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Stoneridge News Coverage

Marketwatch: “Lawyers from both sides endured tough questions from justices including Chief Justice John Roberts, who said at one point during the hearing that “we should get out of the business of expanding” liability because Congress has taken over that role.”

AP: “Grossman’s assertion prompted skeptical questioning from Chief Justice John Roberts and Justice Antonin Scalia, who suggested federal law imposes strict limits on shareholders’ ability to sue companies and firms other than the one in which the investors hold stock. The court must “sensibly limit” the circumstances under which such lawsuits can be filed, said Scalia.”

Dow Jones: “At oral arguments in the closely watched Stoneridge securities appeal, both Chief Justice John Roberts Jr. and Justice Samuel Alito in their questions made it clear they don’t believe federal law allows investors to go after vendors, accounting firms or others in private securities lawsuits. “My suggestion is that we should get out of the business of expanding it,” Chief Justice Roberts said of private securities lawsuit rights. He added later that he thought the plaintiffs arguments were “inconsistent with Congress’ intent” on securities lawsuits. In the Stoneridge arguments, only two justices and maybe a third appeared likely to vote against business when the case is decided.”

SCOTUS Blog has extensive high quality coverage, as one might expect. Some key quotes follow, but do go read the whole thing:

• As the Court concluded an hourlong hearing in a vitally important securities case, there seemed hardly a chance — even a remote one — that federal law against stock fraud would be read to give investors a significant new tool to go after stock fraud themselves. With the seeming exception of only Justice Ruth Bader Ginsburg, and the possible added exception of Justice David H. Souter, members of the Court showed little to no sympathy for opening up a broad new category of liability to investors.


• Justice Antonin Scalia suggested that, since it was the Court’s own creation to allow private lawsuits by investors for fraud, “why couldn’t we limit it so that schemes, such as that alleged here, can be attacked by the SEC [Securities and Exchange Commission] but not by ‘private attorneys general’?”


• [Plaintiff counsel] Grossman, tested by the Chief Justice and others on how far his argument would take third-party liability, tried to keep it within limits by saying that liability would require proof that the partners acted “for the purpose of furthering the scheme.” Justice Anthony M. Kennedy bluntly told Grossman: “I see no limitation to your proposal for liability.” Kennedy suggested that, in the real world of investing, most people know that if someone engages in fraud, it is going to have an effect on stock market prices, so anyone who had a knowledge of a fraudulent scheme would become liable, under what he took to be Grossman’s theory.


• With Justice Samual A. Alito, Jr., Grossman appeared to be having difficulty showing that the lawsuit he was pressing was anything more than a claim that the business partners had “aided and abetted” the securities fraud — aiding-and-abetting claims have already been put beyond the reach of private investor lawsuits by the Supreme Court in a 1994 decision (Central Bank v. First Interstate Bank).


• Ginsburg, however, suggested there must be a “middle category” — between primary liability for the party that directly deceived the market, and aid-or-abet conduct that is not liable to private lawsuits. That middle zone, she suggested, would apply to “a company that made it possible for deception to happen.”

A couple of thoughts. First, did Stevens say anything? Informed readers will recall that he is one of the three Central Bank dissenters still on the Court. I had him pegged as a likely vote for plaintiffs.

Second, Scalia’s question opens an interesting can of worms. Granted, the courts - not Congress - created the Rule 10b-5 implied private right of action. Also, granted, Congress has never expressly acted. Yet, a veritable plethora of securities law passed by Congress assume the existence of an implied private right of action under 10b-5. Don’t they? In particular, doesn’t the 1995 PSLRA seem to assume that there’s a private right of action under 10b-5? Hence, could the Court disimply the private right of action at this stage without running afoul of fairly clear Congressional intent? It’d be interesting to get some Federal Courts/Statutory Interpretation gurus to address that question.

Third, a major difficulty I’ve had with the arguments made by plaintiffs and their supporting amici is that they would essentially confine Central Bank to its facts. I’ve pressed a number of them on the question of where they would draw the line between aiding and abetting, which Central Bank disallows, and forms of secondary liability they claim Central Bank permits. They define aiding and abetting so narrowly as to limit the category of disallowed cases more or less to the facts of Central Bank.

Update: Welcome Instapundit readers. While you’re here, you might want to check out these other Stoneridge-related posts:

Why the SCOTUS Gets Securities Cases Wrong so Often

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