Thomas Goldstein of Goldstein & Russell (Diego M. Radzinschi/THE NATIONAL LAW JOURNAL)
It’s not often that U.S. Supreme Court Justice Antonin Scalia sees eye to eye with Litigation Daily columnist Susan Beck. But on Wednesday, Scalia joined six other justices in an opinion that Beck foreshadowed last October, when she argued that judges shouldn’t interpret the Securities Litigation Uniform Standards Act too broadly in deciding whether to allow state law investor class actions.
The Supreme Court majority more or less agreed with that view in Wednesday’s ruling, affirming a March 2012 decision by the U.S. Court of Appeals for the Fifth Circuit that green-lighted investor claims against Chadbourne & Parke, Proskauer Rose and other advisers of convicted Ponzi schemer R. Allen Stanford.
As sister publication The National Law Journal reports, the court deemed that Stanford’s fraudulent certificates of deposit weren’t “covered securities” under SLUSA—generally defined as exchange-traded securities or mutual funds—so the case wasn’t preempted from proceeding as a class action in state court. Furthermore, even though Stanford had told investors the proceeds of the CD would be used to buy covered securities, the justices concluded that the connection between those securities and the plaintiffs’ claims was tenuous at best.
The decision is a big win for Thomas Goldstein of Goldstein & Russell, who argued the case for the investor plaintiffs at the high court last October. Goldstein faced off against Paul Clement of Bancroft PLLC at oral arguments. The litigation will now proceed under Texas and Louisiana state law against the defendants in federal district court in Dallas; the cases are in federal court because they were consolidated before the same judge overseeing the Securities and Exchange Commission receivership of Stanford Financial, U.S. District Judge David Godbey.
The investors are represented in the lower court by colead counsel from Dallas firms Strasburger & Price and Neligan Foley and by San Antonio’s Castillo Snyder. Davis Polk & Wardwell’s James Rouhandeh is leading Proskauer’s defense at the district court level, while Chadbourne looked to Daniel Beller of Paul, Weiss, Rifkind, Wharton & Garrison. (We couldn’t immediately confirm Beller’s continuing role in the case.)
The litigation has been closely watched by the class action plaintiffs bar, which saw some major lawsuits tossed on SLUSA grounds in the past year alone. (See, for example, here and here.) Defense lawyers, meanwhile, looked for a silver lining in the wake of Wednesday’s 42-page opinion. “The Chadbourne decision is a refinement of the law, rather than a major change,” Skadden, Arps, Slate, Meagher & Flom partner Charles Smith said in an email.
“Just as the earth still orbits the sun, the center of the universe for securities litigation remains in federal court,” said Morrison & Foerster partner Mark Foster.