Other blogs have weighed in on Supreme Court Nominee Sonia Sotomayor, and her impact thus far on securities law. Some of them are very interesting. The National Law Journal has some interesting comments on Sonia Sotomayor and litigation on Rule 10b-5. Rule 10b-5 is the corner stone of almost all securities litigation. The rule is a prohibition of fraud and deceit by both act or omission, in connection with any purchase or sale of securities, and has been used in many cases involving insider trading. For any attorney engaged in securities litigation as a part of their practice, a Supreme Court Justice’s opinion on the rule is important in deciding how to proceed with their case. From National Law Journal:
Under the business umbrella, for example, “there’s not a corporation out there, as well as the plaintiffs’ bar, that doesn’t know how important and critical is the issue of the private right of action under 10b-5 of the securities law,” said corporate law scholar J. Robert Brown of the University of Denver Sturm College of Law. “But I doubt it will come up.”
Rule 10b-5 is the leading statutory basis for private securities fraud claims, he said. The Supreme Court’s most recent decision in this area — Stoneridge Investment Partners LLC v. Scientific-Atlanta Inc. — was a 5-3 victory for third-party business defendants by the Court’s conservative wing. The decision evinced hostility toward 10b-5 actions and a desire to contain them, said Brown. Just last week the Court agreed to decide another key 10b-5 challenge involving when the statute of limitations begins to run. Merck & Co. Inc. v. Reynolds , No. 08-905.
Retiring Justice David Souter dissented in Stoneridge . Although Sotomayor authored a relatively pro-investor ruling in Merrill Lynch v. Dabit (vacated and remanded by the Supreme Court in 2006), her opinions reflect no discernible philosophy in this area, said Brown and others.
Courthouse News Service has also weighed in on Merrill Lynch v. Dabit, a case covered in a previous post on Lots Stocks and Gavel.
In an interview after the conference, Resident Fellow Theodore Frank of the conservative think tank American Enterprise Institute said the descriptions of Sotomayor as a firm believer in judicial modesty “contradict behavior exhibited by a number of Sotomayor’s actual opinions.”
Frank gave an example, “She went out of her way to give a crabbed anti-business reading of the Securities Litigation Uniform Standards Act that was reversed 8-0 by the Supreme Court.”
Frank here is referring to the 2005 Dabit v. Merrill Lynch case, where investors holding securities argued that misleading statements prompted them to retain securities they otherwise would have sold.
Here, the question rode on whether lawyers bringing the securities class action were able to bring the case in state court as a way of avoiding federal legislation designed to stop the perceived abuse of federal class action securities fraud litigation.
As a member of the Second Circuit Court of Appeals, Sotomayor allowed the suits, but when the case made its way to the Supreme Court, the justices voted 8-0 to reverse the decision, deciding that the act applies in state court cases, as well.
Lots, Stocks, and Gavel 
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