Oral Argument Legal Case Summary

Oral Audio Transcript(Beta version)

. But certainly, the defendant who moves or seeks jurisdiction, the party seeking to establish jurisdiction, would have to identify for the Court the defendant's theory as to why the complaint seeks to enforce Federal duties. So it's not like the judge has to do it him or herself. But all of these are hypothetical questions. We're talking about a complaint here that unambiguously seeks to enforce duties prescribed on my right hand. I just don't understand how. Meaning, under Pan-Anne, we looked at the operative paragraphs of the complaint. Not the general pleadings or background. We looked at what remedies were sought to determine whether you were looking to enforce the law. Each of the causes of action here are under State law. How is that seeking redress under Federal law? A couple of points. First of all, Pan Am was a well pleaded complaint rule case. The Federal issue didn't appear on the face of the complaint. So this Court, correctly, applying the uncontroversially, applying the well pleaded complaint rule, read the complaint, took it for what it's said. Sotomayor, looked at the operative paragraphs. Why should we? Right. So the operative paragraphs here are the causes of action. But then turning to this complaint, the Court looks at the causes of action, each of which obviously incorporates, explicitly incorporates, all of the prior conduct alleged as the basis for the violation of the cause of action and the prior allegations and the causes of action themselves. The causes of action themselves are all about what the response described as illegal short selling. That's what makes unjustment in rich. That's what makes the interference with contract torsious. That's what makes, is negligent. That's the breach of the duty is to do, find a locate. So where in the complaint do we find? Would there be a duty under State law, not the short sale? Not under this complaint. The complaint identified. I would please go back to answer my direct question. If there were no Federal law. The answer is no. The third circuit itself said there is no analog under New Jersey law to regulation show. Nothing, zero in New Jersey law, not a statute, not a regulation, not administrative guidance, and not a common law

. No, New Jersey is that there's no law. New Jersey law certainly prohibits fraud. So are they doing anything more than saying we think this constitutes fraud? They're saying what the violation, what you say is the violation of the Federal law? Right. What they're saying is fraud or is torsious interference or is negligence or is unjust in Richmond is the failure to get a locate. The complaint isn't ambiguous about this. The complaint explains what a locate is. It's prescribed by regulation show. So do they just have to expand their allegation and say, okay, we're not going to call it a locate. But we think it's fraud when you're short selling this and you're supposed to have, and you haven't borrowed this much, blah, blah, blah. In other words, just creating a parallel duty, which I understood you to tell Justice Alito, that would be okay. Instead, they're using a shorthand with the locate. Is that all the only difference? Well, they're definitely not just using a shorthand. They're very explicit about it. And defining the locate capital L, that is the gravement to use the phrase from this morning's decision, that is the, no matter how packaged, that is the gravement of the suit here is a complaint about failure to get a locate. Which is not the case. But why does it just like, there are many, many instances in which there is a state claim, state claim for negligence. And the negligent conduct is alleged to be violation of a federal safety standard. So, it's all about whether the federal safety standard was violated, but the claim is a state claim for negligence. We wouldn't say that that is a claim that has to be brought in federal court. Well, but the language of this statute is different. That's the key. In this court's more decision addressing a rising under under 1331, the court addressed exactly that situation. It was precisely that situation. The state of Kentucky made it negligence per se to violate the Safety Appliances Act. And this court says, and it used the exact phrasing that became Section 27 when it said, the state negligence per se statute incorporated the duties prescribed by the state were seeking to enforce the due. So, in your opinion, if this court finds that the section here, Section 27 is the same as a rise in under, you lose? Well, no, but for a different reason. We do think it's actually necessary in the Third Circuit aired in that respect, but that's not the question here, the question here. And we think it's perfectly clear that the complaint actually that they can't prevail under state law unless they establish that reg show is violated. But- I'm sorry, can we go back to this? I'm not sure I understood your answer to my question

. Are you saying that if a state adopts the violation of a federal safety standard as constituting negligence that that claim arises under federal law? Not that it arises under federal law, but that is suit under that state standard that says it is a violation of state law to violate reg show. For example, if New Jersey law said it is a violation, it is a, you know, the statutory tort to violate reg show. If that was the statute and you brought a suit under that statute, you were seeking, and it was seeking to enforce the duties created by reg show. That's why this language is different from a rising honor because- What was the answer to Nessus Ginsburg's question? It would not necessarily be, it would only be a suit arising under, if it was necessary, but under this language, it would be a federal court action because that suit would be a suit seeking to, brought to enforce duties created by reg show. And I don't understand Ness, Ness, for what? I'm sorry. It would be only a suit if it were, if federal suit if it were necessary. I don't know. I'm sorry, it would only be a rising under action under 1331. That would be, that's a different statute, a different jurisdictional statute under that statute to be clear. That's not the one we're talking about. Under 1331, this court has held since at least the Smith case that a state, an action brought under a state law can be in state court. Even if it's a state cause of action, if resolving a federal issue is necessary to resolve the state cause of action, that's 1331. This statute is markedly and meaningfully different because it doesn't turn on whether it's rising under what the cause of action is, what it turns on is what was the suit brought to enforce, it was brought to enforce a duty created by the Exchange Act. Kagan, just looking at the language, I mean, I understand your interpretation of it, but it seems to me that there's, you know, a justice good interpretation which says the opposite. In other words, you know, what does it mean for a suit to be brought to enforce a liability in a kind of circumstance you're talking about? In the circumstance you're talking about, the suit is brought to enforce state law. Now, it's true that State law might look to Federal law, State law might incorporate Federal law in certain ways, State law might have some kind of relationship to Federal law, but what's the suit brought to enforce the suit is brought to enforce State law? Kagan, just a couple of points. So remember that the statute doesn't say is the suit brought to enforce State law? Kagan, just a couple of points. It's also not said, said brought to enforce State liabilities. It says brought to enforce State liability or, excuse me, brought to enforce liabilities or duties created by the Act. If we're liabilities alone, this might be a different case because the Exchange Act creates liabilities by its own terms and an action brought to enforce Exchange Act liabilities basically remedies would be, as I say, that might well be a case that would only be brought under the Exchange Act, but when they added the words or duties, clearly they're addressing the same kind of problem that this Court addressed in more when the States, which is an emerging issue at the time, when States were incorporating explicitly, not just generally looking to, but explicitly incorporating Federal duties into State law and plainness for bringing State causes of action for negligence, saying that- You would say that's a duty created under this chapter. Right. Created- the reg show in this situation is a duty created. But why isn't it created under State law as well? Because the cause of action is created in State law. State law says it is a violation of State law to violate a duty created by Federal law. State law doesn't itself care about the content. It's incorporating, it's saying we leave to the Congress, we leave to the SEC, whatever the regulatory body is, the content of the law, and we just say that you can have a cause of action under our State procedures if you violate duties created by Federal law. That's a quick question. I think that's sort of ambiguous in the statute. Let's assume you have a State statute and a Federal statute, both of which impose the same duty, okay? And someone brings a suit only under the State statute

. Does not- does not even mention the Federal statute. As I understand your case, you would say that that person is suing to enforce a duty under Federal law. I would not say that. I would say that person is suing to enforce the duty that State law creates, not the one that Federal law creates. And I agree with you. Our argument is not. If there are literally parallel State duties, the State says if New Jersey tomorrow, or more importantly years ago, had promulgated its own reg show and had its own locate requirements, its own closeout requirements. And there was a State cause of action saying you violated the New Jersey reg show and you caused us injury. We wouldn't be here. There might be a preemption argument that the State can't do that, but that would not trigger Section 27 jurisdiction because you're clearly seeking to enforce- So you would have- You would have no case if New Jersey passed a law saying as a matter of New Jersey law, we hereby adopt, you know, everything under the Securities Exchange Act, including in particular, a regulation, SHO. That is State law. We're following the Federal law because, you know, we think it's easier to do that than write up our own securities code. That's fine with you. No, that's a different case because there the New Jersey isn't making its own politically accountable decision without- Yes, it is. It's saying- Wherever it says Federal law, just strike that and put in New Jersey law. They can do that. They can adopt whatever law they- Oh, source of law they want. Even though it's precise the same at the same level of detail, you have to say under your theory that if you sue just under the New Jersey law, that's okay. I don't think so, Your Honor, because their New Jersey is leaving to Congress and the SEC to decide what the law is. The duties are always under that structure. The duties are always created by Federal law and then incorporated by the law that says, we'll do whatever the Federal law says. The duty is created by the Exchange Act and its regulation. No, the duty under New Jersey law is passed by whatever statute they enact saying, and we- us too, we want to do it as well, as a matter of New Jersey law. But they can do it separately. They can establish their own end to duties, but when they consciously choose not to create an independent duty, but to say that we're going to- Literally, in the hypothetical you're adopting, they're literally saying we're incorporating the Federal duty. And it has new- As New Jersey law, right? But that's still- And action under that law would still be seeking to enforce a duty created by the Exchange Act and its regulations, you know, albeit incorporated into state law. But whether- Then you're going to be in a situation where the judges are going to have to try to figure out whether state law exactly mimics Federal law or whether there are minor deviations from Federal law. And that can't be a good jurisdictional test, can it? Well, all jurisdictional tests will have challenges at the margin. I don't think this is an- But an marginal question, I think it's kind of a pretty ordinary question of like, well, what is the state law doing? Is it exactly- Lots of state laws exactly mimicked Federal law and lots of them don't? I think in practice there is quite a clear margin because states make different choices in this

. If a state wants to say, as plenty do, that we are just in Haikverba incorporating the Federal standard, then the duty is created by the Federal standard and becomes enforceable under state law. But the duty still is created by Federal law. States make other clear distinct choices where they say we're going to have a fraud law. We're going to have our own securities laws. New Jersey has its own securities laws. It could, if you wanted to, adopt a reg show. Why can't the New Jersey Supreme Court- Why couldn't the New Jersey Supreme Court say this is our interpretation of a provision of the New Jersey Uniform Securities Act with respect to short selling- This is what it means- And without ever referring to reg show, adopt basically the same or exactly the same rule that is incorporated in that regulation. Would you say that then an action under that provision of the New Jersey Securities Act would be one seeking to enforce the Federal duty? I think that would be a different case where the state is saying, you know, this seems like a pretty good rule. We're going to adopt it because we like it, adopt it independently as our own rule. And in any future case, they might do something different. As happened in the very New Jersey case, the third circuit cited for the proposition that New Jersey law sometimes differs from Federal law. It seems to me that- But here, the complaint- I'm sorry. The only one who benefits from that are printing companies. You say they can't say we adopt regulation SHO as New Jersey law. They have to actually go ahead and reprint everything that SHO says and then it's okay. Well, no, it's definitely is a politically accountable choice if the New Jersey, you know, wants to go to its- The people in New Jersey and all the interested parties and say, we think- We don't like the way the SEC has balanced the many competing interests involved in regulating the market- For in this case, the electronic market and short selling in the United States. We want to done differently in New Jersey and all of the competing interest parties can come and- And talking to New Jersey about whether they should- They should do it that way or not. What if- What if the state law says- And I'm not sure this one doesn't- What if the state law says- We are adopting the disposition of the current regulation in, you know, in- In 2015, all right? That's all it says. So if that regulation changes and Federal law changes, state law would not change. What happens in that situation? I mean, that would be an unusual way for a court to conduct itself, but- Well, why? Why? Well, I've never seen a court- The court likes this regulation. It doesn't know what this Kookie SEC is going to do in the future. This regulation is okay. So they put that into state law. I think that's right. If the court said and made it clear that this is- We find as a matter of New Jersey fraud that under New Jersey fraud law, if you don't get a locate in accordance with SEC requirements- Correct. SEC. Yeah, and that could change. And it's clear that it's an independent, independently created duty. But none of this is- What's the court is going to do when it hears this action? I'm sorry? Isn't that what the State Court is going to do when it hears this action? There's nothing about the alleged causes of action

. They alleged theft and fraud. So they're going to have to prove theft and fraud under State law as defined in the sections that they've cited. But while they also alleged unjust and rich men and negligence- All of that, right. Okay. Now, that might be something you can object to at trial if they try to say State law is the same as Federal law and can't prove it. You then appeal that decision if it's wrong. If State law is different, you prove it's different. But I'm just not sure what that has to do with the well-cleaned complaint. They are saying this is a duty that arises under the theft and fraud provisions of New Jersey's uniform securities act. Right. You won't see that sentence anywhere in this complaint. It doesn't exist. What this complaint says is in paragraph 24, it says that illegal short selling is short selling that quote violates securities laws and regulations. That's what they're complaining about. Short selling defined as something that violates the law. Surely the means of the current regulations, right? And you'll just told me that if the State law applies only to the current regulation, it is not adopting Federal law, right? So this complaint is referring to the current regulation. How do you know it's referring to that regulation as it may change in the future? It's referring to past conduct. So it's saying what you did injured us because you violated the regulation as it exists today. You committed this illegal short selling. You didn't get locates as they thanked for it. SEC would require that. Because that regulation is a good regulation and it ought to be New Jersey law. But if that regulation changes, we don't say that it ought to be New Jersey law. Let me try to exercise. If you eliminated all of this suggests that you could just as easily eliminate all of the references to Reg Show, all of the references to Capitol El Locate, Capitol C, close out, and their complaint would just proceed the same way it would. And we know that that's not true because they've got no source. If they have a complaint like that that just says, this is fraud, this is a torsious interference, we're unhappy about it because you didn't short sell the way we wish you would. They would have literally nothing in New Jersey law to cite the law. Those under New Jersey, they brought a claim

. Look, is it a necessary, there's a federal issue, a federal issue is whether what they've done violates regulation show. You don't say that anywhere in the complaint, not even in paragraph 24, which you cited, I read, this is background. I don't say anything about it, but is it necessary? Is it necessary for them to prevail that they prove a violation of regulation SHO? We think it is, but as far as I'm not the question here, I didn't ask you that. I asked, do you thought? We think it is necessary. You think it is necessary? Fine, fine, that's all I want to know. Now, they, presumably, think it isn't necessary, okay? So if it is necessary and you're right, then this case should have been brought under 1331. That it wasn't. And we're not deciding that. So since we're not deciding it, we have to assume that it is not necessary. Correct. Okay? If we assume it is not necessary, if we assume that the conditions for 1331 are not met, and therefore it doesn't get into federal court for that reason, why would anyone want a case like that in federal court when the States want to adjudicate it? Because Congress wanted in federal court by the way. And what is the evidence that Congress wanted that? The language of the State. On all your left with is, you say, read the language of the statute. Don't look to the purpose. Don't look to surrounding, don't look to the surrounding rules of law, which actually make very little necessity for this to be in federal court, and don't look to anything else. You have your language. And I agree you have the language. I'm sorry, but I'm not saying you're going to win on the line. But I couldn't disagree with you more. Okay, go ahead. The language, first of all, I think is unambiguous in a favor, but we absolutely will lose the objectives and purpose are uniformly in our favor, because what you know, if nothing else about Section 27, is that Congress, unlike all of the other jurisdictional statutes that use decidedly different language, Congress here did not want state courts to adjudicate duties created to. So why, why isn't the SEC here? I mean, the SEC makes its own decisions, and I certainly think this court cannot decide to case based not least on what the SEC hasn't said. You're right. That's for the SEC, but we would not, I think, construe a statute based on the absence of the SEC. You are relying on a different language. This is not arising under, but this special language in Section 27. And we have a brief, it's a public citizen brief that says, well, this is Section 27, it's not unusual. This is about, what is it, some ten other statutes that are phrased the same way. So with respect to every one of those statute, public utilities, holding company, Federal Power Act, Connolly Hot Oil, the same argument would apply to those statutes

. Those are all similarly narrowly prescribed statutes, and as the public citizen itself indicates, those were enacted mostly in the new deal era when we know if anything, Congress was looking to expand opportunities for plaintiffs to get into Federal Court, and it wouldn't be surprising at all that new deal statutes would favor Federal Court adjudication of Federal duties. And do you think that we can reach that interpretation even as to the Natural Gas Act, consistent with Pan-American? Yes. Pan-American was purely a well-plated complaint rule case, and the footnote that the other side relies on referring to a rising under was simply saying the fact that they use different language doesn't change the fact that a well-plated complaint rule applies, as it does on its face, brought to enforce requires the Court to look at the face of the complaint. I'd like to reserve my time. Thank you, Council. Thank you. Mr. Stress? Thank you, Mr. Chief Justice, and may it please the Court. It is well settled that jurisdictional statutes will not be interpreted to intrude on state judicial authority unless Congress makes its intention clear. Petitioners ask this Court to interpret Section 27 of the Exchange Act to strip state courts of jurisdiction to decide state law-created claims when such claims have already failed the Grable Test. There is no indication that Congress clearly intended such an unprecedented intrusion on state court authority. Why do you think, Mr. Stress, this different language was used in these ten statutes? So my best answer is to mirror essentially what our Meeky public citizen and the State Securities Regulators have said, which is at the time that certainly the 33 act and the 34 act were passed, the Federal Question Statute had an amount in controversy requirement. Now, I understand that my friend, Mr. Hacker, points out in his reply that there's a current statute 28 U.S.C. 1337 that was enacted in 1948. It had a predecessor statute 28 U.S.C. 41-8 that was enacted in 1911 that removed the amount in controversy requirement for cases involving interstate commerce. And one would think, because it's the case today, that that would apply to securities. But as best we can understand from our research, in the years that are relevant, 1911 to the time of the 33 act and the 34 act, it was not interpreted that way. So there was essentially an amount in controversy requirement for security cases. So I think if I were to be- Kagan-The amount in controversy wasn't very high and wouldn't most cases of this character easily meet it? Sotomayor-I don't know that that's true, Justice Ginsburg, but more importantly to your question. Kagan-So it was $3,000, something like that? Kagan-Well, if we're attempting to ascertain why Congress would choose to use this language instead of other language, I would submit that any amount in controversy requirement, if they felt they didn't want that for purposes of federally created claims. So this is going to segue into my first point

. We think the most natural reading of Section 27 is as a creation test. And so that's what- Kagan- $3,000 is probably a lot of money today. I'm sorry? Sotomayor-Well, I would like to have $3,000, $1934. Kagan-Yeah, I don't want to get into any debate. Sotomayor-I think that's a no question. Kagan-I would like any money that anyone on the Court or in the Court House would like to give me, and I'll be taking collections after the argument. Sotomayor-If your answer is correct, why do they need to use the term exclusive? What are they just- Kagan-So, let me- Sotomayor-Is jurisdiction in Federal Court? Why- that doesn't explain the use of the word exclusive. Kagan-No, no, but I think it does. So this particular statutory language is found in 11 statutes. In some of them, they use the term exclusive jurisdiction and others they did not. What follows exclusive jurisdiction is essentially a creation test, which I'll explain in a moment. The fact that they chose to confer exclusive jurisdiction here just means that when there was a cause of action that was created by the Exchange Act, they wanted it to be in Federal Court. So, let me get to the spirit of the answer, which is why I think that there's good reason to believe that exclusive jurisdiction in the statute is limited to causes of action that are created by the act itself. So my friend Mr. Hacker concedes, I think reasonably, that if someone sues under a parallel state duty, that that is only a duty under- state law, I was pleased to hear that because I think that is the most natural reading of the language. Our position is that the result is no different if a state accomplishes the same thing through the expedient of incorporating or referencing Federal law. And I want to be clear on this point, our position is not the plain meaning of the statute compels that interpretation. I will be the first to say that one could theoretically read the language that was brought to enforce a liability or duty created by the Act or its regulations the way that my friend suggests. One could, but I think it starts to break down and not really make much sense if we look at what's missing from Section 27. Here's what's missing. There's no Federal jurisdiction over Exchange Act counterclams, which means that State Court, I'm sorry, over Exchange Act counterclams. So that means that Congress was willing to have State Court to adjudicate claims that were created by the Act itself. There's no exclusive jurisdiction over Exchange Act defenses, and most notably that would include preemption. And in the mind run of preemption cases, and I'm going to get to this in a little bit, not only is the State Court determining what the Exchange Act says, but doing it for the purpose of assessing whether there's a conflict between State and Federal law. It's really important that those two things are missing from the statute, because I find it very difficult to believe that a Congress that was not concerned about State Court's adjudicating those cases somehow would be very concerned about a State Court adjudicating a state law created cause of action that happened to implicate a Federal duty or liability. When we look at the language and we take it in context, I think it just- Well, Congress must have had in mind a certain category of claims that it did not want adjudicated in State Court. Correct? I agree. All right. So you seem to be saying that the category of claims that did not want adjudicated in State Court are only these

. Those in which the plaintiff is asking for the enforcement of a Federal duty, and there is no comparable State duty at that time, and the State Court is unwilling to recognize a comparable State duty in the context of that litigation. So these are essentially cases in which the State is basically hostile to the Federal duty. And those are the only cases that Congress did not want to have adjudicated in State Court. And have I gone wrong in that? I don't think you've gone wrong, but I think that that position is firmly supported by history, if we look at the context, and let me explain what I mean. So at the time the Exchange Act was passed, there were only three expressed rights of action, and they were very minor. There was no private right of action under 10B. There was a market manipulation of a 9A, short swing profits, and a third one that I don't recall. So if we look at the context, we have a history of States regulating securities. We have a parallel provision in the Exchange Act, Section 28, that this Court in Matsu, he's acknowledged, expressly endorsed the fact that States were going to continue to regulate. So I think the Congress, the past 34 act, was thinking the following. They were thinking we have a very narrow window of claims that are created by this act, and for those, a 9A straightforward market manipulation claim for, for, for, for wash sales. We don't want State Courts adjudicating those, because those are very technical. We want exclusive jurisdiction over those claims, and I think that's the extent of what Congress intended in passing this provision. Now, I suppose you had brought this claim specifically to enjoy violations of this show regulation. So that's your complaint. Court, please enjoy the defendant from violating show. Well, I think as a factual matter, Justice Ginsburg, that couldn't happen because the conduct would have already occurred, but I won't resist the hypothetical. I think the hypothetical you're asking reveals the most difficult part of our plain text interpretation, which is an assume-a-state statute that seeks to enjoy what is only a federally created duty. I don't know that that would come up, but it could theoretically. Our position would be that that is still best interpreted as a lawsuit brought to enforce a duty or liability created by State law, because the State has decided by reference to have the duty being, don't violate, the federal standard that you would get the injunction for. And I think in the real world what we're seeing are at best states that are creating parallel provisions that incorporate duties and liabilities merely because it's an expedient. And so I think that, I guess before I move on, administrative simplicity is a major virtue in any jurisdictional statute. I know the Court has said that before. Without any strong evidence to interpret Section 27 as anything other than a creation test, I think that's the best result. And I ask you to describe your complaint. In other words, Mr. Hacker has a certain characterization or description of your complaint and the role played in your complaint by the regulation. So if you had to describe your complaint, and particularly what role does this regulate in your application play in your claims under State law? I understand, Justice Kagan. So I think there's been some misunderstanding of what we're alleging. We are not relying on a red show for any theory of liability, and here's why. We're bringing a straight-up market manipulation claim. And what that means is we're suggesting that the naked short selling that happened was not just a technical infraction, not just a technical violation of a red show, but was done with the purpose of depressing sales prices, price of the security. That's an analog to a 10B5 action. And so if we look at paragraph 30 of our complaint, this is on pages 53a to 54a, we make clear that the relevant provision of New Jersey law is substantially similar to the Federal Security's law. We're referring to 10b. When the Uniform Security's Act was promulgated in 1956, Section 101 was in which New Jersey adopted, Mirror's 10b. If you're going to bring a claim under Federal law, you're not suing under red show. Manipulative short selling existed well before a red show. It's a standard. You're basically saying someone is taking a short position. They're injecting inaccurate information into the market, because they have taken a position that's larger than normal supply and demand would bear given the size of the public float. They've chosen to do that because they think it's going to drive prices down and they're going to make more money. You don't need to prove all of that to get a violation of red show. Red show was enacted by the SEC because this was a problem. What Red show does is it allows the SEC to take enforcement action and to find people that engage in conduct that is likely to constitute market manipulation. The point of it is not to punish market manipulation. The point is to try and stop people from doing it in the first place. To put it differently. Yes, I mean, there are parts of your complaint that go in much greater detail and focus on the Federal rules. Paragraph 33 says, you know, as set forth in detail herein, the defendants violated the trading rules and regulations requiring that they actually deliver shares they owe to the DTCC to settle short sale transactions. That's a duty imposed by Federal law. This is a very important point, Mr. Chief Justice. We mentioned this in detail for a very specific reason. It has nothing to do with our theory of liability. It was us attempting to get in front of the inevitable preemption defense, which happened. These short selling cases get litigated and they get litigated in State Court. A very significant one is on page 25 of the blue brief note 8

. We are not relying on a red show for any theory of liability, and here's why. We're bringing a straight-up market manipulation claim. And what that means is we're suggesting that the naked short selling that happened was not just a technical infraction, not just a technical violation of a red show, but was done with the purpose of depressing sales prices, price of the security. That's an analog to a 10B5 action. And so if we look at paragraph 30 of our complaint, this is on pages 53a to 54a, we make clear that the relevant provision of New Jersey law is substantially similar to the Federal Security's law. We're referring to 10b. When the Uniform Security's Act was promulgated in 1956, Section 101 was in which New Jersey adopted, Mirror's 10b. If you're going to bring a claim under Federal law, you're not suing under red show. Manipulative short selling existed well before a red show. It's a standard. You're basically saying someone is taking a short position. They're injecting inaccurate information into the market, because they have taken a position that's larger than normal supply and demand would bear given the size of the public float. They've chosen to do that because they think it's going to drive prices down and they're going to make more money. You don't need to prove all of that to get a violation of red show. Red show was enacted by the SEC because this was a problem. What Red show does is it allows the SEC to take enforcement action and to find people that engage in conduct that is likely to constitute market manipulation. The point of it is not to punish market manipulation. The point is to try and stop people from doing it in the first place. To put it differently. Yes, I mean, there are parts of your complaint that go in much greater detail and focus on the Federal rules. Paragraph 33 says, you know, as set forth in detail herein, the defendants violated the trading rules and regulations requiring that they actually deliver shares they owe to the DTCC to settle short sale transactions. That's a duty imposed by Federal law. This is a very important point, Mr. Chief Justice. We mentioned this in detail for a very specific reason. It has nothing to do with our theory of liability. It was us attempting to get in front of the inevitable preemption defense, which happened. These short selling cases get litigated and they get litigated in State Court. A very significant one is on page 25 of the blue brief note 8. It's in California State Court overstock. In these cases, the largest defense that's asserted in State Court is we complied with the right show. We complied with the Federal rules. So if State law gives you a remedy, it must be conflict-preempted. So along these lines, look at Count 9, 100 A of the appendix to the petition. Each defendant, 100 A. Each defendant enterprise owed plaintiffs a duty of care in their capacity as gatekeepers of the market. Each defendant enterprise breached the duty of care that they owed to the plaintiffs to report suspicious transactions and naked short sales. Where does that come right from, Reg. Schell? Look, I'm not going to suggest Justice Alito that Reg. Schell isn't relevant as a background proposition. We're in a regulated market. So, of course, the landscape that exists is going to implicate Federal rules. The relevant question is, jurisdiction can't be sustained on a theory that we have an advance. That doesn't seem to be relying on Reg's show as a background proposition. You say that they breached a duty, this is a claim for negligence. It requires a breach of a duty, and you say the duty that they breached is a duty that's created by Reg's show. I would characterize it a little bit differently. Here's what I would say. I would say that if market manipulation requires that someone do something that injects inaccurate or artificial information into the market, that's the theory of a market manipulation claim. You're messing with natural supply and demand forces. Of course, any theory of market manipulation, including under State law, would have to reference and talk about the ground rules, because the ground rules that are set up by the SEC are what set up the market's normal expectations of traditional supply and demand forces. So, it would really tie our hands to say that any time you talk about someone doing something that is inconsistent with the regulatory scheme, you can't bring a State law claim that is truly a State law claim. Because if you're trying to allege that there's- a duty of care that they owe to the plaintiffs to report suspicious transactions of naked, short sales, that's the allegation under negligence. What duty of care, a duty of care imposed by New Jersey law? What New Jersey law? Or is it a duty of care imposed by show? It's a duty of care, Justice Breyer imposed by New Jersey State law. Which state law? New Jersey statute 49, colon 3-49. It's found on pages 84A to 87A of the petition appendix. And what it does is it's the section of 101 of the Uniform Security Act that mirrors 10B5. And so the exact words there that the duty of care is referring to are what? I believe it says you can't engage in deceptive or manipulative conduct

. It's in California State Court overstock. In these cases, the largest defense that's asserted in State Court is we complied with the right show. We complied with the Federal rules. So if State law gives you a remedy, it must be conflict-preempted. So along these lines, look at Count 9, 100 A of the appendix to the petition. Each defendant, 100 A. Each defendant enterprise owed plaintiffs a duty of care in their capacity as gatekeepers of the market. Each defendant enterprise breached the duty of care that they owed to the plaintiffs to report suspicious transactions and naked short sales. Where does that come right from, Reg. Schell? Look, I'm not going to suggest Justice Alito that Reg. Schell isn't relevant as a background proposition. We're in a regulated market. So, of course, the landscape that exists is going to implicate Federal rules. The relevant question is, jurisdiction can't be sustained on a theory that we have an advance. That doesn't seem to be relying on Reg's show as a background proposition. You say that they breached a duty, this is a claim for negligence. It requires a breach of a duty, and you say the duty that they breached is a duty that's created by Reg's show. I would characterize it a little bit differently. Here's what I would say. I would say that if market manipulation requires that someone do something that injects inaccurate or artificial information into the market, that's the theory of a market manipulation claim. You're messing with natural supply and demand forces. Of course, any theory of market manipulation, including under State law, would have to reference and talk about the ground rules, because the ground rules that are set up by the SEC are what set up the market's normal expectations of traditional supply and demand forces. So, it would really tie our hands to say that any time you talk about someone doing something that is inconsistent with the regulatory scheme, you can't bring a State law claim that is truly a State law claim. Because if you're trying to allege that there's- a duty of care that they owe to the plaintiffs to report suspicious transactions of naked, short sales, that's the allegation under negligence. What duty of care, a duty of care imposed by New Jersey law? What New Jersey law? Or is it a duty of care imposed by show? It's a duty of care, Justice Breyer imposed by New Jersey State law. Which state law? New Jersey statute 49, colon 3-49. It's found on pages 84A to 87A of the petition appendix. And what it does is it's the section of 101 of the Uniform Security Act that mirrors 10B5. And so the exact words there that the duty of care is referring to are what? I believe it says you can't engage in deceptive or manipulative conduct. What we attempted to do here, we may lose on this point on State Court. Okay, but I have a bigger question that I can't get. I can't figure out, and so I would like your help. Let's go through this. Let's suppose for present purposes that as I read through your complaint, I find words, if not the words we just said, but similar words somewhere. And I think, but there is nothing under New Jersey law unless New Jersey picks up show. Right? Why isn't that good enough, or that matter, to get them into federal court and arising under cases? Okay, so if we're out of the world and you've rejected my creation argument. I'm really concerned about, I can't clarify in my mind the difference between somebody being thrown out in an arising under case and yet getting back in under section 27. That's what doesn't make too much sense to me. If this is necessary, the Federal issue is necessary for the plaintiffs to win, there's a rising under jurisdiction. Then I don't know what to do with the word exclusive, but all that seems not to be in the case. So then if it is not sufficient to get in under a rising under, why in Heaven's name should it be to get in under 27? Well, I mean, obviously I'm not going to resist, but what I would say is that. You're not going to resist my conclusion, but you see, it's, I need clarification because I'm not sure I've thought it through correctly. So here's my best attempt to clarify. I think, let me throw away the facts for a minute. In other words, I think there's no theory that we've pled that satisfies even their standard, but let me throw that away. Let me assume the best case for them that we've relied on federal duties and try and put it through the legal question that you've asked. I think one way to resolve this is to take the simple approach, which is what I advocated first, and to say, look, if it's just enforcing a state law cause of action, even if it incorporates federal law, that's all 27 does and you're done. I understand the premise of your question is, let's say you rejected that, and we're thinking, you know what, maybe some state law claims fall within the sweep of Section 27, how do we think about this? Here's what I would say. I would say that whether this is an arising under statute or not, it has to incorporate what I'll call a federal necessity requirement, because that's a longstanding rule that's part and parcel of the well pleated complaint rule. And if you look at Pan American, for example, let's say I accept what my friend Mr. Hacker says that it's just dict, they weren't saying it's an arising under statute, they apply it, you, the court applied well pleated complaint rule without looking at the text of the statute at all. It's a sensible thing to say that when federal jurisdiction over state law claims, it's predicated on the federal character, there being a federal issue that we use the well pleated complaint rule. It's also similarly sensible that the well pleated complaint rule would have an adjunct which is federal necessity. And that's precisely what the court said in Christensen, in our Court of the Court. The well pleated complaint rule focuses on claims, not theories, and just because an element that's essential to a particular theory might be governed by federal patent law does not mean the entire monopolization claim arises under patent law. Now to the second half of your question, which is, well how does that pat of a map together? Well then the question becomes how did we allegedly use this federal view? Do we use it in our Rico claim as one of several predicate acts? That's all that's ever been alleged until today. I was surprised to hear a suggestion that, well I shouldn't say until today, until the briefing in this Court. In the lower court, the suggestion was that we relied on a federal duty because it was somehow being snuck in as an additional predicate of our Rico claim

. What we attempted to do here, we may lose on this point on State Court. Okay, but I have a bigger question that I can't get. I can't figure out, and so I would like your help. Let's go through this. Let's suppose for present purposes that as I read through your complaint, I find words, if not the words we just said, but similar words somewhere. And I think, but there is nothing under New Jersey law unless New Jersey picks up show. Right? Why isn't that good enough, or that matter, to get them into federal court and arising under cases? Okay, so if we're out of the world and you've rejected my creation argument. I'm really concerned about, I can't clarify in my mind the difference between somebody being thrown out in an arising under case and yet getting back in under section 27. That's what doesn't make too much sense to me. If this is necessary, the Federal issue is necessary for the plaintiffs to win, there's a rising under jurisdiction. Then I don't know what to do with the word exclusive, but all that seems not to be in the case. So then if it is not sufficient to get in under a rising under, why in Heaven's name should it be to get in under 27? Well, I mean, obviously I'm not going to resist, but what I would say is that. You're not going to resist my conclusion, but you see, it's, I need clarification because I'm not sure I've thought it through correctly. So here's my best attempt to clarify. I think, let me throw away the facts for a minute. In other words, I think there's no theory that we've pled that satisfies even their standard, but let me throw that away. Let me assume the best case for them that we've relied on federal duties and try and put it through the legal question that you've asked. I think one way to resolve this is to take the simple approach, which is what I advocated first, and to say, look, if it's just enforcing a state law cause of action, even if it incorporates federal law, that's all 27 does and you're done. I understand the premise of your question is, let's say you rejected that, and we're thinking, you know what, maybe some state law claims fall within the sweep of Section 27, how do we think about this? Here's what I would say. I would say that whether this is an arising under statute or not, it has to incorporate what I'll call a federal necessity requirement, because that's a longstanding rule that's part and parcel of the well pleated complaint rule. And if you look at Pan American, for example, let's say I accept what my friend Mr. Hacker says that it's just dict, they weren't saying it's an arising under statute, they apply it, you, the court applied well pleated complaint rule without looking at the text of the statute at all. It's a sensible thing to say that when federal jurisdiction over state law claims, it's predicated on the federal character, there being a federal issue that we use the well pleated complaint rule. It's also similarly sensible that the well pleated complaint rule would have an adjunct which is federal necessity. And that's precisely what the court said in Christensen, in our Court of the Court. The well pleated complaint rule focuses on claims, not theories, and just because an element that's essential to a particular theory might be governed by federal patent law does not mean the entire monopolization claim arises under patent law. Now to the second half of your question, which is, well how does that pat of a map together? Well then the question becomes how did we allegedly use this federal view? Do we use it in our Rico claim as one of several predicate acts? That's all that's ever been alleged until today. I was surprised to hear a suggestion that, well I shouldn't say until today, until the briefing in this Court. In the lower court, the suggestion was that we relied on a federal duty because it was somehow being snuck in as an additional predicate of our Rico claim. I resist that claim. If you go and look at the pages, we alleged three. Something. And don't tell me I'm right. If you think it favors you because maybe it does favor you, but I got, there'll be other cases, you know, so sympathize a little with my problem. Okay. I'm looking for a way to see if we really have to answer all these difficult questions that have been raised, which are pretty tough. And so I was thinking, look, here's what you look to. Judge, see if it is a necessary thing, and if so, whether it falls under 1331. Okay? If it's an arising under claim under 1331, kick it out of State Court and send it to federal court. But if it isn't an arising under claim, because it isn't necessary to winning for the plaintiff, forget about it, keep it in State Court. I don't care whether it's, don't worry about whether the stake passed it this way or the state legislature referenced it by numbers or referenced it by, don't worry about all that stuff. Just decide one question. So does it meet the four criteria for arising under? If so, kick it out. If not, keep it. So Justice Breyer, here are my thoughts on this. I think that the gray bull. Maybe I just clarify, I thought it was conceded. There was no arising under jurisdiction. That's true. I'm not looking in this case. I'm looking for the general rule. That's how I understood the question. And so as to the general rule, here are my thoughts. The 1331 still exists. 1331 is powerful, and we can call it Jackson Pollock all we want. But it's been adopted. It exists, and it's applied by courts. So I think that there's a very small distinction between incorporating it here or not

. I resist that claim. If you go and look at the pages, we alleged three. Something. And don't tell me I'm right. If you think it favors you because maybe it does favor you, but I got, there'll be other cases, you know, so sympathize a little with my problem. Okay. I'm looking for a way to see if we really have to answer all these difficult questions that have been raised, which are pretty tough. And so I was thinking, look, here's what you look to. Judge, see if it is a necessary thing, and if so, whether it falls under 1331. Okay? If it's an arising under claim under 1331, kick it out of State Court and send it to federal court. But if it isn't an arising under claim, because it isn't necessary to winning for the plaintiff, forget about it, keep it in State Court. I don't care whether it's, don't worry about whether the stake passed it this way or the state legislature referenced it by numbers or referenced it by, don't worry about all that stuff. Just decide one question. So does it meet the four criteria for arising under? If so, kick it out. If not, keep it. So Justice Breyer, here are my thoughts on this. I think that the gray bull. Maybe I just clarify, I thought it was conceded. There was no arising under jurisdiction. That's true. I'm not looking in this case. I'm looking for the general rule. That's how I understood the question. And so as to the general rule, here are my thoughts. The 1331 still exists. 1331 is powerful, and we can call it Jackson Pollock all we want. But it's been adopted. It exists, and it's applied by courts. So I think that there's a very small distinction between incorporating it here or not. There is a distinction, exclusivity versus, versus not exclusivity. I understand that. But my point is the simplest way out of this morass, I think, is to say we want a simple, administrative rule, and we only look to 27 to confer jurisdiction over exchange act created claims. And we have, as a backdrop, 1331. Now, if you resist that, Justice Breyer, you don't like that. And you say, okay, well, what's the second best option? There's two. And I don't really need to advocate one is opposed to the other, because we went under both, but I'll throw them out there. One is to say we don't have to call this an arising under statute. We don't have to reach the difficult question of, well, is that what Pan-American was holding? Did they, did Congress intend to incorporate 1331 wholesale and all of its elements? There's a simple way out, which is to say the notion of federal necessity. This is the one question that you were saying. Does not in here, in the words arising under, it in here is in the well-plated complaint rule, which is a backdrop presumption, which should apply to any type of congressional grant of federal jurisdiction over state law claims, unless Congress says otherwise. So I think that's the second best option. You say, okay, it's not only a creation test, Section 27 can reach some state law-graded claims, but they must be necessary. And there's a long jurisprudence of this Court. It's in the arising under context of what it means to be necessary. And then you don't have the difficulty of trying to look to whether it's substantial, doing a federalism balance, you would essentially assume if it's something that trigger is triggered by an exclusive jurisdiction provision of the Exchange Act, it must be substantial, it must fit the federalism balance. Mr. Struss, I don't understand why you're resistant just saying this language ought to be interpreted in the same way as arising under jurisdiction is interpreted. And it's true that there are different words, but it's at least as good an interpretation of these words that they essentially refer to what the arising under test refers to. Which after all, I mean, the arising under test doesn't really have a whole lot to do with the language arising under anymore. So why isn't that just sort of the simplest thing to do? Is we have a test, it's a four-part test, and this language seems to fit that test pretty well, and that's what we should do. We should have one test. So Justice Kagan, I won't resist too hard because obviously we win under that outcome. I resist a little bit, and I'll tell you why. Certainly I can defend that proposition, and we did, you know, in our briefing, there's a solid basis to do that. The Court interpreted materially identical language that way in Pan-American, as we pointed out on our brief section 22 of the Securities Act, which uses materially identical language, then in the removal bar equates that language with a rising under. I could defend that proposition. I just don't think it's the most natural reading of the language. If you're asking me honestly, like, what do I think Congress intended? I believe that they intended, brought to enforce duties or liabilities created under the act to mean the three narrow categories of federally created causes of action in 1934

. There is a distinction, exclusivity versus, versus not exclusivity. I understand that. But my point is the simplest way out of this morass, I think, is to say we want a simple, administrative rule, and we only look to 27 to confer jurisdiction over exchange act created claims. And we have, as a backdrop, 1331. Now, if you resist that, Justice Breyer, you don't like that. And you say, okay, well, what's the second best option? There's two. And I don't really need to advocate one is opposed to the other, because we went under both, but I'll throw them out there. One is to say we don't have to call this an arising under statute. We don't have to reach the difficult question of, well, is that what Pan-American was holding? Did they, did Congress intend to incorporate 1331 wholesale and all of its elements? There's a simple way out, which is to say the notion of federal necessity. This is the one question that you were saying. Does not in here, in the words arising under, it in here is in the well-plated complaint rule, which is a backdrop presumption, which should apply to any type of congressional grant of federal jurisdiction over state law claims, unless Congress says otherwise. So I think that's the second best option. You say, okay, it's not only a creation test, Section 27 can reach some state law-graded claims, but they must be necessary. And there's a long jurisprudence of this Court. It's in the arising under context of what it means to be necessary. And then you don't have the difficulty of trying to look to whether it's substantial, doing a federalism balance, you would essentially assume if it's something that trigger is triggered by an exclusive jurisdiction provision of the Exchange Act, it must be substantial, it must fit the federalism balance. Mr. Struss, I don't understand why you're resistant just saying this language ought to be interpreted in the same way as arising under jurisdiction is interpreted. And it's true that there are different words, but it's at least as good an interpretation of these words that they essentially refer to what the arising under test refers to. Which after all, I mean, the arising under test doesn't really have a whole lot to do with the language arising under anymore. So why isn't that just sort of the simplest thing to do? Is we have a test, it's a four-part test, and this language seems to fit that test pretty well, and that's what we should do. We should have one test. So Justice Kagan, I won't resist too hard because obviously we win under that outcome. I resist a little bit, and I'll tell you why. Certainly I can defend that proposition, and we did, you know, in our briefing, there's a solid basis to do that. The Court interpreted materially identical language that way in Pan-American, as we pointed out on our brief section 22 of the Securities Act, which uses materially identical language, then in the removal bar equates that language with a rising under. I could defend that proposition. I just don't think it's the most natural reading of the language. If you're asking me honestly, like, what do I think Congress intended? I believe that they intended, brought to enforce duties or liabilities created under the act to mean the three narrow categories of federally created causes of action in 1934. I think that's what this statute meant. I don't think Congress has done anything since then to change that. If you look to slusa in 1998, where there was this serious concern on the part of Congress, of what was happening in terms of state law created causes of action, the initial bill that was proposed would have preempted all state law created causes of action. Didn't go very far. Instead, Congress said, no, we're going to restrict this to covered class actions. So if you're trying to find what I think is the most intellectually honest reading of the language and consistent with the history, I actually don't think it's adopting a rising under, but I certainly could defend it as a reasonable interpretation of the language on the context. So I'm late of slusa, the issue that's before us would apply only in individual actions and small class actions. That's exactly right. And I think maybe I'll close with this. I think that's very important from the perspective of just sensibility and policy, which is the following. One of the things that animated the private security litigation reform act was the concern that lawyers were driving litigation and not clients. And that's why, for example, one of the things that went into the PSLRA was a requirement of who the most appropriate plaintiff is. That doesn't happen when you have cases like this, when you have the CEO of a company who holds 2.1 million shares who's bringing a claim. And so not only was it not the point of Congress in 1933 and 1934 to invade the province of State Courts, if we look at the entire history of purposes and Congress trying to say, well, we have some concerns about what State Courts are doing, there has never been an expressed concern about State Courts enforcing state law in individual actions like this one. For the Court to hold otherwise would be unprecedented because you would be stripping state courts of the type of jurisdiction that they've had since the time of the Exchange Act. 10B of the Exchange Act itself was predicated on common law, deceit, and fraud, and a whole history of what was occurring in State Courts. And I just don't think there's any way to read Section 27 that's workable from the Court's jurisdictional precedence, but that's also sensible in terms of what the dual system of securities regulation is trying to do. And so if there are no further questions. Well, just out of curiosity, why is it so important for your client not to be in Federal District Court? So I think there's a few reasons. The first is his lawyers practice in State Courts, the familiar with the procedures that's where they want to be. The second is the procedures are better. I mean, it's not a surprise that a lot of securities plaintiffs want to be in State Court. In some instances they want to be there because the law is more robust. There's no center requirement. You could bring a holder claim. That's actually not the case here because New Jersey law happens to parallel. So we don't have those benefits. But we want to be able to take a Rico claim where we're trying to take a new area

. I think that's what this statute meant. I don't think Congress has done anything since then to change that. If you look to slusa in 1998, where there was this serious concern on the part of Congress, of what was happening in terms of state law created causes of action, the initial bill that was proposed would have preempted all state law created causes of action. Didn't go very far. Instead, Congress said, no, we're going to restrict this to covered class actions. So if you're trying to find what I think is the most intellectually honest reading of the language and consistent with the history, I actually don't think it's adopting a rising under, but I certainly could defend it as a reasonable interpretation of the language on the context. So I'm late of slusa, the issue that's before us would apply only in individual actions and small class actions. That's exactly right. And I think maybe I'll close with this. I think that's very important from the perspective of just sensibility and policy, which is the following. One of the things that animated the private security litigation reform act was the concern that lawyers were driving litigation and not clients. And that's why, for example, one of the things that went into the PSLRA was a requirement of who the most appropriate plaintiff is. That doesn't happen when you have cases like this, when you have the CEO of a company who holds 2.1 million shares who's bringing a claim. And so not only was it not the point of Congress in 1933 and 1934 to invade the province of State Courts, if we look at the entire history of purposes and Congress trying to say, well, we have some concerns about what State Courts are doing, there has never been an expressed concern about State Courts enforcing state law in individual actions like this one. For the Court to hold otherwise would be unprecedented because you would be stripping state courts of the type of jurisdiction that they've had since the time of the Exchange Act. 10B of the Exchange Act itself was predicated on common law, deceit, and fraud, and a whole history of what was occurring in State Courts. And I just don't think there's any way to read Section 27 that's workable from the Court's jurisdictional precedence, but that's also sensible in terms of what the dual system of securities regulation is trying to do. And so if there are no further questions. Well, just out of curiosity, why is it so important for your client not to be in Federal District Court? So I think there's a few reasons. The first is his lawyers practice in State Courts, the familiar with the procedures that's where they want to be. The second is the procedures are better. I mean, it's not a surprise that a lot of securities plaintiffs want to be in State Court. In some instances they want to be there because the law is more robust. There's no center requirement. You could bring a holder claim. That's actually not the case here because New Jersey law happens to parallel. So we don't have those benefits. But we want to be able to take a Rico claim where we're trying to take a new area. These naked short selling cases, they're new. You know, the overstock case that's happened, you know, we would prefer a state forum for our state law created claims to convince a state court that this is actionable and it, you know, it should warrant punitive damages. And I think we have every right to do that as the master of our complaint. You said that you could prevail in this case without showing any violation of the cell regulation. So could you explain how you could prevail in if you don't show a violation? Right. So I would put it slightly differently. If I said that, you know, I think that's, that's imprecise. Any act of market manipulation in the context of naked short selling will necessarily violate regulation show. But every violation of regulation, regulation show is not market manipulation. What regulation show does is it sets a floor. And if you engage in certain conduct, you, you, you, short a stock, you haven't borrowed it. You have no reason to believe you've borrowed it. The SEC can find you under statutes where there's no private right of action. That doesn't make out a market manipulation claim Justice Ginsburg. To prove market manipulation, you have to go a step further. You have to show that that was done intentionally to try and depress the value of the stock. So the point I was trying to make is if there were an analog to our state law claim, it's not Reg Show. It's 10B5. And, and the idea that you can't bring a parallel 10B5 action in state court and have state court adjudicated, that's never been law. But they're, they're essentially trying to do an end run around that analysis by suggesting that somehow Reg Show is what we're trying to enforce. Reg Show is not relevant for that purpose. Reg Show doesn't help us. Even under Federal law, we wouldn't have a private right of action. Section 9D of the Exchange Act. There's no private right of action for that. Section 10A1 of the Exchange Act. These are the ones that deal with, with short selling. No private right of action has to be 10B. Thank you, counsel

. These naked short selling cases, they're new. You know, the overstock case that's happened, you know, we would prefer a state forum for our state law created claims to convince a state court that this is actionable and it, you know, it should warrant punitive damages. And I think we have every right to do that as the master of our complaint. You said that you could prevail in this case without showing any violation of the cell regulation. So could you explain how you could prevail in if you don't show a violation? Right. So I would put it slightly differently. If I said that, you know, I think that's, that's imprecise. Any act of market manipulation in the context of naked short selling will necessarily violate regulation show. But every violation of regulation, regulation show is not market manipulation. What regulation show does is it sets a floor. And if you engage in certain conduct, you, you, you, short a stock, you haven't borrowed it. You have no reason to believe you've borrowed it. The SEC can find you under statutes where there's no private right of action. That doesn't make out a market manipulation claim Justice Ginsburg. To prove market manipulation, you have to go a step further. You have to show that that was done intentionally to try and depress the value of the stock. So the point I was trying to make is if there were an analog to our state law claim, it's not Reg Show. It's 10B5. And, and the idea that you can't bring a parallel 10B5 action in state court and have state court adjudicated, that's never been law. But they're, they're essentially trying to do an end run around that analysis by suggesting that somehow Reg Show is what we're trying to enforce. Reg Show is not relevant for that purpose. Reg Show doesn't help us. Even under Federal law, we wouldn't have a private right of action. Section 9D of the Exchange Act. There's no private right of action for that. Section 10A1 of the Exchange Act. These are the ones that deal with, with short selling. No private right of action has to be 10B. Thank you, counsel. Three minutes, Mr. Hacker. Mr. Chief Justice, I'm here to please the court. The respondents argument as a problem with the language, both of their own complaint and with the language of the statute. The complaint could not be clear that while it's true, there are references to market manipulation. What they're trying to establish is market manipulation by the mere fact that there were not locates that complied with a Reg Show. That's what created what they call counterfeit shares. That, in and of itself, forgetting intent is also what diluted the shares and caused their problems. That's clear from paragraph 33. It's clear in paragraph 86 and 87. What they talk about are violations of the rules and regulations that cause them harm. They would also like to establish a market manipulation. I'm sure if they could prove intent and all of that. But the whole point of the complaint here is to say is to hope they can get in front of a jury and judge who will agree with them that those mere violations of Reg Show in and of themselves establishes the state torts that they are pursuing. It's perfectly clear in those paragraphs and through the rest of the complaint. I don't think there's any ambiguity whatsoever. Nor is there ambiguity in the plain text of the statute. The first argument they make is that it effectively incorporates the homesy review that it has to be a cause of action created by the Act itself. The Section 27 answers that question. It doesn't say that jurisdiction is established for over a cause of action established by the Exchange Act. That would have been the way that Congress would have said it. If they meant to say there is jurisdiction over causes of action established by the Act, Congress would have said that. It didn't say anything like that. What it said was very much essentially the opposite or something very different, which is suits brought to enforce duties prescribed by the created by the Act. It's about the substantive source of the source of the. The first half of the first sentence, it talks about violations of the law. The second sentence parallels it, says criminal. The second half of the first sentence talks about all suits in equity and actions at law or actions

. Three minutes, Mr. Hacker. Mr. Chief Justice, I'm here to please the court. The respondents argument as a problem with the language, both of their own complaint and with the language of the statute. The complaint could not be clear that while it's true, there are references to market manipulation. What they're trying to establish is market manipulation by the mere fact that there were not locates that complied with a Reg Show. That's what created what they call counterfeit shares. That, in and of itself, forgetting intent is also what diluted the shares and caused their problems. That's clear from paragraph 33. It's clear in paragraph 86 and 87. What they talk about are violations of the rules and regulations that cause them harm. They would also like to establish a market manipulation. I'm sure if they could prove intent and all of that. But the whole point of the complaint here is to say is to hope they can get in front of a jury and judge who will agree with them that those mere violations of Reg Show in and of themselves establishes the state torts that they are pursuing. It's perfectly clear in those paragraphs and through the rest of the complaint. I don't think there's any ambiguity whatsoever. Nor is there ambiguity in the plain text of the statute. The first argument they make is that it effectively incorporates the homesy review that it has to be a cause of action created by the Act itself. The Section 27 answers that question. It doesn't say that jurisdiction is established for over a cause of action established by the Exchange Act. That would have been the way that Congress would have said it. If they meant to say there is jurisdiction over causes of action established by the Act, Congress would have said that. It didn't say anything like that. What it said was very much essentially the opposite or something very different, which is suits brought to enforce duties prescribed by the created by the Act. It's about the substantive source of the source of the. The first half of the first sentence, it talks about violations of the law. The second sentence parallels it, says criminal. The second half of the first sentence talks about all suits in equity and actions at law or actions. Right. At law. I don't know that. Those are all civil actions. It's clearly talking about civil actions. The reference to violation itself talks about suits and civil actions for violations. It talks about criminal proceedings. It encompasses the language also encompasses criminal proceedings, but the references to suits brought to enforce liabilities or duties is unambiguously about civil proceedings. And the other side doesn't disagree with that. But let me turn to the last point, Justice Breyer's argument, and I think Justice Kagan's that well, maybe it's just the same thing as 1331. That too is contrary to the text of the statute, because 1331 has been construed. It also doesn't have the textual requirement. As having this necessity component, precisely because if you don't have a necessity component, then you're taking away from state courts cases that state courts are competent to adjudicate. We know that Congress had literally the opposite premise here, that they didn't want state courts adjudicating as a response council conceded a certain class of cases. What class of cases is that? The statute tells us the answer. It's those that are, suits brought to enforce duties. For example, a RICO case with two predicate acts. One is violation of reg show, one is violation of state law. It is unambiguously clear that that is brought to enforce the duty prescribed by reg show, and then that circumstance, that kind of case, Congress wanted to proceed solely in federal court. Thank you, counsel. The case is submitted.

We'll hear argument first this morning in case 141132, Merrill Lynch, Pierce, Fender and Smith versus Manning. Mr. Hacker? Mr. Chief Justice, and may it please the Court. In language that differs distinctly from the arising under language of Section 1331, Exchange Act Section 27 confers on the Federal Court's exclusive jurisdiction over all suits brought to enforce any duty created by the Exchange Act and its regulations. That language establishes a straightforward test. The Federal Court has exclusive jurisdiction if the suit is brought to enforce Exchange Act duties, even if the suit is also brought to enforce state law duties. In particular, the words brought to enforce focus on what the plaintiff itself wants the Court to decide not on what the Court would necessarily have to decide as 1331 has been read to require. By applying the 1331 test, the Third Circuit not only ignored Section 27's distinct language, but also its distinct policies, which strongly disfavor state courtedudication of Exchange Act duties, and thus are exactly the opposite of the policy's favoring state courtedudication that underlie the Jackson Pollock Canvas this Court has painted over Section 1331. Respondents, however, begin not with a necessity rule derived from 1331, but with a much more aggressive position that Section 27 only creates jurisdiction over causes of action created by the Exchange Act itself, and thus categorically bars jurisdiction over state-based causes of action, like those asserted here. Does your test depend solely on what is alleged in the complaint or what might be proven under a more generally worded complaint? Suppose the complaint in this case made no reference to any federal regulations, but I'm not that familiar with the pleading rules in New Jersey, but suppose it was, you know, notice pleading, and so there's no reference to the regulations, but they sought to prove their case by arguing that the rule in New Jersey should be the same as the federal regulation. Would that fall within your test? The way you put it at the very end, the answer is no. If the rule in New Jersey is the same because it's the rule in New Jersey, then that would not be seeking to enforce an Exchange Act duty. The answer to the first part of your question is yes, which is our test does look at the allegations on the face of the complaint, is the complaint as pleaded seeking to enforce a duty created by the Exchange Act? So they could amend the complaint and then we wouldn't be here because they could amend the complaint to say that we are suing under New Jersey law and New Jersey law. The matter of New Jersey is choice. The way I would put it is, we wouldn't have been here if they had written that complaint to start with, but because removal jurisdiction is tested at the time of removal, if they amended their complaint now, it wouldn't change the fact that there is federal jurisdiction based on the face of the complaint at the time of removal. Well, is the Court obligated to do a search of all federal laws and regulations to know if this complaint might have a federal cause of action? No. That's why it's important to look at the face of the complaint. This claim complaint exemplifies the kind of complaint that triggers Section 27 jurisdiction because it's not a question. Let's assume that Justice Alito is some that New Jersey is the same as the Federal system notice pleading. Can you just tell me as a matter of practice, do most complaints set forth the Federal statute under which they're not 1331, but the specific Federal statute that creates the duty or they just alleged the duty? Most complaints, I mean, sure, it depends on the jurisdiction, but certainly in my- I'd say just under notice pleading under Federal standards. They would almost certainly set forth the statute under which they're pleading to identifying the duty so that the Court understands what the nature of the claim is. That's very common precisely because you don't want the Court to go looking around the cause of action, especially after Twombly and Nick Ball. But they don't have to do that. As I understand your case, they don't have to explicitly refer to the Federal statute. That's right in a limited sense that I think this Court would recognize and has recognized an artful pleading doctrine where, for example, if you use this complaint as an example, if they had just literally whited out, deleted the references to Reg Show as such, but were clearly unambiguously pleading violations of its requirements with the same capital L, locate capital C, closeout requirements, you would unmistakably understand the complaint to be based on violations of the exchange act regulation, seeking to enforce those duties. Then, sure, the fact you didn't cite it wouldn't change the fact. That imposes quite an onerous task upon the Federal District Court. It seems to me you have to sift through the complaint and see if any of the claimed causes of action under State law mirror a cause of action that happens to exist under Federal law without even the hint that they mentioned the Federal statute. Well, that only goes to the question in an artful pleading situation, which in this case doesn't present and would be the next third, fourth, fifth case down the road. But certainly, the defendant who moves or seeks jurisdiction, the party seeking to establish jurisdiction, would have to identify for the Court the defendant's theory as to why the complaint seeks to enforce Federal duties. So it's not like the judge has to do it him or herself. But all of these are hypothetical questions. We're talking about a complaint here that unambiguously seeks to enforce duties prescribed on my right hand. I just don't understand how. Meaning, under Pan-Anne, we looked at the operative paragraphs of the complaint. Not the general pleadings or background. We looked at what remedies were sought to determine whether you were looking to enforce the law. Each of the causes of action here are under State law. How is that seeking redress under Federal law? A couple of points. First of all, Pan Am was a well pleaded complaint rule case. The Federal issue didn't appear on the face of the complaint. So this Court, correctly, applying the uncontroversially, applying the well pleaded complaint rule, read the complaint, took it for what it's said. Sotomayor, looked at the operative paragraphs. Why should we? Right. So the operative paragraphs here are the causes of action. But then turning to this complaint, the Court looks at the causes of action, each of which obviously incorporates, explicitly incorporates, all of the prior conduct alleged as the basis for the violation of the cause of action and the prior allegations and the causes of action themselves. The causes of action themselves are all about what the response described as illegal short selling. That's what makes unjustment in rich. That's what makes the interference with contract torsious. That's what makes, is negligent. That's the breach of the duty is to do, find a locate. So where in the complaint do we find? Would there be a duty under State law, not the short sale? Not under this complaint. The complaint identified. I would please go back to answer my direct question. If there were no Federal law. The answer is no. The third circuit itself said there is no analog under New Jersey law to regulation show. Nothing, zero in New Jersey law, not a statute, not a regulation, not administrative guidance, and not a common law. No, New Jersey is that there's no law. New Jersey law certainly prohibits fraud. So are they doing anything more than saying we think this constitutes fraud? They're saying what the violation, what you say is the violation of the Federal law? Right. What they're saying is fraud or is torsious interference or is negligence or is unjust in Richmond is the failure to get a locate. The complaint isn't ambiguous about this. The complaint explains what a locate is. It's prescribed by regulation show. So do they just have to expand their allegation and say, okay, we're not going to call it a locate. But we think it's fraud when you're short selling this and you're supposed to have, and you haven't borrowed this much, blah, blah, blah. In other words, just creating a parallel duty, which I understood you to tell Justice Alito, that would be okay. Instead, they're using a shorthand with the locate. Is that all the only difference? Well, they're definitely not just using a shorthand. They're very explicit about it. And defining the locate capital L, that is the gravement to use the phrase from this morning's decision, that is the, no matter how packaged, that is the gravement of the suit here is a complaint about failure to get a locate. Which is not the case. But why does it just like, there are many, many instances in which there is a state claim, state claim for negligence. And the negligent conduct is alleged to be violation of a federal safety standard. So, it's all about whether the federal safety standard was violated, but the claim is a state claim for negligence. We wouldn't say that that is a claim that has to be brought in federal court. Well, but the language of this statute is different. That's the key. In this court's more decision addressing a rising under under 1331, the court addressed exactly that situation. It was precisely that situation. The state of Kentucky made it negligence per se to violate the Safety Appliances Act. And this court says, and it used the exact phrasing that became Section 27 when it said, the state negligence per se statute incorporated the duties prescribed by the state were seeking to enforce the due. So, in your opinion, if this court finds that the section here, Section 27 is the same as a rise in under, you lose? Well, no, but for a different reason. We do think it's actually necessary in the Third Circuit aired in that respect, but that's not the question here, the question here. And we think it's perfectly clear that the complaint actually that they can't prevail under state law unless they establish that reg show is violated. But- I'm sorry, can we go back to this? I'm not sure I understood your answer to my question. Are you saying that if a state adopts the violation of a federal safety standard as constituting negligence that that claim arises under federal law? Not that it arises under federal law, but that is suit under that state standard that says it is a violation of state law to violate reg show. For example, if New Jersey law said it is a violation, it is a, you know, the statutory tort to violate reg show. If that was the statute and you brought a suit under that statute, you were seeking, and it was seeking to enforce the duties created by reg show. That's why this language is different from a rising honor because- What was the answer to Nessus Ginsburg's question? It would not necessarily be, it would only be a suit arising under, if it was necessary, but under this language, it would be a federal court action because that suit would be a suit seeking to, brought to enforce duties created by reg show. And I don't understand Ness, Ness, for what? I'm sorry. It would be only a suit if it were, if federal suit if it were necessary. I don't know. I'm sorry, it would only be a rising under action under 1331. That would be, that's a different statute, a different jurisdictional statute under that statute to be clear. That's not the one we're talking about. Under 1331, this court has held since at least the Smith case that a state, an action brought under a state law can be in state court. Even if it's a state cause of action, if resolving a federal issue is necessary to resolve the state cause of action, that's 1331. This statute is markedly and meaningfully different because it doesn't turn on whether it's rising under what the cause of action is, what it turns on is what was the suit brought to enforce, it was brought to enforce a duty created by the Exchange Act. Kagan, just looking at the language, I mean, I understand your interpretation of it, but it seems to me that there's, you know, a justice good interpretation which says the opposite. In other words, you know, what does it mean for a suit to be brought to enforce a liability in a kind of circumstance you're talking about? In the circumstance you're talking about, the suit is brought to enforce state law. Now, it's true that State law might look to Federal law, State law might incorporate Federal law in certain ways, State law might have some kind of relationship to Federal law, but what's the suit brought to enforce the suit is brought to enforce State law? Kagan, just a couple of points. So remember that the statute doesn't say is the suit brought to enforce State law? Kagan, just a couple of points. It's also not said, said brought to enforce State liabilities. It says brought to enforce State liability or, excuse me, brought to enforce liabilities or duties created by the Act. If we're liabilities alone, this might be a different case because the Exchange Act creates liabilities by its own terms and an action brought to enforce Exchange Act liabilities basically remedies would be, as I say, that might well be a case that would only be brought under the Exchange Act, but when they added the words or duties, clearly they're addressing the same kind of problem that this Court addressed in more when the States, which is an emerging issue at the time, when States were incorporating explicitly, not just generally looking to, but explicitly incorporating Federal duties into State law and plainness for bringing State causes of action for negligence, saying that- You would say that's a duty created under this chapter. Right. Created- the reg show in this situation is a duty created. But why isn't it created under State law as well? Because the cause of action is created in State law. State law says it is a violation of State law to violate a duty created by Federal law. State law doesn't itself care about the content. It's incorporating, it's saying we leave to the Congress, we leave to the SEC, whatever the regulatory body is, the content of the law, and we just say that you can have a cause of action under our State procedures if you violate duties created by Federal law. That's a quick question. I think that's sort of ambiguous in the statute. Let's assume you have a State statute and a Federal statute, both of which impose the same duty, okay? And someone brings a suit only under the State statute. Does not- does not even mention the Federal statute. As I understand your case, you would say that that person is suing to enforce a duty under Federal law. I would not say that. I would say that person is suing to enforce the duty that State law creates, not the one that Federal law creates. And I agree with you. Our argument is not. If there are literally parallel State duties, the State says if New Jersey tomorrow, or more importantly years ago, had promulgated its own reg show and had its own locate requirements, its own closeout requirements. And there was a State cause of action saying you violated the New Jersey reg show and you caused us injury. We wouldn't be here. There might be a preemption argument that the State can't do that, but that would not trigger Section 27 jurisdiction because you're clearly seeking to enforce- So you would have- You would have no case if New Jersey passed a law saying as a matter of New Jersey law, we hereby adopt, you know, everything under the Securities Exchange Act, including in particular, a regulation, SHO. That is State law. We're following the Federal law because, you know, we think it's easier to do that than write up our own securities code. That's fine with you. No, that's a different case because there the New Jersey isn't making its own politically accountable decision without- Yes, it is. It's saying- Wherever it says Federal law, just strike that and put in New Jersey law. They can do that. They can adopt whatever law they- Oh, source of law they want. Even though it's precise the same at the same level of detail, you have to say under your theory that if you sue just under the New Jersey law, that's okay. I don't think so, Your Honor, because their New Jersey is leaving to Congress and the SEC to decide what the law is. The duties are always under that structure. The duties are always created by Federal law and then incorporated by the law that says, we'll do whatever the Federal law says. The duty is created by the Exchange Act and its regulation. No, the duty under New Jersey law is passed by whatever statute they enact saying, and we- us too, we want to do it as well, as a matter of New Jersey law. But they can do it separately. They can establish their own end to duties, but when they consciously choose not to create an independent duty, but to say that we're going to- Literally, in the hypothetical you're adopting, they're literally saying we're incorporating the Federal duty. And it has new- As New Jersey law, right? But that's still- And action under that law would still be seeking to enforce a duty created by the Exchange Act and its regulations, you know, albeit incorporated into state law. But whether- Then you're going to be in a situation where the judges are going to have to try to figure out whether state law exactly mimics Federal law or whether there are minor deviations from Federal law. And that can't be a good jurisdictional test, can it? Well, all jurisdictional tests will have challenges at the margin. I don't think this is an- But an marginal question, I think it's kind of a pretty ordinary question of like, well, what is the state law doing? Is it exactly- Lots of state laws exactly mimicked Federal law and lots of them don't? I think in practice there is quite a clear margin because states make different choices in this. If a state wants to say, as plenty do, that we are just in Haikverba incorporating the Federal standard, then the duty is created by the Federal standard and becomes enforceable under state law. But the duty still is created by Federal law. States make other clear distinct choices where they say we're going to have a fraud law. We're going to have our own securities laws. New Jersey has its own securities laws. It could, if you wanted to, adopt a reg show. Why can't the New Jersey Supreme Court- Why couldn't the New Jersey Supreme Court say this is our interpretation of a provision of the New Jersey Uniform Securities Act with respect to short selling- This is what it means- And without ever referring to reg show, adopt basically the same or exactly the same rule that is incorporated in that regulation. Would you say that then an action under that provision of the New Jersey Securities Act would be one seeking to enforce the Federal duty? I think that would be a different case where the state is saying, you know, this seems like a pretty good rule. We're going to adopt it because we like it, adopt it independently as our own rule. And in any future case, they might do something different. As happened in the very New Jersey case, the third circuit cited for the proposition that New Jersey law sometimes differs from Federal law. It seems to me that- But here, the complaint- I'm sorry. The only one who benefits from that are printing companies. You say they can't say we adopt regulation SHO as New Jersey law. They have to actually go ahead and reprint everything that SHO says and then it's okay. Well, no, it's definitely is a politically accountable choice if the New Jersey, you know, wants to go to its- The people in New Jersey and all the interested parties and say, we think- We don't like the way the SEC has balanced the many competing interests involved in regulating the market- For in this case, the electronic market and short selling in the United States. We want to done differently in New Jersey and all of the competing interest parties can come and- And talking to New Jersey about whether they should- They should do it that way or not. What if- What if the state law says- And I'm not sure this one doesn't- What if the state law says- We are adopting the disposition of the current regulation in, you know, in- In 2015, all right? That's all it says. So if that regulation changes and Federal law changes, state law would not change. What happens in that situation? I mean, that would be an unusual way for a court to conduct itself, but- Well, why? Why? Well, I've never seen a court- The court likes this regulation. It doesn't know what this Kookie SEC is going to do in the future. This regulation is okay. So they put that into state law. I think that's right. If the court said and made it clear that this is- We find as a matter of New Jersey fraud that under New Jersey fraud law, if you don't get a locate in accordance with SEC requirements- Correct. SEC. Yeah, and that could change. And it's clear that it's an independent, independently created duty. But none of this is- What's the court is going to do when it hears this action? I'm sorry? Isn't that what the State Court is going to do when it hears this action? There's nothing about the alleged causes of action. They alleged theft and fraud. So they're going to have to prove theft and fraud under State law as defined in the sections that they've cited. But while they also alleged unjust and rich men and negligence- All of that, right. Okay. Now, that might be something you can object to at trial if they try to say State law is the same as Federal law and can't prove it. You then appeal that decision if it's wrong. If State law is different, you prove it's different. But I'm just not sure what that has to do with the well-cleaned complaint. They are saying this is a duty that arises under the theft and fraud provisions of New Jersey's uniform securities act. Right. You won't see that sentence anywhere in this complaint. It doesn't exist. What this complaint says is in paragraph 24, it says that illegal short selling is short selling that quote violates securities laws and regulations. That's what they're complaining about. Short selling defined as something that violates the law. Surely the means of the current regulations, right? And you'll just told me that if the State law applies only to the current regulation, it is not adopting Federal law, right? So this complaint is referring to the current regulation. How do you know it's referring to that regulation as it may change in the future? It's referring to past conduct. So it's saying what you did injured us because you violated the regulation as it exists today. You committed this illegal short selling. You didn't get locates as they thanked for it. SEC would require that. Because that regulation is a good regulation and it ought to be New Jersey law. But if that regulation changes, we don't say that it ought to be New Jersey law. Let me try to exercise. If you eliminated all of this suggests that you could just as easily eliminate all of the references to Reg Show, all of the references to Capitol El Locate, Capitol C, close out, and their complaint would just proceed the same way it would. And we know that that's not true because they've got no source. If they have a complaint like that that just says, this is fraud, this is a torsious interference, we're unhappy about it because you didn't short sell the way we wish you would. They would have literally nothing in New Jersey law to cite the law. Those under New Jersey, they brought a claim. Look, is it a necessary, there's a federal issue, a federal issue is whether what they've done violates regulation show. You don't say that anywhere in the complaint, not even in paragraph 24, which you cited, I read, this is background. I don't say anything about it, but is it necessary? Is it necessary for them to prevail that they prove a violation of regulation SHO? We think it is, but as far as I'm not the question here, I didn't ask you that. I asked, do you thought? We think it is necessary. You think it is necessary? Fine, fine, that's all I want to know. Now, they, presumably, think it isn't necessary, okay? So if it is necessary and you're right, then this case should have been brought under 1331. That it wasn't. And we're not deciding that. So since we're not deciding it, we have to assume that it is not necessary. Correct. Okay? If we assume it is not necessary, if we assume that the conditions for 1331 are not met, and therefore it doesn't get into federal court for that reason, why would anyone want a case like that in federal court when the States want to adjudicate it? Because Congress wanted in federal court by the way. And what is the evidence that Congress wanted that? The language of the State. On all your left with is, you say, read the language of the statute. Don't look to the purpose. Don't look to surrounding, don't look to the surrounding rules of law, which actually make very little necessity for this to be in federal court, and don't look to anything else. You have your language. And I agree you have the language. I'm sorry, but I'm not saying you're going to win on the line. But I couldn't disagree with you more. Okay, go ahead. The language, first of all, I think is unambiguous in a favor, but we absolutely will lose the objectives and purpose are uniformly in our favor, because what you know, if nothing else about Section 27, is that Congress, unlike all of the other jurisdictional statutes that use decidedly different language, Congress here did not want state courts to adjudicate duties created to. So why, why isn't the SEC here? I mean, the SEC makes its own decisions, and I certainly think this court cannot decide to case based not least on what the SEC hasn't said. You're right. That's for the SEC, but we would not, I think, construe a statute based on the absence of the SEC. You are relying on a different language. This is not arising under, but this special language in Section 27. And we have a brief, it's a public citizen brief that says, well, this is Section 27, it's not unusual. This is about, what is it, some ten other statutes that are phrased the same way. So with respect to every one of those statute, public utilities, holding company, Federal Power Act, Connolly Hot Oil, the same argument would apply to those statutes. Those are all similarly narrowly prescribed statutes, and as the public citizen itself indicates, those were enacted mostly in the new deal era when we know if anything, Congress was looking to expand opportunities for plaintiffs to get into Federal Court, and it wouldn't be surprising at all that new deal statutes would favor Federal Court adjudication of Federal duties. And do you think that we can reach that interpretation even as to the Natural Gas Act, consistent with Pan-American? Yes. Pan-American was purely a well-plated complaint rule case, and the footnote that the other side relies on referring to a rising under was simply saying the fact that they use different language doesn't change the fact that a well-plated complaint rule applies, as it does on its face, brought to enforce requires the Court to look at the face of the complaint. I'd like to reserve my time. Thank you, Council. Thank you. Mr. Stress? Thank you, Mr. Chief Justice, and may it please the Court. It is well settled that jurisdictional statutes will not be interpreted to intrude on state judicial authority unless Congress makes its intention clear. Petitioners ask this Court to interpret Section 27 of the Exchange Act to strip state courts of jurisdiction to decide state law-created claims when such claims have already failed the Grable Test. There is no indication that Congress clearly intended such an unprecedented intrusion on state court authority. Why do you think, Mr. Stress, this different language was used in these ten statutes? So my best answer is to mirror essentially what our Meeky public citizen and the State Securities Regulators have said, which is at the time that certainly the 33 act and the 34 act were passed, the Federal Question Statute had an amount in controversy requirement. Now, I understand that my friend, Mr. Hacker, points out in his reply that there's a current statute 28 U.S.C. 1337 that was enacted in 1948. It had a predecessor statute 28 U.S.C. 41-8 that was enacted in 1911 that removed the amount in controversy requirement for cases involving interstate commerce. And one would think, because it's the case today, that that would apply to securities. But as best we can understand from our research, in the years that are relevant, 1911 to the time of the 33 act and the 34 act, it was not interpreted that way. So there was essentially an amount in controversy requirement for security cases. So I think if I were to be- Kagan-The amount in controversy wasn't very high and wouldn't most cases of this character easily meet it? Sotomayor-I don't know that that's true, Justice Ginsburg, but more importantly to your question. Kagan-So it was $3,000, something like that? Kagan-Well, if we're attempting to ascertain why Congress would choose to use this language instead of other language, I would submit that any amount in controversy requirement, if they felt they didn't want that for purposes of federally created claims. So this is going to segue into my first point. We think the most natural reading of Section 27 is as a creation test. And so that's what- Kagan- $3,000 is probably a lot of money today. I'm sorry? Sotomayor-Well, I would like to have $3,000, $1934. Kagan-Yeah, I don't want to get into any debate. Sotomayor-I think that's a no question. Kagan-I would like any money that anyone on the Court or in the Court House would like to give me, and I'll be taking collections after the argument. Sotomayor-If your answer is correct, why do they need to use the term exclusive? What are they just- Kagan-So, let me- Sotomayor-Is jurisdiction in Federal Court? Why- that doesn't explain the use of the word exclusive. Kagan-No, no, but I think it does. So this particular statutory language is found in 11 statutes. In some of them, they use the term exclusive jurisdiction and others they did not. What follows exclusive jurisdiction is essentially a creation test, which I'll explain in a moment. The fact that they chose to confer exclusive jurisdiction here just means that when there was a cause of action that was created by the Exchange Act, they wanted it to be in Federal Court. So, let me get to the spirit of the answer, which is why I think that there's good reason to believe that exclusive jurisdiction in the statute is limited to causes of action that are created by the act itself. So my friend Mr. Hacker concedes, I think reasonably, that if someone sues under a parallel state duty, that that is only a duty under- state law, I was pleased to hear that because I think that is the most natural reading of the language. Our position is that the result is no different if a state accomplishes the same thing through the expedient of incorporating or referencing Federal law. And I want to be clear on this point, our position is not the plain meaning of the statute compels that interpretation. I will be the first to say that one could theoretically read the language that was brought to enforce a liability or duty created by the Act or its regulations the way that my friend suggests. One could, but I think it starts to break down and not really make much sense if we look at what's missing from Section 27. Here's what's missing. There's no Federal jurisdiction over Exchange Act counterclams, which means that State Court, I'm sorry, over Exchange Act counterclams. So that means that Congress was willing to have State Court to adjudicate claims that were created by the Act itself. There's no exclusive jurisdiction over Exchange Act defenses, and most notably that would include preemption. And in the mind run of preemption cases, and I'm going to get to this in a little bit, not only is the State Court determining what the Exchange Act says, but doing it for the purpose of assessing whether there's a conflict between State and Federal law. It's really important that those two things are missing from the statute, because I find it very difficult to believe that a Congress that was not concerned about State Court's adjudicating those cases somehow would be very concerned about a State Court adjudicating a state law created cause of action that happened to implicate a Federal duty or liability. When we look at the language and we take it in context, I think it just- Well, Congress must have had in mind a certain category of claims that it did not want adjudicated in State Court. Correct? I agree. All right. So you seem to be saying that the category of claims that did not want adjudicated in State Court are only these. Those in which the plaintiff is asking for the enforcement of a Federal duty, and there is no comparable State duty at that time, and the State Court is unwilling to recognize a comparable State duty in the context of that litigation. So these are essentially cases in which the State is basically hostile to the Federal duty. And those are the only cases that Congress did not want to have adjudicated in State Court. And have I gone wrong in that? I don't think you've gone wrong, but I think that that position is firmly supported by history, if we look at the context, and let me explain what I mean. So at the time the Exchange Act was passed, there were only three expressed rights of action, and they were very minor. There was no private right of action under 10B. There was a market manipulation of a 9A, short swing profits, and a third one that I don't recall. So if we look at the context, we have a history of States regulating securities. We have a parallel provision in the Exchange Act, Section 28, that this Court in Matsu, he's acknowledged, expressly endorsed the fact that States were going to continue to regulate. So I think the Congress, the past 34 act, was thinking the following. They were thinking we have a very narrow window of claims that are created by this act, and for those, a 9A straightforward market manipulation claim for, for, for, for wash sales. We don't want State Courts adjudicating those, because those are very technical. We want exclusive jurisdiction over those claims, and I think that's the extent of what Congress intended in passing this provision. Now, I suppose you had brought this claim specifically to enjoy violations of this show regulation. So that's your complaint. Court, please enjoy the defendant from violating show. Well, I think as a factual matter, Justice Ginsburg, that couldn't happen because the conduct would have already occurred, but I won't resist the hypothetical. I think the hypothetical you're asking reveals the most difficult part of our plain text interpretation, which is an assume-a-state statute that seeks to enjoy what is only a federally created duty. I don't know that that would come up, but it could theoretically. Our position would be that that is still best interpreted as a lawsuit brought to enforce a duty or liability created by State law, because the State has decided by reference to have the duty being, don't violate, the federal standard that you would get the injunction for. And I think in the real world what we're seeing are at best states that are creating parallel provisions that incorporate duties and liabilities merely because it's an expedient. And so I think that, I guess before I move on, administrative simplicity is a major virtue in any jurisdictional statute. I know the Court has said that before. Without any strong evidence to interpret Section 27 as anything other than a creation test, I think that's the best result. And I ask you to describe your complaint. In other words, Mr. Hacker has a certain characterization or description of your complaint and the role played in your complaint by the regulation. So if you had to describe your complaint, and particularly what role does this regulate in your application play in your claims under State law? I understand, Justice Kagan. So I think there's been some misunderstanding of what we're alleging. We are not relying on a red show for any theory of liability, and here's why. We're bringing a straight-up market manipulation claim. And what that means is we're suggesting that the naked short selling that happened was not just a technical infraction, not just a technical violation of a red show, but was done with the purpose of depressing sales prices, price of the security. That's an analog to a 10B5 action. And so if we look at paragraph 30 of our complaint, this is on pages 53a to 54a, we make clear that the relevant provision of New Jersey law is substantially similar to the Federal Security's law. We're referring to 10b. When the Uniform Security's Act was promulgated in 1956, Section 101 was in which New Jersey adopted, Mirror's 10b. If you're going to bring a claim under Federal law, you're not suing under red show. Manipulative short selling existed well before a red show. It's a standard. You're basically saying someone is taking a short position. They're injecting inaccurate information into the market, because they have taken a position that's larger than normal supply and demand would bear given the size of the public float. They've chosen to do that because they think it's going to drive prices down and they're going to make more money. You don't need to prove all of that to get a violation of red show. Red show was enacted by the SEC because this was a problem. What Red show does is it allows the SEC to take enforcement action and to find people that engage in conduct that is likely to constitute market manipulation. The point of it is not to punish market manipulation. The point is to try and stop people from doing it in the first place. To put it differently. Yes, I mean, there are parts of your complaint that go in much greater detail and focus on the Federal rules. Paragraph 33 says, you know, as set forth in detail herein, the defendants violated the trading rules and regulations requiring that they actually deliver shares they owe to the DTCC to settle short sale transactions. That's a duty imposed by Federal law. This is a very important point, Mr. Chief Justice. We mentioned this in detail for a very specific reason. It has nothing to do with our theory of liability. It was us attempting to get in front of the inevitable preemption defense, which happened. These short selling cases get litigated and they get litigated in State Court. A very significant one is on page 25 of the blue brief note 8. It's in California State Court overstock. In these cases, the largest defense that's asserted in State Court is we complied with the right show. We complied with the Federal rules. So if State law gives you a remedy, it must be conflict-preempted. So along these lines, look at Count 9, 100 A of the appendix to the petition. Each defendant, 100 A. Each defendant enterprise owed plaintiffs a duty of care in their capacity as gatekeepers of the market. Each defendant enterprise breached the duty of care that they owed to the plaintiffs to report suspicious transactions and naked short sales. Where does that come right from, Reg. Schell? Look, I'm not going to suggest Justice Alito that Reg. Schell isn't relevant as a background proposition. We're in a regulated market. So, of course, the landscape that exists is going to implicate Federal rules. The relevant question is, jurisdiction can't be sustained on a theory that we have an advance. That doesn't seem to be relying on Reg's show as a background proposition. You say that they breached a duty, this is a claim for negligence. It requires a breach of a duty, and you say the duty that they breached is a duty that's created by Reg's show. I would characterize it a little bit differently. Here's what I would say. I would say that if market manipulation requires that someone do something that injects inaccurate or artificial information into the market, that's the theory of a market manipulation claim. You're messing with natural supply and demand forces. Of course, any theory of market manipulation, including under State law, would have to reference and talk about the ground rules, because the ground rules that are set up by the SEC are what set up the market's normal expectations of traditional supply and demand forces. So, it would really tie our hands to say that any time you talk about someone doing something that is inconsistent with the regulatory scheme, you can't bring a State law claim that is truly a State law claim. Because if you're trying to allege that there's- a duty of care that they owe to the plaintiffs to report suspicious transactions of naked, short sales, that's the allegation under negligence. What duty of care, a duty of care imposed by New Jersey law? What New Jersey law? Or is it a duty of care imposed by show? It's a duty of care, Justice Breyer imposed by New Jersey State law. Which state law? New Jersey statute 49, colon 3-49. It's found on pages 84A to 87A of the petition appendix. And what it does is it's the section of 101 of the Uniform Security Act that mirrors 10B5. And so the exact words there that the duty of care is referring to are what? I believe it says you can't engage in deceptive or manipulative conduct. What we attempted to do here, we may lose on this point on State Court. Okay, but I have a bigger question that I can't get. I can't figure out, and so I would like your help. Let's go through this. Let's suppose for present purposes that as I read through your complaint, I find words, if not the words we just said, but similar words somewhere. And I think, but there is nothing under New Jersey law unless New Jersey picks up show. Right? Why isn't that good enough, or that matter, to get them into federal court and arising under cases? Okay, so if we're out of the world and you've rejected my creation argument. I'm really concerned about, I can't clarify in my mind the difference between somebody being thrown out in an arising under case and yet getting back in under section 27. That's what doesn't make too much sense to me. If this is necessary, the Federal issue is necessary for the plaintiffs to win, there's a rising under jurisdiction. Then I don't know what to do with the word exclusive, but all that seems not to be in the case. So then if it is not sufficient to get in under a rising under, why in Heaven's name should it be to get in under 27? Well, I mean, obviously I'm not going to resist, but what I would say is that. You're not going to resist my conclusion, but you see, it's, I need clarification because I'm not sure I've thought it through correctly. So here's my best attempt to clarify. I think, let me throw away the facts for a minute. In other words, I think there's no theory that we've pled that satisfies even their standard, but let me throw that away. Let me assume the best case for them that we've relied on federal duties and try and put it through the legal question that you've asked. I think one way to resolve this is to take the simple approach, which is what I advocated first, and to say, look, if it's just enforcing a state law cause of action, even if it incorporates federal law, that's all 27 does and you're done. I understand the premise of your question is, let's say you rejected that, and we're thinking, you know what, maybe some state law claims fall within the sweep of Section 27, how do we think about this? Here's what I would say. I would say that whether this is an arising under statute or not, it has to incorporate what I'll call a federal necessity requirement, because that's a longstanding rule that's part and parcel of the well pleated complaint rule. And if you look at Pan American, for example, let's say I accept what my friend Mr. Hacker says that it's just dict, they weren't saying it's an arising under statute, they apply it, you, the court applied well pleated complaint rule without looking at the text of the statute at all. It's a sensible thing to say that when federal jurisdiction over state law claims, it's predicated on the federal character, there being a federal issue that we use the well pleated complaint rule. It's also similarly sensible that the well pleated complaint rule would have an adjunct which is federal necessity. And that's precisely what the court said in Christensen, in our Court of the Court. The well pleated complaint rule focuses on claims, not theories, and just because an element that's essential to a particular theory might be governed by federal patent law does not mean the entire monopolization claim arises under patent law. Now to the second half of your question, which is, well how does that pat of a map together? Well then the question becomes how did we allegedly use this federal view? Do we use it in our Rico claim as one of several predicate acts? That's all that's ever been alleged until today. I was surprised to hear a suggestion that, well I shouldn't say until today, until the briefing in this Court. In the lower court, the suggestion was that we relied on a federal duty because it was somehow being snuck in as an additional predicate of our Rico claim. I resist that claim. If you go and look at the pages, we alleged three. Something. And don't tell me I'm right. If you think it favors you because maybe it does favor you, but I got, there'll be other cases, you know, so sympathize a little with my problem. Okay. I'm looking for a way to see if we really have to answer all these difficult questions that have been raised, which are pretty tough. And so I was thinking, look, here's what you look to. Judge, see if it is a necessary thing, and if so, whether it falls under 1331. Okay? If it's an arising under claim under 1331, kick it out of State Court and send it to federal court. But if it isn't an arising under claim, because it isn't necessary to winning for the plaintiff, forget about it, keep it in State Court. I don't care whether it's, don't worry about whether the stake passed it this way or the state legislature referenced it by numbers or referenced it by, don't worry about all that stuff. Just decide one question. So does it meet the four criteria for arising under? If so, kick it out. If not, keep it. So Justice Breyer, here are my thoughts on this. I think that the gray bull. Maybe I just clarify, I thought it was conceded. There was no arising under jurisdiction. That's true. I'm not looking in this case. I'm looking for the general rule. That's how I understood the question. And so as to the general rule, here are my thoughts. The 1331 still exists. 1331 is powerful, and we can call it Jackson Pollock all we want. But it's been adopted. It exists, and it's applied by courts. So I think that there's a very small distinction between incorporating it here or not. There is a distinction, exclusivity versus, versus not exclusivity. I understand that. But my point is the simplest way out of this morass, I think, is to say we want a simple, administrative rule, and we only look to 27 to confer jurisdiction over exchange act created claims. And we have, as a backdrop, 1331. Now, if you resist that, Justice Breyer, you don't like that. And you say, okay, well, what's the second best option? There's two. And I don't really need to advocate one is opposed to the other, because we went under both, but I'll throw them out there. One is to say we don't have to call this an arising under statute. We don't have to reach the difficult question of, well, is that what Pan-American was holding? Did they, did Congress intend to incorporate 1331 wholesale and all of its elements? There's a simple way out, which is to say the notion of federal necessity. This is the one question that you were saying. Does not in here, in the words arising under, it in here is in the well-plated complaint rule, which is a backdrop presumption, which should apply to any type of congressional grant of federal jurisdiction over state law claims, unless Congress says otherwise. So I think that's the second best option. You say, okay, it's not only a creation test, Section 27 can reach some state law-graded claims, but they must be necessary. And there's a long jurisprudence of this Court. It's in the arising under context of what it means to be necessary. And then you don't have the difficulty of trying to look to whether it's substantial, doing a federalism balance, you would essentially assume if it's something that trigger is triggered by an exclusive jurisdiction provision of the Exchange Act, it must be substantial, it must fit the federalism balance. Mr. Struss, I don't understand why you're resistant just saying this language ought to be interpreted in the same way as arising under jurisdiction is interpreted. And it's true that there are different words, but it's at least as good an interpretation of these words that they essentially refer to what the arising under test refers to. Which after all, I mean, the arising under test doesn't really have a whole lot to do with the language arising under anymore. So why isn't that just sort of the simplest thing to do? Is we have a test, it's a four-part test, and this language seems to fit that test pretty well, and that's what we should do. We should have one test. So Justice Kagan, I won't resist too hard because obviously we win under that outcome. I resist a little bit, and I'll tell you why. Certainly I can defend that proposition, and we did, you know, in our briefing, there's a solid basis to do that. The Court interpreted materially identical language that way in Pan-American, as we pointed out on our brief section 22 of the Securities Act, which uses materially identical language, then in the removal bar equates that language with a rising under. I could defend that proposition. I just don't think it's the most natural reading of the language. If you're asking me honestly, like, what do I think Congress intended? I believe that they intended, brought to enforce duties or liabilities created under the act to mean the three narrow categories of federally created causes of action in 1934. I think that's what this statute meant. I don't think Congress has done anything since then to change that. If you look to slusa in 1998, where there was this serious concern on the part of Congress, of what was happening in terms of state law created causes of action, the initial bill that was proposed would have preempted all state law created causes of action. Didn't go very far. Instead, Congress said, no, we're going to restrict this to covered class actions. So if you're trying to find what I think is the most intellectually honest reading of the language and consistent with the history, I actually don't think it's adopting a rising under, but I certainly could defend it as a reasonable interpretation of the language on the context. So I'm late of slusa, the issue that's before us would apply only in individual actions and small class actions. That's exactly right. And I think maybe I'll close with this. I think that's very important from the perspective of just sensibility and policy, which is the following. One of the things that animated the private security litigation reform act was the concern that lawyers were driving litigation and not clients. And that's why, for example, one of the things that went into the PSLRA was a requirement of who the most appropriate plaintiff is. That doesn't happen when you have cases like this, when you have the CEO of a company who holds 2.1 million shares who's bringing a claim. And so not only was it not the point of Congress in 1933 and 1934 to invade the province of State Courts, if we look at the entire history of purposes and Congress trying to say, well, we have some concerns about what State Courts are doing, there has never been an expressed concern about State Courts enforcing state law in individual actions like this one. For the Court to hold otherwise would be unprecedented because you would be stripping state courts of the type of jurisdiction that they've had since the time of the Exchange Act. 10B of the Exchange Act itself was predicated on common law, deceit, and fraud, and a whole history of what was occurring in State Courts. And I just don't think there's any way to read Section 27 that's workable from the Court's jurisdictional precedence, but that's also sensible in terms of what the dual system of securities regulation is trying to do. And so if there are no further questions. Well, just out of curiosity, why is it so important for your client not to be in Federal District Court? So I think there's a few reasons. The first is his lawyers practice in State Courts, the familiar with the procedures that's where they want to be. The second is the procedures are better. I mean, it's not a surprise that a lot of securities plaintiffs want to be in State Court. In some instances they want to be there because the law is more robust. There's no center requirement. You could bring a holder claim. That's actually not the case here because New Jersey law happens to parallel. So we don't have those benefits. But we want to be able to take a Rico claim where we're trying to take a new area. These naked short selling cases, they're new. You know, the overstock case that's happened, you know, we would prefer a state forum for our state law created claims to convince a state court that this is actionable and it, you know, it should warrant punitive damages. And I think we have every right to do that as the master of our complaint. You said that you could prevail in this case without showing any violation of the cell regulation. So could you explain how you could prevail in if you don't show a violation? Right. So I would put it slightly differently. If I said that, you know, I think that's, that's imprecise. Any act of market manipulation in the context of naked short selling will necessarily violate regulation show. But every violation of regulation, regulation show is not market manipulation. What regulation show does is it sets a floor. And if you engage in certain conduct, you, you, you, short a stock, you haven't borrowed it. You have no reason to believe you've borrowed it. The SEC can find you under statutes where there's no private right of action. That doesn't make out a market manipulation claim Justice Ginsburg. To prove market manipulation, you have to go a step further. You have to show that that was done intentionally to try and depress the value of the stock. So the point I was trying to make is if there were an analog to our state law claim, it's not Reg Show. It's 10B5. And, and the idea that you can't bring a parallel 10B5 action in state court and have state court adjudicated, that's never been law. But they're, they're essentially trying to do an end run around that analysis by suggesting that somehow Reg Show is what we're trying to enforce. Reg Show is not relevant for that purpose. Reg Show doesn't help us. Even under Federal law, we wouldn't have a private right of action. Section 9D of the Exchange Act. There's no private right of action for that. Section 10A1 of the Exchange Act. These are the ones that deal with, with short selling. No private right of action has to be 10B. Thank you, counsel. Three minutes, Mr. Hacker. Mr. Chief Justice, I'm here to please the court. The respondents argument as a problem with the language, both of their own complaint and with the language of the statute. The complaint could not be clear that while it's true, there are references to market manipulation. What they're trying to establish is market manipulation by the mere fact that there were not locates that complied with a Reg Show. That's what created what they call counterfeit shares. That, in and of itself, forgetting intent is also what diluted the shares and caused their problems. That's clear from paragraph 33. It's clear in paragraph 86 and 87. What they talk about are violations of the rules and regulations that cause them harm. They would also like to establish a market manipulation. I'm sure if they could prove intent and all of that. But the whole point of the complaint here is to say is to hope they can get in front of a jury and judge who will agree with them that those mere violations of Reg Show in and of themselves establishes the state torts that they are pursuing. It's perfectly clear in those paragraphs and through the rest of the complaint. I don't think there's any ambiguity whatsoever. Nor is there ambiguity in the plain text of the statute. The first argument they make is that it effectively incorporates the homesy review that it has to be a cause of action created by the Act itself. The Section 27 answers that question. It doesn't say that jurisdiction is established for over a cause of action established by the Exchange Act. That would have been the way that Congress would have said it. If they meant to say there is jurisdiction over causes of action established by the Act, Congress would have said that. It didn't say anything like that. What it said was very much essentially the opposite or something very different, which is suits brought to enforce duties prescribed by the created by the Act. It's about the substantive source of the source of the. The first half of the first sentence, it talks about violations of the law. The second sentence parallels it, says criminal. The second half of the first sentence talks about all suits in equity and actions at law or actions. Right. At law. I don't know that. Those are all civil actions. It's clearly talking about civil actions. The reference to violation itself talks about suits and civil actions for violations. It talks about criminal proceedings. It encompasses the language also encompasses criminal proceedings, but the references to suits brought to enforce liabilities or duties is unambiguously about civil proceedings. And the other side doesn't disagree with that. But let me turn to the last point, Justice Breyer's argument, and I think Justice Kagan's that well, maybe it's just the same thing as 1331. That too is contrary to the text of the statute, because 1331 has been construed. It also doesn't have the textual requirement. As having this necessity component, precisely because if you don't have a necessity component, then you're taking away from state courts cases that state courts are competent to adjudicate. We know that Congress had literally the opposite premise here, that they didn't want state courts adjudicating as a response council conceded a certain class of cases. What class of cases is that? The statute tells us the answer. It's those that are, suits brought to enforce duties. For example, a RICO case with two predicate acts. One is violation of reg show, one is violation of state law. It is unambiguously clear that that is brought to enforce the duty prescribed by reg show, and then that circumstance, that kind of case, Congress wanted to proceed solely in federal court. Thank you, counsel. The case is submitted

Legal Case Summary

Merrill Lynch, Pierce, Fenner & Smith Inc. v. Manning

Date Argued: Tue Dec 01 2015

Case Number: 269

Docket Number: 3018281

Judges:Not available

Duration: 62 minutes

Court Name: Supreme Court

Case Summary

Merrill Lynch, Pierce, Fenner & Smith Inc. v. Manning

Oral Audio Transcript(Beta version)