(Mis)Interpreting SLUSA: Closing the Jurisdictional Loophole in FederalSecurities Class Actions

Abstract

Over the past fifteen years, Congress has twice attempted to curb frivolous securities class action lawsuits. It first passed the Private Securities Litigation Reform Act (“PSLRA”), which fell short of achieving Congress’s goal because plaintiffs were able to avoid the more stringent rules of federal courts by filing securities class action claims in state courts. Congress then sought to close this loophole by passing the Securities Litigation Uniform Standards Act (“SLUSA”), which amended the Securities Act of 1933 (“1933 Act”) to make federal court the exclusive venue for certain securities class actions. Congress’s effort has been complicated, though, by the multiple district court interpretations of the SLUSA amendments that have developed. This article argues that the correct answer lies in SLUSA’s revision to the 1933 Act’s jurisdictional clause. Unlike other approaches to interpreting the 1933 Act, what I call the “jurisdictional approach” to SLUSA finds strong support in both the text and the congressional intent underlying the statute. This reading leads to a harmonious interpretation of the rest of SLUSA’s revisions, and is therefore the approach judges should use when they apply the 1933 Act in cases involving “covered class actions” to keep federal claims in federal court.