The U.S. Supreme Court has been issuing rulings left and right recently, like the Aereo’s copyright infringement case and the controversial case involving Hobby Lobby’s argument against providing health coverage that conflicted with the company’s religious beliefs. Another, long-awaited Supreme Court decision has become one of the more hotly contested in terms of victory when the justices issued a ruling about securities class action litigation last week. Utah securities lawyers like Dwight Williams echo the sentiment expressed in this Wall Street Journal article: who really won this case?
Williams and other securities attorneys are just as divided over the ruling’s impact on future litigation, but let’s look at why. The decision rendered by the Supreme Court was all set to settle how successful class action lawsuits against corporations would continue to be along with how easily plaintiffs could continue to rake in settlement money (billions of dollars for these cases up to this point). Up until now, Utah securities lawyers representing plaintiffs could rely on a theory known as “fraud on the market,” a concept that allows prosecution of corporations for disclosing erroneous stock prices to investors—without investors having to prove they relied on such information and lost money because of it.
But the Haliburton v. Erica P. John Fund ruling changes that. Well, some of it. The reason attorneys like Williams, other Utah securities lawyers, legal analysts and law professors nationwide are divided on citing a victor in the ruling is because the Supreme Court’s decision did two things. First, it did not set up a requirement for investors to prove they relied on misinformation in order to sue (victory for plaintiff investors). Second, it created a provision that allows companies to prove that the misinformation, “typically contained in a public misstatement that improperly inflated the stock price didn’t have an impact on what investors bought or sold” (victory for defendant corporations). If a company’s securities attorneys can do this in court, it could quash a class action suit filed by the investors early on.
The response to this ruling was all over the map:
“It’s a resounding victory for investors.” – Plaintiffs’ securities lawyer
“[Investors] are trying to spin their defeat on the issue as best they can.” – Haliburton attorney
“I don’t think it changes the legal landscape very much.” – Duke University law school professor and former plaintiffs’ securities litigator.
Utah securities lawyers are similarly divided on who can claim triumph from this ruling, and the disagreements are understandable. Few areas of law “are as complex and fiercely contested as securities litigation.” But for an industry that results in settlements totaling close to $80 billion in the last two decades, it’s worth trying to figure out. For now, it seems as though the ruling, less controversial per se and more of one with enigmatic and unclear implications, charted at least some middle ground between the plaintiffs and defendants. We shouldn’t expect to see a clear winner between investors and corporations for securities matters any time soon, and maybe that’s exactly what the justices wanted.