Shareholder Suit Remanded To State Court Under Cyan

On December 6, 2019, U.S. District Judge Thomas A. Varlan for the Eastern District of Tennessee remanded two of three previously removed, and later consolidated, Tennessee state court actions against certain Miller Energy Company directors and officers and underwriters used in an offering of redeemable preferred stock (“Defendants”) for violations of the Securities Act of 1933. Although plaintiffs Gaynor and Goldberg’s motions to remand were previously denied in September 2016, Judge Varlan revisited the issue citing Cyan, Inc. v. Beaver County Employees Retirement Fund, 138 S. Ct. 1061 (2018) as an “extraordinary circumstance justifying reconsideration of the Court’s prior holding . . . .” Order: The order to consolidate [Doc. 84] is Vacated, 9, Gaynor v. Miller et. al., No. 3:15-cv-00545 (the “Order”).

In November 2015, plaintiffs Gaynor and Goldberg originally filed their lawsuits against Defendants in Tennessee state court. In December 2015, Defendants removed the state court actions and in January 2016 plaintiffs Gaynor and Goldberg moved to remand. Shortly after, plaintiff Hull filed in federal court that was deemed related to the Gaynor and Goldberg actions. The Court denied plaintiffs Gaynor and Goldberg’s motions to remand and granted Defendants’ motion to consolidate the three cases. On June 1, 2018, plaintiffs Gaynor and Goldberg filed a renewed motion to remand. In August 2018, the Court granted a joint motion to stay the case temporarily for thirty days pending mediation and entered two more stays to allow the parties to complete settlement negotiations lasting through April 2019. The mediation did not produce a settlement and the Court lifted the stay, returning to the renewed motion to remand that was pending at the time of the August 2018 stay.

In Cyan, the Supreme Court unanimously held that the Securities Litigation Uniform Standards Act of 1988 (“SLUSA”) does not remove state court’s jurisdiction over class actions suits alleging violations of the Securities Act of 1933. As state courts have concurrent jurisdiction over Securities Act of 1933 claims, they cannot be removed to federal court. Due to the Cyan ruling, Judge Varlan ruled that “[i]f the Court were considering the motions to remand today, applying Cyan, it would reach the opposite conclusions.” Order at 9. Therefore, Judge Varlan granted plaintiffs Gaynor and Goldberg’s renewed motion to remand the two actions to state court while maintaining jurisdiction over the Hull action that was originally filed in federal court.
The ruling demonstrates that plaintiffs’ choice on where to file their claim for violations of the Securities Act of 1933 will be respected and will not be upturned.