The Supreme Court heard oral arguments this morning in Stoneridge Inv. LLC v. Scientific-Atlanta, Inc., No. 06-43. The case has people all atwitter.
From reading the WSJ, for example, you might think that Stoneridge threatens a securities law Armageddon. Only coch-roaches (and possibly class action lawyers) will survive.
Blawgletter doesn’t see the case that way. To us, Stoneridge presents the question of whether someone who knowingly participates in what the Securities Exchange Act defines as "deceptive conduct" may escape liability because the market doesn’t detect his role in the securities fraud. We don’t feel a lot of sympathy for those who fit that description. Nor do we believe that any floodgates of litigation would open from requiring the deceptive ones to answer for their intentional deception.
But only eight votes count — those of the Supreme Court justices who haven’t recused themselves. (Chief Justice Roberts and Justice Breyer did remove themselves, but the Chief unrecused himself.) How do the votes stack up?
Six of the eight sat on the Court that, in 1994, rejected "aiding and abetting" liability under federal securities law. Central Bank of Denver, N.A. v. First Interstate Bank of Denver, N.A., 411 U.S. 164 (1994). Three voted in the majority (Kennedy, Scalia, and Thomas) and three in the dissent (Stevens, Souter, and Ginsburg). Their ballots then may foreshadow how they’ll come out in Stoneridge.
Questions and comments by Justice Scalia and the newest Court members — Chief Justice Roberts and Justice Sam Alito — suggest that they will almost certainly favor the defense. We have no reason to believe that the other justices will change their 1994 positions, but we do note that both Kennedy and Thomas would have to shift in order for the plaintiffs to win. A 4-4 tie would go to the winner in the court of appeals — the defendants.
But at least plaintiffs wouldn’t have another ugly precedent on the books.
Barry Barnett
