Securities Litigation and the “Pro” or “Anti” Business Supreme Court

Looking to the Supreme Court’s recent opinion in Matrixx Initiatives v. Siracusano, No. 09-1156 (Mar. 22, 2011) (pdf), a securities litigation decision allowing a class action to proceed against the makers of Zicam, Forbes manages to conclude that the Court has (again?) bucked its pro-business slant, raising the question of whether the Court has any such slant at all.

More, says Daniel Fisher, because the Court acknowledged the fact-specific nature of the central issue in this case — whether information noting serious but not “statistically significant” problems with a company’s medical product is so important (“material”) to investors as to make its non-disclosure deceptive — then:

Once again the Roberts court shows historic deference to the role of the fact-finder, or jury, to determine when a company has broken the rule.

And so the analysis slips from the simplistic to the clearly wrong. Taking the last point first, denying a motion to dismiss just means that the issue is too complex to resolve without discovery. Not without a jury. This case could (and will) resolve long before it reaches the jury, probably on summary judgment. The disposition, then, speaks nothing to the Roberts Court’s respect for jury findings, which is historic, true, but historically bad. Recall Gonzales v. Carhart, where Justice Kennedy set aside the factual determinations of three different district courts for, essentially, their political inconvenience.

Next, while I suppose allowing a class action to proceed is “anti-business,” in a way, Matrixx does little to make securities litigation more plaintiff-friendly. Instead, Justice Sotomayor’s holding is a simple re-affirmance of a very, very old case. Twenty-three years ago, the Court in Basic v. Levinson, 485 U.S. 224 (1988) rejected any brightline rule for assessing the materiality of disclosures about preliminary merger negotiations; here, the Court simply extends that rule to a roughly analogous context. The decision’s obviousness explains its unanimity.

Because this wasn’t a hard case, it doesn’t reflect on the Roberts Court’s handling of corporate interests in close (or novel) cases. This is the more interesting question, but time and again, when presented with close or novel issues, the Court has split for corporations. Citizens United is an obvious example; but Morrison v. National Australia Bank, for killing off a large (and growing) sector of securities claims, was a real love letter to the defense bar.

I appreciate that in my day job. Really, I do. And I happen to think the Court’s decision in Morrison, per Justice Scalia, was objectively correct, and even elegant in its resolution of an otherwise unworkably complex issue. But let’s not reward a radically right-leaning Court for doing what it’s supposed to do.



  1. Morrison I don’t know… and Wikipedia says it’s already been negated by legislation. I’d think Stoneridge v. Scientific Atlanta and it’s expansion of, rather than overturning of, Central Bank v. First Interstate Bank would be a better example of the Roberts Court killing off a large sector of securities claims. Of course, it’s not really a case of “pro-business” since there’s no “pro-business” side when one business (or sort of business) is going against another business or sort of business. Take the Roberts Court’s (well-deserved) smackdowns of the Federal Circuit on patent law. There’s no way to frame KSR v. Teleflex or EBay v. MercExchange or Quanta v. LG with a “pro-or-anti-business” rubric. They’re all cases of Company A suing Company B, with amici from Industry X supporting A and amici from Industry Y supporting B. And of the Federal Circuit being completely unhinged with its patent jurisprudence and letting too many people get patents.

  2. Morrison was legislatively overruled as to SEC enforcement, but not private causes of action. There’s no more private-side f-cubed litigation, and God knows whether the SEC will use that power.

    Yeah, Bilski v. Kappos was another well-deserved smackdown :)

    1. Ok. The Morrison article on Wikipedia is pathetically uninformative.

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