Merrill Lynch v. Manning: U.S. Supreme Court Holds That Test for Whether Federal Courts Have Exclusive Jurisdiction Over Securities Exchange Act Claims Is Whether Suits “Arise Under” the Act

Sullivan & Cromwell LLP - May 17, 2016

The Supreme Court held yesterday in Merrill Lynch v. Manning that the exclusive-jurisdiction provision of the Securities Exchange Act is governed by the same “arising-under” test used to determine the existence of federal-question jurisdiction.  In other words, if a case arises under the Exchange Act for federal-question purposes, then the Exchange Act requires that the case be brought in federal court.  The Exchange Act thus vests federal district courts with exclusive jurisdiction when the plaintiff pleads (i) a cause of action under the Act or an implementing regulation or (ii) a state-law claim that necessarily raises a disputed and substantial issue of the Act’s meaning.  In Manning itself, the complaint pleaded solely state law causes of action but referred to a breach of the Exchange Act or its implementing regulations.  In that circumstance, the Court concluded, removal is appropriate only if resolving the state-law claims requires addressing the meaning of the Exchange Act or its regulations.