SCOTUS: The jurisdictional test established by Security Exchange Act of 1934 § 27 is the same as 28


The Security Exchange Act of 1934 is "a law governing the secondary trading of securities (stocks, bonds, and debentures) in the United States of America. A landmark of wide-ranging legislation, the Act of '34 and related statutes form the basis of regulation of the financial markets and their participants in the United States. The 1934 Act also established the Securities and Exchange Commission (SEC), the agency primarily responsible for enforcement of United States federal securities law." See Wiki.

Here, Respondent (Manning) lost a great deal of money and sued . Indeed, "Manning blames petitioners, Merrill Lynch and several other financial institutions...for devaluing Escala during that period through 'naked short sales' of its stock." Pp. 1. Basically, Respondent alleges that Petitioners sold more stock than it possessed (and never intended to purchase) of Escala. Respondent brings suit, however, in State court under several New Jersey causes of action (as well as RICO, etc.) The case is removed to federal court and makes it up to the Third Circuit. The Supreme Court grants cert. and gives the above holding.

Section 27 of the Securities Exchange Act of 1934 (Exchange Act), 48 Stat. 992, as amended, 15 U. S. C. §78a, et seq., grants federal district courts exclusive jurisdiction “of all suits in equity and actions at law brought to enforce any liability or duty created by [the Exchange Act] or the rules or regulations there under.” Although the Supreme Court agrees with the reasoning of the Third Circuit; however, holds that "[b]ringing such a suit is the prototypical way of enforcing an Exchange Act duty. But it is not the only way." Pp. 7. The issue is whether the federal cause of action must be heard in federal court as opposed to state court.

To be sure, a grant of exclusive federal jurisdiction, as Merrill Lynch reminds us, indicates that Congress wanted “greater uniformity of construction and more effective and expert application” of federal law than usual. Brief for Petitioners 24 (quoting Matsushita, 516 U. S., at 383). But “greater” and “more”do not mean “total,” and the critical question remains how far such a grant extends. In resolving that issue, we will not lightly read the statute to alter the usual constitutional balance, as it would by sending actions with all state-law claims to federal court just because a complaint references a federal duty. Pp. 15 (external quotation mark omitted).

Indeed, the Court states that "[o]n rare occasions, as just suggested, a suit raising a state-law claim rises or falls on the plaintiff ’s ability to prove the violation of a federal duty." (citing, e.g., Grable & Sons Metal Products, Inc. v. Darue Engineering & Mfg., 545 U. S. 308, 314–315 (2005); Smith v. Kansas City Title & Trust Co., 255 U. S. 180, 201 (1921)). We often see this in New York with federal causes of action being brought in state court for civil rights violations. It is often the jury venire that sits in say, the Bronx, that is best suited to answer and redress constitutional violations by state actors. Could it be that most plaintiffs attorneys know that the largest verdicts are rendered by Bronx jurors?

The Petitioners contend that this may cause a rift in federal law - that the law will not be applied evenly. As with the above civil rights example, that is not the case and the Supreme Court reassures Petitioners that (using RICO as an example), "we expressed confidence that state courts would look to federal court interpretations of the relevant criminal statutes." Pp. 16. "Our holding requires remanding Manning’s suit to state court. The Third Circuit found that the District Court did not have jurisdiction of Manning’s suit under §1331 because all his claims sought relief under state law and none necessarily raised a federal issue." Pp. 18. Justice Thomas and Sotomayor write a concurring opinion and the full case can be read here: Merrill Lynch, Pierce, Fenner & Smith Inc. v. Manning

#SEC #Jurisdiction #FederalClaims #SupremeCourt #SecurityExchangeActof1934 #28USC1331 #arisesundertest

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