Federal courts and securities lawsuits
Merrill Lynch v. Manning
In brief
The Court kept the shareholders’ suit in state court under the same federal-law test used for other federal-question cases, without deciding liability.
- Where it stands
- Decided
Decided 8-0 · May 16, 2016 · Opinion by Justice Kagan
- What it’s about
- Escala Group shareholders sued Merrill Lynch and other financial firms in state court over alleged short selling of Escala stock; the firms argued that the Securities Exchange Act required the case to be heard in federal court.
- Who it affects
- The shareholders’ claims remain in state court; the Court did not decide whether Merrill Lynch or the other firms are liable.
Summary: written with AI from the case record.
What it's about
The Supreme Court agreed with the appeals court (affirmed) that the Act uses the same test as the general federal-question law to decide whether a claim depends on federal law, leaving the suit in state court without deciding the firms’ liability.
The dispute concerned where state-law claims tied to alleged violations of federal securities law may be heard.
Question presented
Does the Securities Exchange Act of 1934 provide for federal jurisdiction over state law claims seeking to establish liability based on violations of the federal Act?
What the Court decided
Holding
The jurisdictional test established by §27 is the same as §1331’s test for deciding if a case “arises under” a federal law. 772 F. 3d 158, affirmed.
- Result
- Affirmed
The Court's reasoning
The Court said the Securities Exchange Act uses the same test as general federal-question law: whether a case depends on federal law. It agreed with the Third Circuit’s result under that test.
The vote
What's next
The unresolved claims remain in state court. The Supreme Court did not decide whether the firms are liable.
Documents
Opinions
Docket activity
New analysis added
AI analysis generated: Case Briefing
New analysis added
AI analysis generated: Impact Analysis
AI analysis generated: Opinion Summary
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AI analysis generated: Decision Record
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Opinion added: Manning
Sources
Primary materials plus reporting. Best-effort analysis: this explainer relies on a mix of primary materials and trusted secondary sources. Official filings and opinions remain authoritative.