Judge Sotomayor's Securities Law Opinions

[Joanne98]

My RA has found eleven Second Circuit opinions authored by Judge Sotomayor dealing with securities issues. Here is the list of the cases and a very brief description of the issue:

Securities Investor Protection Corp v. BDO Seidman, LLP, 222 F. 3d 63, (2nd Cir. 2000)
Discussed the "fraud on the regulatory process" theory as it pertains to reliance

U.S. v. Falcone, 257 F.3d 226 (2nd Cir. 2001)
Addressed the misappropriation theory in regards to insider trading

In re NYSE Specialists Securities Litigation, 503 F.3d 89 (2nd Cir. 2007)
Considered liability for a national security exchange and relevant immunity

Dabit v. Merrill Lynch, Pierce, Fenner & Smith Inc., 395 F.3d 25, (2nd Cir. 2005)
Biased research/investment claim and the applicability of the Securities Litigation Uniform Standards Act preemption (reversed by Supreme Court)

Press v. Quick & Reilly, Inc., 218 F.3d 63 (2nd Cir. 2000)
Addressed binding nature of SEC determination on broker/dealer conduct

LNC Investments, Inc. v. First Fidelity Bank, N.A. New Jersey, 173 F.3d 454 (2nd Cir. 1999)
Bondholders' action for breach of fiduciary duty against trustees

Official Committee of Unsecured Creditors of Worldcom v. SEC, 467 F.3d 73 (2nd Cir. 2006)
Addressed SEC distribution of bankruptcy settlement funds after fraud action

Gerber v. MTC Electronic Technologies CO., LTD, 329 F.3d 297 (2nd Cir. 2003)
Discussed Settlement and Private Securities Litigation Reform Act applicability

Lerner v. Fleet Bank, N.A., 318 F.3d 113 (2nd Cir. 2003)
RICO case involving a ponzi scheme

LNC Investments, Inc. v. National Westminster Bank, New Jersey, 308 F.3d 169 (2nd Cir. 2002)
Applicability of Trust Indentures Act regarding bankruptcy proceedings

Moore v. PaineWebber, Inc., 306 F.3d 1247 (2nd Cir. 2002)
Class Certification in a life insurance fraud action

http://lawprofessors.typepad.com/securities/2009/05/judge-sotomayors-securities-law-opinions.html

[Joanne98]

1. Sotomayor’s Opinions in Business Cases Cut Both Ways

In the decade she has served on the Second Circuit Court of Appeals — the busiest appellate court for business and financial matters in the nation — Judge Sonia Sotomayor has authored some 150 civil and business cases and voted on hundreds more. But many lawyers and scholars who have examined her record closely say that her opinions in this field are unpredictable, and do not put her clearly in a pro- or anti-business camp, The New York Times’s John Schwartz writes.

A 2006 case in which she allowed class-action lawsuits against Merrill Lynch suggested to some business lawyers that she was amenable to lawsuits against big corporations. But in a 2006 securities case against the same company, she voted with the majority in refusing to allow a class to be formed.
In a 2006 property rights case, she upheld a town’s effort to take private property for redevelopment. But in 2002, she supported property rights in a case involving impounded cars.

“It’s impossible to look at these decisions and say, oh, all of these results clearly reflect a pre-existing, across the board one way or another,” Andrew J. Pincus, an lawyer who has argued many commercial cases before the Supreme Court, told The Times.

Some conservatives have pointed to individual opinions and asserted that they show dire times ahead for business if Judge Sotomayor is confirmed. Michael Greve, an American Enterprise Institute scholar, writing in National Review Online, placed Judge Sotomayor “among the most aggressively pro-plaintiff, anti-business appellate judges in the country.”

But others who have examined Judge Sotomayor’s work say the opinions reveal a practical streak. “She does seem to take every one as it comes,” Mr. Pincus told The Times, an approach he compared with that of Justice David H. Souter. He said she issues business opinions that hew closely to the precedents of her circuit and of the Supreme Court.

http://dealbook.blogs.nytimes.com/2009/05/28/sotomayors-appellate-opinions-are-unpredictable-lawyers-and-scholars-say/

[Joanne98]

2. , Merrill Lynch, Pierce, Fenner and Smith, Inc., v. Dabit, 547 U.S. 71 (2006)

Today President Obama nominated Sonia Sotomayor for the Supreme Court of the United States vacancy left by Justice David Souter. It is interesting to note that Judge Sotomayor has had four of her rulings overturned by the very court she is now nominated to sit. One of these cases dealt with in an interpretation of law dealing with Securities Litigation Uniform Standards Act .

The case, Merrill Lynch, Pierce, Fenner and Smith, Inc., v. Dabit, 547 U.S. 71 (2006) arose out of an investigation of Merrill Lynch by then New York State Attorney General, Eliot Spitzer. The public investigation alleged that a breach of fiduciary duty ocurred because Merrill Lynch was giving investment advice based on their loyalty to certain large investment banking clients, rather than the best financial interests of individual investors. Though the public investigation was settled out of court, it spurred a number of private law class action lawsuits against Merrill Lynch. The suit eventually goes 2nd Circuit, where Sonia Sotomayor is sitting as judge.

So in other words, Merrill Lynch was allegedly in bed with a series of investment bankers, which manipulated the price of stocks. When the stock prices fell, many investors (Including plaintiff, Dabit) lost the value of their stocks, and the brokers lost their commissions when investors look elsewhere.

Sounds like Merrill Lynch has breached their duty to the people who use them to invest, right? Can they sue? Short answer, yes, with a “but”. The “but” is that in 1998, congress passed the Securities Litigation Uniform Standards Acts. The effect of the law was to preempt certain class actions alleged under state law from being filed in either state or federal court if the cause of action was “in connection with the purchase or sale” of securities. The main purpose of the law suit was to prevent people from filing frivolous lawsuits against large companies with “deep pockets”, which would have the effect of tying up the judicial system.

When the case came to her, Judge Sotomayor took the opinion that the law did not bar standing for all lawsuits in connection with the sale or purchase of securities, even though the act specifically said it did bar standing. Citing a 30 year-old case, written long before the Securities Litigation Uniform Standards act, she opined that the law still allowed for class action law suits to be filled by those who suffered direct loss due to the purchase or sale of securities. Blue Chip Stamps v Manor Drug Stores, 421 US 723 (1975).

In other words, she took an activist position in favor of an interpretation that would have allowed the suit to go forward, in spite of specific language in the law that would have barred it.

Her ruling was overturned unanimously with the Supreme Courts opinion being authored by one of the most liberal Justices on the Supreme Court, John Paul Stevens.

http://lotsstocksandgavel.wordpress.com/2009/05/26/sonia-sotomayor-and-securities-litigation/

[BlooInBloo]

3. A review of her opinions would have been nice - lol!