Merrill Lynch, Pierce, Fenner & Smith, Inc. v. Manning, 136 S.Ct. 1562 (May 16, 2016)

U.S. Supreme Court holds that the Securities Exchange Act does not block shareholders from bringing certain securities claims in state court.

Manning held over two million shares of stock in Escala Group, Inc. He claimed that he incurred losses when the share price decreased after Merrill Lynch allegedly devalued the shares through “naked short sales” of the stock. Manning and other shareholders filed a lawsuit in New Jersey state court, claiming that Merrill Lynch’s conduct violated state law; however, he did not assert any federal law claims. Merrill Lynch removed the case to federal court, arguing the case involved a federal question and that Section 27 of the Securities Exchange Act grants exclusive jurisdiction to district courts for Manning’s claims. Utilizing the jurisdictional test from Section 1331 of the U.S. Code, which grants federal jurisdiction of civil actions “arising under” federal law, the U.S. Supreme Court ultimately upheld the remand of the case to state court. In reaching its decision, the Court reasoned that Manning’s “claims sought relief under state law and none necessarily raised a federal issue.”


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