April 2, 2025
On March 31, 2025, Willkie filed an amicus brief in the U.S. Court of Appeals for the Ninth Circuit on behalf of the Securities Industry and Financial Markets Association (“SIFMA”) in support of the defendants in a putative class action for alleged violations of the Securities Act of 1933 (“Securities Act”) stemming from a public offering by Silicon Valley Bank (“SVB”) prior to its collapse in March 2023.
The issue on appeal is whether federal courts have subject-matter jurisdiction over Securities Act claims that are related to a pending bankruptcy action. The Securities Act provides that cases alleging exclusively claims under the Securities Act originally filed in state court (as this case was) cannot be removed to federal court. However, the Bankruptcy Code provides that any matter “related to” a bankruptcy can be removed to federal court. The District Court held that federal “related to” jurisdiction was proper, following the lead of the Second Circuit because the Ninth Circuit has not addressed it to date, and certified this issue for interlocutory appeal.
SIFMA’s amicus brief explains the importance of federal jurisdiction to underwriters in Securities Act litigation, particularly in the bankruptcy context, and to the efficient operation of the bankruptcy system. For example, without exclusive federal jurisdiction, underwriters will be forced to litigate Securities Act claims related to a bankruptcy piecemeal across state courts, which will not be coordinated with the bankruptcy court and will result in higher costs, risk inconsistent resolution of the same claims, which can result in exorbitantly high settlements. These costs will ultimately fall on the issuer’s estate because underwriters typically have indemnification and/or contribution rights against the issuer. But if there are insufficient funds or insurance proceeds to cover these costs, then the underwriters’ indemnification and/or contribution rights may become meaningless, which will deter financial services firms from underwriting debt or equity issuances in the future and therefore increase the cost of capital. Accordingly, permitting piecemeal state court litigation of Securities Act claims related to a bankruptcy risks negatively impacting U.S. financial markets, the bankruptcy system, and the U.S. economy.
The Willkie team was led by partners Todd Cosenza and Zeh Ekono, counsel Josh Levy, and associate Barnett Harris.
The issue on appeal is whether federal courts have subject-matter jurisdiction over Securities Act claims that are related to a pending bankruptcy action. The Securities Act provides that cases alleging exclusively claims under the Securities Act originally filed in state court (as this case was) cannot be removed to federal court. However, the Bankruptcy Code provides that any matter “related to” a bankruptcy can be removed to federal court. The District Court held that federal “related to” jurisdiction was proper, following the lead of the Second Circuit because the Ninth Circuit has not addressed it to date, and certified this issue for interlocutory appeal.
SIFMA’s amicus brief explains the importance of federal jurisdiction to underwriters in Securities Act litigation, particularly in the bankruptcy context, and to the efficient operation of the bankruptcy system. For example, without exclusive federal jurisdiction, underwriters will be forced to litigate Securities Act claims related to a bankruptcy piecemeal across state courts, which will not be coordinated with the bankruptcy court and will result in higher costs, risk inconsistent resolution of the same claims, which can result in exorbitantly high settlements. These costs will ultimately fall on the issuer’s estate because underwriters typically have indemnification and/or contribution rights against the issuer. But if there are insufficient funds or insurance proceeds to cover these costs, then the underwriters’ indemnification and/or contribution rights may become meaningless, which will deter financial services firms from underwriting debt or equity issuances in the future and therefore increase the cost of capital. Accordingly, permitting piecemeal state court litigation of Securities Act claims related to a bankruptcy risks negatively impacting U.S. financial markets, the bankruptcy system, and the U.S. economy.
The Willkie team was led by partners Todd Cosenza and Zeh Ekono, counsel Josh Levy, and associate Barnett Harris.
