The Ninth Circuit Court of Appeals agreed that the suit, originally filed in a California state court, can only be heard in federal court, citing the 1998 Securities Litigation Uniform Standards Act (SLUSA), which states only a federal court may hear such claims, according to CNET news.com.
Imation purchased privately held Cemax-Icon, and its employees’ stock options became Imation stock options. Additional, Cemax employees received an additional Imation option grant.
A year later, Cemax was sold to Kodak, and employees of the subsidiary were given 30 days to exercise their options. At the time the stock options’ value had gone down substantially.
Cemax employees filed suit claiming Imation misrepresented the value of the stock options and fraudulently concealed weak financials at the time of the original purchase.
Originally the case was filed in California state court, the employees claiming the stock options were wages and cited a California law making it illegal for a company to not pay its employees.
However, the case was moved to federal court after Imation cited SLUSA. A Federal district court dismissed the employees’ claims, saying the original contracts giving the stock options prevented the filing of a lawsuit.
The Appeals court sided with the district court on most points, but said the alleged breach of contract was substantive enough to allow the lawsuit to be brought to a federal trial.