Two From New York

The New York Law Journal (Sept. 28) has two columns on securities litigation topics. A subscription is required to view the columns online.

(1) In “DOJ Backs ‘Scheme Liability’ in Third-Party Class Actions” the authors provide a preview of the upcoming Stoneridge (a.k.a. Charter Communications) case in the U.S. Supreme Court. The column summarizes the history of the case and discusses the arguments presented in the DOJ’s amicus brief.

Quote of note: “The U.S. Department of Justice’s endorsement of scheme liability for third parties may result in a pyrrhic victory for the plaintiff class action bar given the stark impact that its proposed reliance test would have upon many scheme liability claims. Scheme liability, according the solicitor general’s view, would only apply to defendants whose misconduct was directly relied upon by the allegedly defrauded investor and not to other, potential deep-pocket defendants who allegedly participated in a broader scheme to defraud.”

(2) In “‘Oscar’: Nearing the End of Fraud-On-Market Theory?” the author argues that the Dura decision on loss causation has led courts to question the continuing efficacy of the fraud-on-the-market theory. The author discusses the Fifth Circuit’s denial of class certification in Oscar Private Equity and concludes that it may be a harbinger of things to come.

Quote of note: “[T]he Fifth Circuit seems to have accepted the Supreme Court’s challenge, and has significantly chipped away at the validity of the fraud-on-the-market theory by barring use of the presumption at the class action certification stage. In so doing, it has invoked the logic of Justice White’s Basic dissent. Based on Oscar and other appellate decisions, it seems as though the repudiation of the fraud-on-the-market theory will continue and Justice White’s opinion will sometime soon become the law of the land.”

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