Securities Litigation in the Roberts Court: An Early Assessment

The following post comes to us from John C. Coates IV, John F. Cogan Jr. Professor of Law and Economics at Harvard Law School.  It is based on his recent article, “Securities Litigation in the Roberts Court: An Early Assessment,” which is forthcoming in the Arizona Law Review and is available here.

This article, Securities Litigation in the Roberts Court: An Early Assessment, provides a preliminary quantitative and qualitative appraisal of the Roberts Court’s securities law decisions. In the Roberts Court, decisions that “expand” or “restrict” the reach of securities law fall in roughly the same 50/50 proportion as the Rehnquist Court after the departure of Justice Powell, and polarization (5-4 votes and dissents) has decreased. A simple political attitudinal model fails to account for these developments. The article proposes that the Roberts Court’s securities law decisions are better understood in the context of Chief Roberts’ background as an appellate litigator and the Roberts Court’s broader “procedural revolution,” which has been more prominent in contract, commercial, and antitrust cases. This procedure-based analysis is then used to predict likely outcomes of securities law cases to be argued in the October 2014 term and to forecast the types of cases that are likely to gain the Court’s attention moving forward.

Building on the research of Professors Thomas Sullivan and Robert Thompson on “private law” cases from 1972 to 1987, I developed a comprehensive dataset of securities law, antitrust law, and economic issue cases from Chief Vinson to Chief Roberts. Part I of the article details several initial findings. First, securities law cases make up a larger portion of the Roberts Court’s docket compared to all Courts dating back to Chief Vinson, but the increased share is due largely to the decrease in the Court’s total docket, which has shrunk by over half since Chief Burger. The Roberts Court has continued to hear on average one to two securities law cases per year (fifteen overall).

Dissent and polarization—overall and in securities law—have not increased under Chief Roberts. Securities law cases have in fact seen far fewer minority votes (15%) and 5-vote majority decisions (20%) than under Chief Rehnquist (22% and 39%), and the case that most restricted the reach of securities law was actually Morrison, a unanimous decision. The Court has maintained a balance between expansive and restrictive outcomes, distinguishing it from the highly expansive pre-Powell era and the restrictive Powell era.

A qualitative assessment fairly well matches the quantitative data. Beside Morrison, the case law mainly consists of modest, status quo-preserving decisions, while resolving some Circuit splits stemming from Congress’s several revisions to the securities law statutes since the mid-1990s. The effects of Morrison seem likely to dominate those of expansive decisions like Troice and Lawson, such that Roberts’ Court’s securities law decisions are more restrictive overall than a count of the decisions would suggest—but not strongly so.

Part II details how the balance between expansive and restrictive decisions, combined with decreased polarization, calls into question an attitudinal model’s explanation of case outcomes. Such a model would predict that Republican-appointees would vote for restrictive (business/manager-friendly) decisions while Democrat-appointees would vote expansively (consumer/worker-friendly). This model, however, correctly predicts only 50% of actual case outcomes—precisely the same as a coin flip.

Outcomes better fit a model organized on two other dimensions: (a) procedural/substantive, and (b) bright-lines/standards. Unanimity is exhibited in most securities law procedural cases, and the Court strikes down bright-line rules, and so appear to explain decisions where party affiliation fails. Combining these dimensions in a simple model correctly (if conjecturally, given the small sample size) catalogues 70% of cases as expansive/restrictive. It also fits perfectly the first case decided after this model was developed, Halliburton II. In that case, the Court rejected two bright-line rules, was procedural (adding a pre-certification defense to Rule 10b-5 class actions), and was modestly restrictive.

Part III briefly reviews Chief Roberts’s background as an appellate litigator and the Court’s broader “procedural revolution” to help put in context the Court’s aversion to bright-line rules and its focus on procedure in securities litigation. The Court’s securities law decisions may be viewed as part of a broader retrenchment on civil procedure that has effectively limited litigation against businesses in cases like Goodyear and Twombly, while preserving judges’ discretion by rejecting bright-line rules. The Roberts Court’s preferences for standards and preservation of judicial discretion match up well with the experiences and intuitions of an appellate litigator.

Several predictions follow, including that the Court is more likely to grant certiorari in procedural rather than substantive securities law cases. The two certiorari grants for securities cases in the October 2014 term in fact involve procedure. The question in IndyMac MBS is whether the filing of a class action tolls the limitations period under the Securities Act. Based on the above, the answer will probably be “not necessarily.” In Omnicare, the question is whether a plaintiff must plead a statement of opinion was subjectively disbelieved or simply untrue under Section 11 of the Securities Act. This article suggests the answer will be the former. Litigators considering whether to pursue a certiorari grant in the securities law context may benefit from framing their cases as procedural, and by refraining from seeking bright-line rules from the Roberts Court.