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The attractiveness of state court as a venue for class actions may also have been enhanced by the Supreme Court's decision in Matsushita Elec. Indus. Co. v. Epstein. In that case, the Court held that a state court judgment dismissing a state class action suit pursuant to a settlement agreement could include a provision barring federal securities fraud class actions arising out of the same transaction, even if the state court lacked jurisdiction to adjudicate the federal claims in the first place. Paradoxically, by allowing defendants to obtain a global settlement in state court, Matsushita may have made state court class actions more advantageous for both plaintiffs and defendants and may have contributed to the increase in state court suits.
Regardless of the reasons for the increase in state court filings, the question has been raised as to whether these suits may be reducing the Reform Act's effectiveness in achieving its intended goals. Earlier this year, the Commission submitted a Report to the President and the Congress on the First Year of Practice Under the Private Securities Litigation Reform Act of 1995, prepared by the Commission's Office of the General Counsel ("Staff Report"). The Staff Report noted that there has been only limited experience with the Act's key provisions in the short time since its passage, and, consequently, that it was difficult to draw any overall conclusions about the Reform Act's impact on private securities fraud litigation. As promised in the Staff Report, the Commission's staff has continued to monitor developments under the Act. The Commission continues to believe that it is too soon to understand the ultimate impact of the Act. Our conclusion is supported by recent data which tends to show that the migration of securities class actions from federal to state court may have been a transient phenomenon.
Notwithstanding the Act's limited history, the Staff Report did make some preliminary observations about certain provisions of the Act which appear to be achieving their intended objectives, and other provisions which are not.
Areas of Success
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