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Supreme Court Protects Third Party Advisers in Stoneridge

Today, by a 5-3 vote, the Supreme Court decided Stoneridge Investment Partners v. Scientific Atlanta, rejecting the concept of "scheme liability" that would have allowed shareholders to sue third party advisers who may have facilitated the fraudulent transactions.  The ruling should come as no surprise to Legal Blog Watch readers --  we took the pulse of the blogosphere on the likely outcome of Stoneridge following October's oral arguments, and could not find any observers who predicted a win for investors.

Tony Mauro gives a quick summary at Blog of the Legal Times.  He reports that Justice Kennedy, the swing vote, authored the decision.  Kennedy found that the investors had not relied on the third parties' actions, and further, wrote that expanding causes of action in securities litigation would damage the economy and "would allow plaintiffs with weak claims to extort settlements from innocent companies." Stevens, Souter and Ginsburg dissented, however, criticizing the majority's "mistaken hostility towards the 10(b) private cause of action."

Though Stoneridge just issued this morning, plenty of posts have already come out with thoughts  and analysis:

  1. Doug Berman of Sentencing Law and Policy wonders whether Stoneridge may have implications for sentencing, such as determinations of issues like loss that could impact sentencing in securities fraud cases.

  2. SCOTUS Blog offers a good summary of the ruling, and Howard Bashman has a roundup of news stories;

  3. Professor Bainbridge agrees with the decision, as a matter of legal doctrine and policy;

  4. Elizabeth Nowicki makes several points.  First, she disagrees that the decision is necessarily bad for investors, because it shields third party actors far removed from the fraudulent transactions.  She says at best that Stoneridge merely stands for the proposition that the farther down the "fraud chain we go, the harder it is to pull in defendants."  Nowicki also asserts that Stoneridge shows that the Court often does not understand securities law cases, and that if the case is viewed as one relating to investor reliance (or lack thereof), then based on the facts, the Court reached the wrong result. 

  5. Finally, David Lat at Above the Law suggests that  Stoneridge may be bad news for one segment of the business community:  business litigation.   Lat asks, "With transactional work drying up, is the Supreme Court's business-law revolution, cutting down on litigation against corporate America, coming at a bad time for Biglaw as a business?

If you've posted about the Stoneridge case, send us a comment with a link to your site so that we can add it to this body of commentary.


Posted by Carolyn Elefant on January 15, 2008 at 03:46 PM | Permalink | Comments (0)


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