Just hours after the U.S. Supreme Court handed down one of the most anticipated cases, Stoneridge Investment Partners v. Scientific-Atlanta Inc., No. 06-43, th reaction to the decision that investors may not sue third-party actors under §10(b) of the Securities Exchange Act. Click here for the PDF file decision on the Court’s website.
“The dispositive issue in this case is reliance,” Justice Anthony Kennedy said from the bench today in announcing the 5-3 ruling.
In the opinion, Kennedy noted: “Respondents had no duty to disclose; and their deceptive acts were not communicated to the public. No member of the investing public had knowledge, either actual or presumed, of respondents’ deceptive acts during the relevant times.”
The Court also rejected the investor’s argument for “scheme liability,” for which they claimed no public statement was necessary. “Were this concept of reliance to be adopted the implied cause of action would reach the whole marketplace in which the issuing company does business; and there is no authority for this rule.”
Justice John Paul Stevens dissented from what he called “the Court’s continuing campaign to render the private cause of action under §10(b) toothless.” His dissent was joined by Justices Ruth Bader Ginsburg and David Souter. . Justice Stephen Breyer recused himself from the case’s consideration because he owns stock in Scientific-Atlanta’s parent company Cisco Systems Inc.
Lisa Wood, co-chair of the securities litigation group at Foley Hoag in Boston said the result was expected. “Stoneridge continues the Court’s recent trend of raising the bar for plaintiffs in securities class actions and in fact, this decision goes much further than any previous ruling in limiting the potential scope of liability of outside professionals in a shareholder lawsuit,” she said.
Jeffrey E. McFadden, a partner in the Washington office of Steptoe & Johnson, said he was pleased with the decision. “The Court reaffirmed the wisdom of not injecting itself into an unwarranted expansion of a private right of action that, on two occasions, Congress declined to expand itself.”