With oral argument in front of the Supreme Court coming soon (October 9), we thought we would take the time to discuss a number of aspects arising in the Stoneridge case. Recall that the 8th Circuit affirmed a dismissal of a case against some vendors, agreeing that primary liability under Section 10(b) and Rule 10b-5 largely did not extend beyond those who made a misrepresentation (or omission).
On September 19, Petitioners filed their reply brief. A copy is on the DU Corporate Governance web site. The brief is quite well done, to the point, succinct, and strategically wise. It emphasizes that the position of the Solicitor General that the “court of appeals erred by concluding that petitioner had failed to satisfy Section 10(b)’s deception requirement” is "sufficient to resolve this case." As for the other arguments, they were not the basis for the decision below or the reason for the split in the circuits. At most, the Court should reverse and send the case back. As the brief noted:
- The issue on which the Court granted certiorari – the issue that divides the courts of appeals – is whether deceptive conduct like respondents’ constitutes a violation of Section 10(b). Respondents, no doubt sensing the weakness of their position given the plain language of Section 10(b) and Central Bank ’s holding that the language of the statute governs, introduce a cornucopia of other arguments. All are without merit. More importantly, they were manifestly not the basis of the court of appeals’ decision, and were raised only glancingly below. While these arguments may be available to respondents on remand, they should not be considered at this time. (citations omitted).
In the context of the argument that the plaintiffs lacked reliance, the basis for the Solicitor General arguing that the case should be affirmed, Petitioners made good use out of the Commission's prior positions on the issue.
- We respectfully submit that this Court should not decide the reliance question in this case but should instead wait for a case in which that issue is squarely presented and fully briefed. The issue of reliance plainly was not the basis for the court of appeals’ decision. Reliance in securities fraud cases is a complex issue. . . This position conflicts with Basic and the views of the SEC. The SEC voted to submit a brief supporting petitioner in this appeal and confirming the positions on reliance and the availability of scheme liability set forth in amicus briefs it filed . . . In these circumstances – where a complex and novel issue was not decided by the court of appeals, and where a decision by this Court could have a dramatic and adverse effect on the meritorious private securities litigation it has long recognized to be “an essential supplement” to criminal and civil enforcement proceedings . . . – the Court should reserve judgment until the issue is more squarely presented. (citations omitted).
The law is on the side of Petitioners. If the Supreme Court comes out differently, it will be because as a matter of personal belief, they want to restrict and cut back on securities fraud suits.