Term: 2015
Docket: 14-1132
Merrill Lynch, Pierce, Fenner & Smith, Inc. v. Manning
- Pro
14-1132 MERRILL LYNCH V. MANNING DECISION BELOW: 772 F.3d 158 CERT. GRANTED 6/30/2015 QUESTION PRESENTED: Section 27 of the Securities Exchange Act of 1934 provides that federal courts "shall have exclusive jurisdiction" over "violations of [the Act] or the rules and regulations thereunder, and of all suits in equity and actions at law brought to enforce any liability or duty created by [the Act] or the rules and regulations thereunder." 15 U.S.C. § 78aa(a). The Fifth and Ninth Circuits have held that §27 provides federal jurisdiction over state- law claims seeking to establish liability based on violations the Act or its regulations or seeking to enforce duties created by the Act or its regulations. In acknowledged conflict with those decisions, the Third Circuit in this case joined the Second Circuit in holding that § 27 does not itself create federal jurisdiction over state-law claims that otherwise fall within its terms. The question presented is: Whether § 27 of the Securities Exchange Act 1934 provides federal jurisdiction over state-Iaw claims seeking to establish liability based on violations of the Act or its regulations or seeking to enforce duties created by the Act or its regulations. LOWER COURT CASE NUMBER: 13-3693
In the 2015 case of Merrill Lynch, Pierce, Fenner & Smith Inc. v. Manning, the Supreme Court ruled that federal jurisdiction over a case exists only if federal law creates the cause of action or if the plaintiff's right to relief necessarily depends on resolution of a substantial question of federal law. The plaintiffs were investors who alleged that Merrill Lynch and other financial institutions manipulated prices in violation of New Jersey state laws against deceptive practices and breached their fiduciary duties by engaging in naked short selling (a practice where stocks are sold without being borrowed). They filed suit in state court but defendants sought to move it to federal court arguing that claims involved questions about securities regulations which is under exclusive purview of Federal courts. However, Supreme Court held for Manning stating even though complaint mentioned a federally regulated subject matter i.e., securities transactions; since it did not necessarily raise any point actually governed by Federal law hence it could proceed at State level.
In the dissenting opinion for Merrill Lynch, Pierce, Fenner & Smith Inc. v. Manning (2015), Justice Thomas argued that the majority's interpretation of Section 27 of the Securities Exchange Act was too broad and inconsistent with its text and history. He contended that this section should only grant federal jurisdiction over cases involving violations of regulations or duties created by the act itself, not those merely mentioning a duty under it as part of a state-law claim. He also disagreed with their view that "arising under" in Section 27 had a broader meaning than in other statutes like the general federal-question statute (28 U.S.C §1331). Instead, he believed they should be interpreted consistently to avoid confusion and unnecessary litigation about jurisdictional boundaries between state and federal courts.
