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Conference Call summarizes the roughly 15 percent of all non-pauper petitions that are the most likely candidates for certiorari. The Supreme Court’s jurisdiction is almost entirely discretionary, and justices in recent years have annually selected roughly 80 petitions from the approximately 7,500 that are filed.

Conference Call is prepared by the law firms Akin Gump Strauss Hauer & Feld and Howe & Russell, which together publish the Supreme Court weblog. Tom Goldstein, who is the head of Supreme Court litigation for Akin Gump, selects the petitions from the docket of non-pauper petitions. Various attorneys for the firms then prepare summaries of the cases. If either firm is involved in a case mentioned in this column, that fact will be disclosed.



Although the dot-com bubble may have burst, litigation relating to the bubble lives on. In its Dec. 7 conference, the Supreme Court will consider whether to hear one such case, Credit Suisse First Boston Ltd. v. Billing, No. 05-1157. The Billing case exposes the dark underbelly of many of the past decade’s most glamorous initial public offerings, including those of Amazon.com, eBay, and Priceline.com. In this battle royal between the “haves” and the “have-mores,” a group of investors accuses every major investment bank — including Goldman Sachs, Merrill Lynch, and JPMorgan — of engaging in an “epic conspiracy” to manipulate prices during these IPOs, in violation of state and federal antitrust laws. The question in the case is whether, because of a conflict between antitrust laws and securities regulations, the banks are immune from antitrust liability.

Some background may be helpful for those who aren’t versed in the arcane world of high finance. When companies want to issue securities in an IPO, they typically go through underwriting firms — essentially large financial institutions — to minimize their risks. The most common arrangement is a “firm-commitment agreement,” in which the underwriter purchases the issuer’s securities at a fixed price and assumes the responsibility (and profit) of selling them. Multiple underwriters often form what is known as a “syndicate” to purchase and resell IPO securities.

The syndicate system is a major part of modern finance and is responsible for billions of dollars’ worth of capital formation. But with money comes greed, and there has long been a concern that the system allows syndicate members to manipulate prices during the IPO and afterward (in the so-called aftermarket following the conclusion of the IPO).

The investors in Billing raised a blunderbuss challenge to the entire syndicate system in federal district court. Although most of those claims are meritless — many of the syndicate system’s features are perfectly legal — several troubling allegations remain. First, the investors alleged that the banks colluded to force investors to provide additional consideration on top of the stated offering price for IPO shares, an arrangement known as a “tie-in.” That consideration took a variety of forms, including straight cash (such as higher commissions) or promises to purchase less-attractive shares outside of the IPO.

Second, the investors alleged that the investment banks engaged in a particular type of tie-in known as “laddering,” in which investors receive a portion of the IPO allocation only after promising to purchase further IPO shares in the aftermarket according to a prearranged schedule of escalating prices. (A subset of the investors also alleged that the investment banks engaged in “commercial bribery,” but the lower courts did not focus on those allegations.)

Protection against tie-ins and laddering typically comes from securities regulations, which are promulgated and enforced by the Securities and Exchange Commission. What is unusual about Billing is that the investors here are alleging violations of antitrust laws rather than securities regulations. (Why antitrust? Two words: treble damages.)

There is an inherent conceptual conflict between antitrust laws, which lionize the free market, and securities laws, which assume that intensive regulation of the market is sometimes necessary. Securities regulations typically have the upper hand in this conflict: The Supreme Court has held that the SEC may authorize conduct that would otherwise be considered anti-competitive, thereby precluding antitrust liability. Billing, however, involves a more difficult question: whether there is implied immunity from antitrust liability when regulations do not expressly authorize certain anti-competitive activities and may, in fact, prohibit them.

The district court dismissed the investors’ lawsuit, holding that the investment banks enjoyed implied antitrust immunity for their tie-in and laddering arrangements because those practices were within the SEC’s regulatory authority. The U.S. Court of Appeals for the 2nd Circuit vacated that judgment because it applied a more restrictive rule: that implied antitrust immunity will not arise unless there is some showing that “Congress contemplated the specific conflict [between antitrust and securities regulation] and intended for the antitrust laws to be repealed.”

In their petition for certiorari, the investment banks — represented by Steven Shapiro of Mayer, Brown, Rowe & Maw in Washington, D.C. — reiterate the district court’s argument and warn the Court about the disastrous impact of the 2nd Circuit’s holding on the ability of companies to raise capital in the future. In their opposing brief, the investors — represented by Christopher Lovell of Lovell Stewart Halebian in New York — rely on the 2nd Circuit’s reasoning. They counter the banks’ dire warnings about the future of capital formation by emphasizing that the facts of this case are sui generis and unlikely to be repeated.

The Court asked for the views of the solicitor general, who filed a brief recommending that certiorari be granted. The federal government was intractably divided on the implied immunity question below — the SEC supported the banks, while the Antitrust Division of the Department of Justice supported the investors — but the solicitor general appears to have brought the family back together by disowning the reasoning of both the district court and the court of appeals.

The solicitor general criticizes the district court for adopting an overly broad view of immunity; because implied antitrust immunity is based on the theory that securities regulations effectively repeal the application of antitrust laws in a particular instance, the district court’s holding contravened the rule that repeals by implication are disfavored. But the solicitor general also has unkind words for the 2nd Circuit for allowing the investors’ claim to proceed when their complaint made only a conclusory allegation of illegal anti-competitive conduct without distinguishing that conduct from anti-competitive activities that are authorized by the SEC and thus immune from antitrust liability. — Steven C. Wu



OTHER CASES UP FOR REVIEW INCLUDE THE FOLLOWING:

• 05-85/05-584, Powerex v. Reliant/Powerex v. California ex rel. Lockyer (CA9)
Whether petitioner, which is wholly owned by a crown corporation that is itself wholly owned by the Canadian province of British Columbia, and which performs obligations and exercises rights of the province pursuant to treaties with the United States, is entitled to the protections of the Foreign Sovereign Immunities Act of 1976, as an “organ of a foreign state or political subdivision thereof.”

• 06-28, Lutkewitte v. Gonzales (CADC)
Whether, as an employer is strictly liable for sexual harassment by a supervisor if that harassment involved a “tangible employment action,” that term is defined as “a significant change in employment status” or “an official act” taken by a supervisor.

• 06-291, Montana Board of Investments v. Deutsche Bank (N.Y. Ct. of App.)
Whether a Montana state agency’s sovereign immunity deprives the New York state courts of jurisdiction to hear a breach-of-contract case.

• 06-480, Leegin Creative Leather Products v. PSKS (CA5)
Whether vertical minimum resale-price maintenance agreements should be deemed per se illegal under Section 1 of the Sherman Act.

• 06-526, Wachovia v. Eastman Kodak (CA11)
Whether the application of res judicata in a bankruptcy case is limited to issues whose resolution “explicitly becomes an essential part of the bankruptcy plan,” or whether res judicata can be applied to preclude all claims, defenses, and issues arising from a common nucleus of facts that were or could have been asserted in a bankruptcy case.

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