United States: Upcoming Supreme Court Cases Worth Noting By Institutional Investors

The U.S. Supreme Court's 2017 term begins October 2nd and we will be tracking at least three cases relevant to institutional investors:

  • Cyan, Inc. v. Beaver County Employees Retirement Fund
  • Digital Realty Trust v. Somers
  • Leidos v. Indiana Public Retirement System

Cyan, Inc. v. Beaver County Employees Retirement Fund

Cyan addresses the procedural question of whether claimants may bring Securities Act class actions in state courts, and whether defendants can remove such cases to federal court. California federal district courts hold, yes, state courts retain jurisdiction over Securities Act class actions brought in those courts and such cases cannot be removed to federal courts. Federal district courts in New York, New Jersey, and Delaware, however, hold that class actions alleging Securities Act claims are removable to federal court.

The Securities Litigation Uniform Standards Act of 1998 ("SLUSA") is at issue here.  Section 22 of the Securities Act provides that federal courts have concurrent jurisdiction with state courts for Securities Act class actions "except as provided in section 77p."  Securities Act defendants seeking to remove their cases to federal court have argued that this provision refers specifically to subsection f of 15 U.S.C. § 77p, which defines "covered class action" to include any suit in which more than 50 people seek damages and common questions predominate. Thus, according to these defendants, any such "covered class action" falls within SLUSA's exception to its concurrent jurisdiction provision.

Class action plaintiffs, including the retirement fund that brought the case against Cyan, Inc., argue that state courts retain jurisdiction over Securities Act class actions because SLUSA only eliminates state court jurisdiction over class actions alleging exclusively state law claims.  They further assert that class actions brought pursuant to the Securities Act may thereby be brought in state court and such actions are barred from removal to federal court.  15 U.S.C. § 77v(a) provides that "no case arising under this subchapter and brought in any State court of competent jurisdiction shall be removed to any court of the United States."  However, SLUSLA amended this provision to allow for removal of "any covered class action."  See 15 U.S.C. § 77p(c).

In its brief supporting the granting of certiorari, the Solicitor General's Office urged the Court to take an intermediate position—to use this case as a vehicle to opine on the scope of removal available under SLUSA, and to hold that Securities Act cases like the Cyan litigation are now removable to federal court even if they are not subject to dismissal.

This ruling will have practical consequences, as currently many plaintiffs are filing Securities Act class actions in California, seeking to avoid heightened pleading requirements imposed by federal courts and hoping for a speedier trial date.

Digital Realty Trust v. Somers

In Somers, the Court will consider whether whistleblowers who have reported alleged misconduct internally are protected by the anti-retaliation provision of the Dodd-Frank Act.  The Dodd-Frank Act bars retaliation against whistleblowers under certain circumstances, including disclosures required or protected by the Sarbanes-Oxley Act ("SOX"). Dodd-Frank's plain language arguably limits the definition of "whistleblower," however, to individuals who report securities laws violations to the SEC. The Fifth Circuit, in Asadi v. G.E. Energy (USA), L.L.C., construed this plain language to preclude the application of the statute's anti-retaliation provision to whistleblowers that only made SOX disclosures internally and did not report to the SEC. The Second Circuit in Berman v. Neo@Ogilvy, and Ninth Circuit in Somers, both held that the statute is ambiguous, granting deference to the SEC's interpretation, which applies the anti-retaliation provision to both internal whistleblowers and those who report to the SEC.

  For institutional investors, the Court's decision could have an impact on internal reporting regimes. A ruling that the anti-retaliation provision of Dodd-Frank does not apply to internal whistleblowers could limit employer liability in connection with internal investigations.  However, such ruling may also discourage whistleblowers from utilizing internal reporting regimes, as whistleblowers will be afforded more protection by reporting directly to the SEC.

Leidos v. Indiana Public Retirement System

Leidos presents the question of whether non-disclosure of "known trends or uncertainties" under Item 303 of Regulation S-K may give rise to private liability for securities fraud under Section 10(b) of the Exchange Act and SEC Rule 10b-5. The Court will address a split between the Second Circuit, which has held that in some circumstances non-disclosure could give rise to private securities fraud liability, and the Third and Ninth Circuits, which have held that non-disclosure does not create a private claim. Specifically, in Oran v. Stafford, the Third Circuit rejected the plaintiffs argument that a private right of action existed for violations of Item 303.  Additionally, the Third Circuit rejected the plaintiffs argument that a failure to make a disclosure required by Item 303 constitutes a per se violation of Rule 10b-5 because, according to the court, the disclosure obligations created by Item 303 "var[y] considerably from the general test for securities fraud materiality."  Thus, the Third Circuit concluded that "[b]ecause the materiality standards for Rule 10b-5 and SK-303 differ significantly, the demonstration of a violation of the disclosure requirements of Item 303 does not lead inevitably to the conclusion that such disclosure would be required under Rule 10b-5."  The Ninth Circuit adopted the Third Circuit's reasoning in the NVIDIA Corp. Securities Litigation, holding that "Item 303 does not create a duty to disclose for purposes of Section 10(b) and Rule 10b-5."

Notably, in Litwin v. Blackstone Group, L.P. and Panther Partners Inc. v. Ikanos Communications, Inc., the Second Circuit first held that Item 303 disclosures can form the basis of claims under Section 11 and 12(a)(2) of the Securities Act.  Then, in Stratte-McClure v. Morgan Stanley, the Second Circuit held that a violation of Item 303's disclosure requirements could sustain a claim under Rule 10b-5 as well, noting in the process that its decision was at odds with the Ninth Circuit's decision in NVIDIA.  In the Leidos case, the Second Circuit again held that a violation of Item 303 could provide the basis for a claim under Rule 10b-5.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

To print this article, all you need is to be registered on Mondaq.com.

Click to Login as an existing user or Register so you can print this article.

Joel D. Rothman
In association with
Related Video
Up-coming Events Search
Font Size:
Mondaq on Twitter
Register for Access and our Free Biweekly Alert for
This service is completely free. Access 250,000 archived articles from 100+ countries and get a personalised email twice a week covering developments (and yes, our lawyers like to think you’ve read our Disclaimer).
Email Address
Company Name
Confirm Password
Mondaq Topics -- Select your Interests
 Law Performance
 Law Practice
 Media & IT
 Real Estate
 Wealth Mgt
Asia Pacific
European Union
Latin America
Middle East
United States
Worldwide Updates
Check to state you have read and
agree to our Terms and Conditions

Terms & Conditions and Privacy Statement

Mondaq.com (the Website) is owned and managed by Mondaq Ltd and as a user you are granted a non-exclusive, revocable license to access the Website under its terms and conditions of use. Your use of the Website constitutes your agreement to the following terms and conditions of use. Mondaq Ltd may terminate your use of the Website if you are in breach of these terms and conditions or if Mondaq Ltd decides to terminate your license of use for whatever reason.

Use of www.mondaq.com

You may use the Website but are required to register as a user if you wish to read the full text of the content and articles available (the Content). You may not modify, publish, transmit, transfer or sell, reproduce, create derivative works from, distribute, perform, link, display, or in any way exploit any of the Content, in whole or in part, except as expressly permitted in these terms & conditions or with the prior written consent of Mondaq Ltd. You may not use electronic or other means to extract details or information about Mondaq.com’s content, users or contributors in order to offer them any services or products which compete directly or indirectly with Mondaq Ltd’s services and products.


Mondaq Ltd and/or its respective suppliers make no representations about the suitability of the information contained in the documents and related graphics published on this server for any purpose. All such documents and related graphics are provided "as is" without warranty of any kind. Mondaq Ltd and/or its respective suppliers hereby disclaim all warranties and conditions with regard to this information, including all implied warranties and conditions of merchantability, fitness for a particular purpose, title and non-infringement. In no event shall Mondaq Ltd and/or its respective suppliers be liable for any special, indirect or consequential damages or any damages whatsoever resulting from loss of use, data or profits, whether in an action of contract, negligence or other tortious action, arising out of or in connection with the use or performance of information available from this server.

The documents and related graphics published on this server could include technical inaccuracies or typographical errors. Changes are periodically added to the information herein. Mondaq Ltd and/or its respective suppliers may make improvements and/or changes in the product(s) and/or the program(s) described herein at any time.


Mondaq Ltd requires you to register and provide information that personally identifies you, including what sort of information you are interested in, for three primary purposes:

  • To allow you to personalize the Mondaq websites you are visiting.
  • To enable features such as password reminder, newsletter alerts, email a colleague, and linking from Mondaq (and its affiliate sites) to your website.
  • To produce demographic feedback for our information providers who provide information free for your use.

Mondaq (and its affiliate sites) do not sell or provide your details to third parties other than information providers. The reason we provide our information providers with this information is so that they can measure the response their articles are receiving and provide you with information about their products and services.

If you do not want us to provide your name and email address you may opt out by clicking here .

If you do not wish to receive any future announcements of products and services offered by Mondaq by clicking here .

Information Collection and Use

We require site users to register with Mondaq (and its affiliate sites) to view the free information on the site. We also collect information from our users at several different points on the websites: this is so that we can customise the sites according to individual usage, provide 'session-aware' functionality, and ensure that content is acquired and developed appropriately. This gives us an overall picture of our user profiles, which in turn shows to our Editorial Contributors the type of person they are reaching by posting articles on Mondaq (and its affiliate sites) – meaning more free content for registered users.

We are only able to provide the material on the Mondaq (and its affiliate sites) site free to site visitors because we can pass on information about the pages that users are viewing and the personal information users provide to us (e.g. email addresses) to reputable contributing firms such as law firms who author those pages. We do not sell or rent information to anyone else other than the authors of those pages, who may change from time to time. Should you wish us not to disclose your details to any of these parties, please tick the box above or tick the box marked "Opt out of Registration Information Disclosure" on the Your Profile page. We and our author organisations may only contact you via email or other means if you allow us to do so. Users can opt out of contact when they register on the site, or send an email to unsubscribe@mondaq.com with “no disclosure” in the subject heading

Mondaq News Alerts

In order to receive Mondaq News Alerts, users have to complete a separate registration form. This is a personalised service where users choose regions and topics of interest and we send it only to those users who have requested it. Users can stop receiving these Alerts by going to the Mondaq News Alerts page and deselecting all interest areas. In the same way users can amend their personal preferences to add or remove subject areas.


A cookie is a small text file written to a user’s hard drive that contains an identifying user number. The cookies do not contain any personal information about users. We use the cookie so users do not have to log in every time they use the service and the cookie will automatically expire if you do not visit the Mondaq website (or its affiliate sites) for 12 months. We also use the cookie to personalise a user's experience of the site (for example to show information specific to a user's region). As the Mondaq sites are fully personalised and cookies are essential to its core technology the site will function unpredictably with browsers that do not support cookies - or where cookies are disabled (in these circumstances we advise you to attempt to locate the information you require elsewhere on the web). However if you are concerned about the presence of a Mondaq cookie on your machine you can also choose to expire the cookie immediately (remove it) by selecting the 'Log Off' menu option as the last thing you do when you use the site.

Some of our business partners may use cookies on our site (for example, advertisers). However, we have no access to or control over these cookies and we are not aware of any at present that do so.

Log Files

We use IP addresses to analyse trends, administer the site, track movement, and gather broad demographic information for aggregate use. IP addresses are not linked to personally identifiable information.


This web site contains links to other sites. Please be aware that Mondaq (or its affiliate sites) are not responsible for the privacy practices of such other sites. We encourage our users to be aware when they leave our site and to read the privacy statements of these third party sites. This privacy statement applies solely to information collected by this Web site.

Surveys & Contests

From time-to-time our site requests information from users via surveys or contests. Participation in these surveys or contests is completely voluntary and the user therefore has a choice whether or not to disclose any information requested. Information requested may include contact information (such as name and delivery address), and demographic information (such as postcode, age level). Contact information will be used to notify the winners and award prizes. Survey information will be used for purposes of monitoring or improving the functionality of the site.


If a user elects to use our referral service for informing a friend about our site, we ask them for the friend’s name and email address. Mondaq stores this information and may contact the friend to invite them to register with Mondaq, but they will not be contacted more than once. The friend may contact Mondaq to request the removal of this information from our database.


This website takes every reasonable precaution to protect our users’ information. When users submit sensitive information via the website, your information is protected using firewalls and other security technology. If you have any questions about the security at our website, you can send an email to webmaster@mondaq.com.

Correcting/Updating Personal Information

If a user’s personally identifiable information changes (such as postcode), or if a user no longer desires our service, we will endeavour to provide a way to correct, update or remove that user’s personal data provided to us. This can usually be done at the “Your Profile” page or by sending an email to EditorialAdvisor@mondaq.com.

Notification of Changes

If we decide to change our Terms & Conditions or Privacy Policy, we will post those changes on our site so our users are always aware of what information we collect, how we use it, and under what circumstances, if any, we disclose it. If at any point we decide to use personally identifiable information in a manner different from that stated at the time it was collected, we will notify users by way of an email. Users will have a choice as to whether or not we use their information in this different manner. We will use information in accordance with the privacy policy under which the information was collected.

How to contact Mondaq

You can contact us with comments or queries at enquiries@mondaq.com.

If for some reason you believe Mondaq Ltd. has not adhered to these principles, please notify us by e-mail at problems@mondaq.com and we will use commercially reasonable efforts to determine and correct the problem promptly.