Legal News

Harvard?s Hal Hearts Stoneridge Ruling

By Peter Lattman

In yesterday’s Stoneridge opinion, the Supreme Court sharply limited the ability of shareholders defrauded by a company to sue other parties, including bankers, lawyers and accountants. If the ruling had gone the other way, it could have expanded the power of defrauded shareholders to sue, invigorating the multibillion-dollar field of securities class-action lawsuits.

Instead, big business cheered the opinion, especially after it read paragraphs like this one:

The practical consequences of an expansion, which the Court has considered appropriate to examine in circumstances like these, provide a further reason to reject petitioner’s approach. In Blue Chip, the Court noted that extensive discovery and the potential for uncertainty and disruption in a lawsuit allow plaintiffs with weak claims to extort settlements from innocent companies. Adoption of petitioner’s approach would expose a new class of defendants to these risks . . . [C]ontracting parties might find it necessary to protect against these threats, raising the costs of doing business. Overseas firms with no other exposure to our securities laws could be deterred from doing business here. This, in turn, may raise the cost of being a publicly traded company under our law and shift securities offerings away from domestic capital markets.

Our Deal Journal colleagues pointed out that the language in the opinion bears similarity to the rallying cries of the Committee on Capital Markets Regulation, the so-called blue-ribbon panel that launched its well-telegraphed, full-frontal assault on rules, regulations and lawsuits back in November. The group is led by Harvard Law professor Hal Scott, who, the Deal Journal noted, must have been doing the moonwalk when he read the above paragraph.

We checked in with Scott, who, as it turns out had seen the opinion but hadn’t homed in on the above paragraph. He checked it out while on the phone with us and while reading it he said, “Huh. Wow.” He then guffawed. “This is very interesting,” he said. “We seem to have seeped into the Supreme Court. He added: “The court has acknowledged that there’s a problem here. This is quite helpful and validates our concern about this about how liability is having a negative impact for our markets.”

Full post as published by Law Blog - WSJ.com on January 16, 2008 (boomark / email).