In a thoughtful post, Jay Brown takes the Supreme Court Stoneridge majority to task for engaging in, as he puts it, "Legislation by the Court." Apropos of my disagreement with Larry Ribstein from the other day, I would distinguish cases like Gustafson, in which the SCOTUS (arguably) relied on policy to trim the scope of the express private right of action granted by Securities Act section 12(a)(2), from cases like Stoneridge in which the Court relied on policy to trim the scope of the implied private right of action under Rule 10b-5.
As I discuss in my article Securities Act Section 12 (2) After the Gustafson Debacle, "one ought to object to decisions, such as Gustafson, which narrow the scope of an express cause of action in ways that arguably are counter to Congressional intent. As both dissents argued, that seems to me to be a task more appropriately left to Congress."
But in Stoneridge, we are dealing with what I believe is properly understood as a species of federal common law. As Justice Rehnquist famously quipped, Rule 10b-5 is ?a judicial oak which has grown from little more than a legislative acorn.? We are dealing here with interstitial lawmaking in which the courts are using common-law adjudicatory methods to flesh out the bare statutory bones. The analytical methodologies applied by the Supreme Court to federal common-law issues thus provide an appropriate mechanism for giving content to Rule 10b-5. As Judge Winter explained in Chestman, the text of Section 10(b) can be seen as "a general authorization to the SEC and to the courts to fashion rules founded largely on those tribunals' judgments as to why insider trading is or is not fraudulent, deceptive, or manipulative." The same holds true for the rest of Rule 10b-5 jursiprudence, in my opinion.
And not just my opinion. As Adam Pritchard has written, Justice Lewis Powell "considered the judge-made remedy under Rule 10b-5 to be a species of federal common law, and thus appropriate for judges to consider policy in defining its limits. Second, Powell understood, based on experience counseling corporate clients, the consequences that the phenomenon of class action lawsuits had for corporations and their officers and directors. Finally, Powell was profoundly suspicious of judicially created private causes of action not specifically authorized by Congress. From Powell's perspective, the expansion of securities fraud lawsuits based on implied rights of action was creating a litigation crisis. That perception of crisis would influence the outcome in a number of cases that came to the Supreme Court." Indeed, as Pritchard further observes, Powell thought policy considerations "particularly relevant in 'a private cause of action . . . wholly of judicial creation.'"
I would therefore argue that the proper question is not whether Stoneridge is an example of judicial legislation, but rather whether the SCOTUS improperly deployed the tools of common law adjudication so as to reach an erroneous result.
As I discuss in my article Securities Act Section 12 (2) After the Gustafson Debacle, "one ought to object to decisions, such as Gustafson, which narrow the scope of an express cause of action in ways that arguably are counter to Congressional intent. As both dissents argued, that seems to me to be a task more appropriately left to Congress."
But in Stoneridge, we are dealing with what I believe is properly understood as a species of federal common law. As Justice Rehnquist famously quipped, Rule 10b-5 is ?a judicial oak which has grown from little more than a legislative acorn.? We are dealing here with interstitial lawmaking in which the courts are using common-law adjudicatory methods to flesh out the bare statutory bones. The analytical methodologies applied by the Supreme Court to federal common-law issues thus provide an appropriate mechanism for giving content to Rule 10b-5. As Judge Winter explained in Chestman, the text of Section 10(b) can be seen as "a general authorization to the SEC and to the courts to fashion rules founded largely on those tribunals' judgments as to why insider trading is or is not fraudulent, deceptive, or manipulative." The same holds true for the rest of Rule 10b-5 jursiprudence, in my opinion.
And not just my opinion. As Adam Pritchard has written, Justice Lewis Powell "considered the judge-made remedy under Rule 10b-5 to be a species of federal common law, and thus appropriate for judges to consider policy in defining its limits. Second, Powell understood, based on experience counseling corporate clients, the consequences that the phenomenon of class action lawsuits had for corporations and their officers and directors. Finally, Powell was profoundly suspicious of judicially created private causes of action not specifically authorized by Congress. From Powell's perspective, the expansion of securities fraud lawsuits based on implied rights of action was creating a litigation crisis. That perception of crisis would influence the outcome in a number of cases that came to the Supreme Court." Indeed, as Pritchard further observes, Powell thought policy considerations "particularly relevant in 'a private cause of action . . . wholly of judicial creation.'"
I would therefore argue that the proper question is not whether Stoneridge is an example of judicial legislation, but rather whether the SCOTUS improperly deployed the tools of common law adjudication so as to reach an erroneous result.
