SECURITIES CLASS ACTIONS: EMERGING TRENDS AND ISSUES – A NEW SERIES
Today, we begin a new occasional series focused on current and emerging trends and issues in private securities damage actions, typically securities class actions.
Congress and the courts have struggled for years with the role and scope of securities class actions. Congress, for example, sought to rein these actions in when it passed the Private Securities Litigation Reform Act (PSLRA) in 1995. There, Congress imposed a series of substantive and procedural limitations on these cases after hearing testimony about abuses in bringing, maintaining and settling these actions. That testimony suggested that the merits are not relevant, only the potential liability from huge damage claims. See, e.g., Janet Cooper Alexander, Do The Merits Matter? A Study of Settlements in Securities Class Actions, 43 Stan. L. Rev. 497 (1991) (cited in the legislative history). Three years later, Congress reinforced the limitations of the PSLRA with the Securities Litigation Uniform Standards Act (“SLUSA”).
As early as 1975, the Supreme Court decried what it called the “ most vexatious” nature of these cases. Blue Chip Stamps v. Manor Drug Stores, 421 U.S. 723 (1975). In the years that followed, the Court has handed down a number of decisions imposing limitations on securities class actions. See, e.g., Dura Pharmaceuticals v. Broudo, 544 U.S. 336 (2005) (requiring loss causation); Stoneridge Investment Partners, LLC v. Scientific-Atlanta, Inc., 128 S. Ct 761 (Jan. 15, 2008) (rejecting “scheme liability”). Those rulings are consistent with the PSLRA and SLUSA.
Recently even the Securities and Exchange Commission (“SEC”) seems to have conflicting views about cases it typically supports. Last year, it adopted a pro-defendant/business position in one important securities class action before the High Court (Tellabs), but sought to take a pro-plaintiff position in another later in the term (Stoneridge discussed here).
At the same time, Congress has acknowledged that securities class actions play an important role as an adjunct to the SEC’s market policing efforts. This thread runs through the PSLRA, which sought only to weed out suits which lack merit while permitting meritorious cases to proceed. See, e.g., Tellabs, Inc. v. Makor Issues & Rights, Ltd., 127 S. Ct. 2499 (2007). The courts have adopted a similar position. And, the SEC frequently argues that private damage actions are a necessary supplement to its enforcement efforts.
To analyze the impact of these conflicting trends, examine emerging issues in this area and perhaps determine whether the merits do now matter this series will consider three broad areas:
1) An overview – a review and analysis of various statistics such as the number of filings, amount of settlements and similar matters;
2) The impact of recent key Supreme Court decisions; and
3) Trends in key lower court cases.
Next: Part I: The Statistics.