Drafters of the Private Securities Litigation Reform Act of 1995 reunited this week to file an amicus brief in Halliburton v. Erica P. John Fund Inc., one of the most important business cases now before the U.S. Supreme Court. Halliburton could severely undermine securities class actions by abolishing a plaintiffs-friendly legal doctrine known as the fraud-on-the-market theory. The new brief could be bad news for securities plaintiffs lawyers, because it tries to preemptively dismantle one argument for keeping the doctrine intact.
A group of 12 former legislators, government lawyers, and U.S. Securities and Exchange Commission officials filed the 36-page brief on Monday. The group includes Alfonse D’Amato, a former U.S. senator who introduced the Senate version of the PSLRA; Christopher Cox, a partner at Bingham McCutchen and a former U.S. congressman who introduced the House version of the PSLRA; and Sullivan & Cromwell partner Robert Giuffra Jr., who cowrote the PSLRA in his prior role as chief counsel for the Senate Committee on Banking, Housing and Urban Affairs. Giuffra filed the brief along with Sullivan & Cromwell colleague Jeffrey Wall.
The fraud-on-the-market theory, which the Supreme Court first endorsed in a 1988 case called Basic Inc. v. Levinson, facilitates the certification of securities class actions by sparing plaintiffs the tough task of proving that they relied on a company’s alleged misstatements. In a case decided last year, Amgen Inc. v. Connecticut Retirement Plans and Trust Funds, a few of the justices floated the possibility of abolishing the doctrine. Halliburton gives them that opportunity: The parties were asked to brief the question of whether the court should “overrule or substantially modify the holding of Basic.”
Monday’s brief could help undermine an argument that David Boies of Boies, Schiller & Flexner, appearing for the plaintiffs in Halliburton, may hope to make at the March 4 oral argument before the high court: Congress opted not to repudiate Basic through the PSLRA, and thus indirectly endorsed the fraud-on-the-market theory.
Justice Ruth Bader Ginsburg made that very argument in Amgen‘s majority decision. “While taking … steps to curb abusive securities-fraud lawsuits, Congress rejected calls to undo the fraud-on-the-market presumption of classwide reliance endorsed in Basic,” she concluded.
The PSLRA drafters wrote in their brief that their “sole interest is in having the court decide those issues free from the mistaken notion that Congress endorsed the fraud-on-the-market theory in the PSLRA.” According to them, opinions varied on what to do about the theory, and ultimately Congress “simply left the fate of that judicially created presumption to a future Congress or this court.”
In an interview, Sullivan & Cromwell’s Giuffra said that Monday’s filing isn’t a typical amicus brief, in which interested parties throw their weight behind one side or another. “Our goal was to write an amicus brief on a discrete issue,” he said. “We wanted to provide a perspective that the parties couldn’t.”
Still, it would be a stretch to describe Giuffra as a disinterested party. After all, he’s built his career largely on defending companies facing securities class actions.
Giuffra declined to give his personal views on how the Supreme Court should decide Halliburton. He did, however, go on the record with a prediction that securities litigation will live on no matter what the high court does. “When the PSLRA was passed, there was concern among the plaintiffs bar that securities class actions would go the way of the Edsel. Nearly 20 years later, that hasn’t happened,” he said. “There will always be different kinds of cases in different forums.”