Supreme Court Not Slack(ers)

Reading the transcript of oral argument in Slack Technologies, LLC v. Pirani before the U.S. Supreme Court, I questioned some earlier articles that I have written concerning the importance of the Court when it comes to interpreting the federal securities laws.  I have previously written that "there is an inherent tension in the securities laws that, no matter how the Supreme Court rules on an issue, [it] 'leaves the power on questions of securities fraud in the various courts that preside over and rule on the cases filed in their courts.'” See Who Cares What SCOTUS Says On Securities Fraud?; Second Circuit Rejects Supreme Court?.  I questioned these earlier writings because it has been generally assumed and argued by both sides of the securities bar that liability under Section 11 and 12(a)(2) of the Securities Act go together (with some exceptions as to the persons who can be held liable).  At oral argument, however, there were a number of Supreme Court Justices who vigorously questioned that assumption.  We obviously do not yet know whether those questions will impact the resulting opinion, but it certainly indicates that the Supreme Court does not just accept what might be considered "settled" by securities law practitioners.

As I thought about it more, I realized that the Supreme Court also made significant changes to the general assumptions of the securities bar in Omnicare, Inc. v. Laborers Dist. Council Const. Indus. Pension Fund, 135 S. Ct. 1318 (2015).  Before Omnicare, most members of the securities bar (and federal courts) treated the two clauses of Section 11 (and the analogous clauses in Rule 10b-5(b)) -- "one focusing on what the statement says and the other on what it leaves out" -- as part of a unitary inquiry.  Omnicare, however, changed that such that each clause is usually now argued and analyzed separately.  Similarly, the Supreme Court did not adopt any of the tests suggested by the parties (and applied by the federal courts) concerning the extraterritorial reach of Section 10(b) of the Securities Exchange Act.  Morrison v. National Australia Bank, 130 S. Ct. 2869 (2010).  Rather, the Court adopted a completely different standard.

So, maybe to state the obvious, the Supreme Court matters (a lot) when it comes to interpreting the federal securities laws.  The inherent tension in the securities laws, however -- on the one hand, "meritorious private actions to enforce federal antifraud securities laws are an essential supplement to criminal prosecutions and civil enforcement actions brought, respectively, by the Department of Justice and the Securities Exchange Commission," and on the other hand, "[p]rivate securities fraud actions, however, if not adequately contained, can be employed abusively to impose substantial costs on companies and individuals whose conduct conforms to the law" -- will leave substantial power in the various courts that preside over and rule on the cases filed in their courts.