the Securities Act of 1933. The petitioner, Cyan (the defendant in the class action), argues that the provision bars concurrent jurisdiction over all “covered class actions,” whether based on state law or federal law, pointing to a definition of covered class actions in Section 77p. The class-action plaintiffs, Beaver County Employees Retirement Fund and others, argue that the provision bars jurisdiction over “mixed” state- and federal-law actions, pointing to a provision in Section 77p that bars securities class actions that rely on state (as opposed to federal) law. The government, offering yet another reading, agrees with the plaintiffs that the statute bars only the actions that rely on state law, but argues that defendants can remove all actions (based on state or federal law) from state court to federal court.
All the participating justices resisted the idea that any of those three readings flows readily from the actual language of Section 77v quoted above. So, for example, when Neal Katyal, representing Cyan, summarized his position that the statute broadly bars all state-court securities class actions – whether based on federal law or state law – Justice Ruth Bader Ginsburg responded that “Congress chose a rather obtuse way of saying that federal courts shall have exclusive jurisdiction. I could have simply said, in covered class actions related to claims under the ’33 Act, federal courts shall have exclusive jurisdiction, period, and that would be clear and everybody would understand and you would prevail. But the Congress certainly took a[n] odd route to getting there.” After suggesting that “this body could have written a much better statute than our friends across the street,” Katyal contended that “the anomaly on the other side is far worse.”
When Katyal tried to discuss the purpose of the statute as opposed to the text, Justice Elena Kagan resisted: “Could we … just talk about the text before we speak about the purpose?” Kagan then focused directly on what she saw as the central weakness of Katyal’s reading:
[T]he natural way to read that is we look at 77p, the whole thing, and we see what’s the “except” that’s provided [there]. We don’t look to an ancillary definitional provision that all it does is define a term. We look for a rule that might be in conflict, that could be taken to be in conflict, with the jurisdictional provision. … So, … it just seems as though your interpretation does a very odd thing textually when you read “except as provided” in Section 77p to say let’s look to a definition in that section.
Katyal tried repeatedly to justify his reading, but Kagan closed the discussion by commenting: “[I]f your reading were right, Mr. Katyal, it would be written something like: ‘Except with respect to [covered] class actions as defined in’ – not ‘as provided by’ – ‘as defined in 77p(f)(2)’ – not just ‘77p.’”
Justice Sonia Sotomayor shared Kagan’s doubts about Katyal’s reading. For her, the point of departure was “the presumption, and one that exists when there’s an ambiguity, that says we presume in favor of concurrent jurisdiction.” Given the apparent ambiguity of the statute, she contended that Katyal was calling for “a fairly extreme result … taking a very strong presumption, turning it on its head, and saying we’re ousting state courts o[f] jurisdiction o[ver] securities actions that have nothing to do with federal law.”
Sotomayor appeared particularly exercised by the application of Katyal’s reading to bar state-law actions even if they weren’t pre-empted by the Securities Act, asking:
In what other situation where we do not have a federal law that preempts a state law, have we ever permitted the federal government to tell the states that they can’t adjudicate a case under their own law?
You can pass a federal law that says this federal law precludes these actions. But if you don’t have one that says that, … how can you order the state court not to adjudicate a claim that is not precluded, … that is expressly not [pre]cluded?
Things didn’t go much more smoothly for Allon Kedem, arguing on behalf of the government for the view that Congress intended to permit removal of all actions to federal court. Justice Samuel Alito for one found that reading untenable:
Do you really think that whoever wrote this removal provision thought about all this stuff that you’re telling us now? … If they set out to do what you say this does, and they decided this is the way we’re going to do it, I think it’s so far from reality that it really strains credulity.
Kedem did, however, have the distinction of receiving a sympathetic comment. Justice Stephen Breyer posited a drafter “given a task … to do two things … to … get rid of these state actions [and] to remove the federal act cases into federal court.” For him, “this is the language that does it.” But Breyer immediately qualified his comment by suggesting that the removal result for which Kedem argued was so eccentric that “I would expect there would be a report and in this report there would be an explanation such as you gave me of the [text]. And my guess is there is no such report.” Kedem had to concede, as Alito suggested, that there is nothing in the legislative record to suggest that Congress had intended the removal reading that the government posited. Moreover, because the case in fact was not removed from state court, several justices (most notably Ginsburg and Justice Anthony Kennedy) seemed to think that the court could not properly consider Kedem’s reading in this case even if the justices did find it plausible.
The forceful questioning continued when Thomas Goldstein appeared on behalf of the plaintiffs, arguing that the statute should be read to match the jurisdictional provisions in section 77v to the preclusion provisions in section 77p, a position that would permit purely federal actions (like this one) to proceed in the state courts. Justice Neil Gorsuch commented that Goldstein’s reading left the statute so “superfluous” that it was “stating the blindingly obvious, … closing a door twice.”
Alito also criticized Goldstein’s reading: “What sense does that … make? The … state courts have concurrent jurisdiction over ’33 Act claims, except if a lawyer is foolish enough to include in the state court complaint the state claims that fall within the … prohibition? What sense does that make?”
Goldstein countered that Section 77v is “not intended to do very much. It’s a conforming amendment. We don’t think that the statute … is intended to accomplish very much.” But Ginsburg characterized Goldstein’s reading as a “road to nowhere” for the provision.
A comment of Alito near the beginning of Katyal’s presentation captured the justices’ frustration with the statutory language:
Our late colleague [Antonin Scalia] wrote a book called Reading Law, which provides guidance about how you read statutes. And I looked through that to see what we are supposed to do when Congress writes gibberish. And that’s what we have here. You said it’s obtuse. That’s flattering. And we have very smart lawyers here who have come up with creative interpretations, but this is gibberish. It’s … just gibberish.
Sharing Alito’s perspective, Gorsuch later asked Goldstein whether “[s]peaking of gibberish, aren’t we stuck with gibberish your way too? I mean, it seems like gibberish all the way down here.”
For Alito, the drafting went far beyond the normal range of ambiguity or lack of clarity. Indeed, he suggested at one point that the statute in this case was so poorly crafted as to make the judicial task impossible: “I mean, all the readings that everybody has given to all of these provisions are a stretch. I’m serious. 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?” Presumably the justices won’t issue an opinion concluding that the statute means nothing. But the tenor of the argument suggests that they may have a hard time finding a reading to which all of them can subscribe.
[Disclosure: Goldstein & Russell, P.C., whose attorneys contribute to this blog in various capacities, is among the counsel to the respondents in this case. The author of this post, however, is not affiliated with the firm.]