A panel of the Fifth Circuit held by a 2-1 vote that British Petroleum must pay some business loss claims even if the claimants cannot prove that the blowout at the Deepwater Horizon rig in 2010 actually caused the loss. The majority ruled that the energy giant agreed to pay claims for losses that in fact occurred during the claim period but may not have resulted from the blowout and its oily aftermath. In re Deepwater Horizon, No. 13-30315 (5th Cir. Mar. 3, 2014) (http://www.ca5.uscourts.gov/opinions/pub/13/13-30315-CV0.pdf).
The Sarbanes-Oxley Act came in the wake of Enron's sudden sinking. It aimed in part to foster the early blowing of whistles on fraud at "publicly traded" companies in order to avoid further titanic shipwrecks al-la the Greatest Company in the World's. The Act did so in part by barring retaliation against "an employee" who blew the whistle on fraudulent activity. But does the bar protect an "employee" whose whistle-blowing concerns not her own employer
but a public company that engaged her firm as an independent contractor?
Yes, the Supreme Court held today in Lawson v. FMR LLC, No. 12-3 (U.S. Mar. 4, 2014) (http://www.supremecourt.gov/opinions/13pdf/12-3_4f57.pdf). The 6-3 Court thus ruled that Sarbanes-Oxley protected a whistle-blowing employee of a contractor that managed a publicly-traded but employee-free mutual fund for fraud by the mutual fund.
A crucial part of a patent case involves the Markman hearing. There, the district judge listens to and sees evidence, PowerPoints, blow-ups, claim charts, and arguments that each side puts forward in hopes that Her Honor will choose their version of what the words of the patent claims mean.
You might wonder why they put so much effort into defining terms and phrases -- or construing them, in Markman lingo -- but you'll get over that if you take time to read the actual language of a patent.
Dense, turgid, looping, vague, arcane, and -- with shocking frequency -- brimming with typos and syntactical and punctuation errors.
After all that work and bother, the trial court judge issues a Markman order. This piece of prose becomes the Rosetta Stone for the case. "Means for rotating grooved metal object into solid material" becomes "screwdriver". That can save the finder of fact a lot of mental effort.
So you'd expect that the appeals court would see that the district judge likely had a better chance to get the Markman rulings right. He saw the Keynote presentation as the lawyers walked him through it. He handled the exemplar devices. He may even have talked with his own technical expert. How can an appeals court hope to do better than he?
The Federal Circuit chose not to defer to district judges on their Markman rulings in 1998. See Cybor Corp. v. FAS Technologies, Inc., 138 F.3d 1448 (Fed. Cir. 1998) (en banc). Last week, the full court stuck by that choice. By a 6-4 vote -- two of the 12 circuit judges recused themselves -- the court ruled that "the principles of stare decisis" persuaded them to "confirm the Cybor standard of de novo review of claim construction, whereby the scope of the patent grant is reviewed as a matter of law." Lighting Ballast Control, LLC v. Philips Electronics N. Am. Corp., No 12-1014, slip op. at 7 (Fed. Cir. Feb. 21, 2014) (en banc).
The lack of deference to Markman orders helps explain why in 2013 the Federal Circuit reversed district court judgments 19 percent of the time vs. 11.3 percent by all other courts of appeals in "private civil" cases -- a whopping 41 percent higher rate of reversal.
Blawgletter expects that the Supreme Court will take up the issue soon, maybe next Term. It should.
Many lower courts have given the Securities Litigation Uniform Standards Act of 1998 a wide preemptive scope. In those courts, a black-hole-like SLUSA devours all cases that come within a light year of its omnivorous gullet. If a lawsuit said pretty much anything about buying or selling an interest in a company -- BAM! Into the back hole it went.
All that changed today. The U.S. Supreme Court held that a "covered security" means one that trades on a public market -- your NYSEs and your Nasdaqs, to name the two biggest ones. Because SLUSA applies only to "covered" securities, a complaint that alleges fraud in a purely private purchase or sale of a stock, bond, note, or other security falls beyond the reach SLUSA's inhalations. Chadbourne & Parke v. Troice, No. 12-79 (U.S. Feb. 26, 2014).
The Court thus agreed with an unusually cautious Fifth Circuit that a class of people who bought certificates of deposit from the bank that Texan Allen Stanford set up in Antigua could bring state-law claims against Stanford and his helpers. SLUSA did not preempt such claims, the panel held in reversing dismissal of cases that originated in federal court and order remand of cases that began in state court.
Justice Breyer wrote for the 7-2 Court. Chief Justice Roberts and Justices Scalia, Thomas, Ginsburg, Sotomayor, and Kagan joined in the opinion. Justice Kennedy dissented, as did Justice Alito, who signed onto the Kennedy dissent.
What does the decision portend, if anything, for the blockbuster case that the Court may use to weaken or even sweep away the "fraud-on-the-market" theory in securities class actions? The Court will hear that appeal, in Halliburton Co. v. Erica P. John Fund, No. 13-317 (U.S.), on March 5, 2014. The case presents two questions:
1. Whether this Court should overrule or substantially modify the holding of Basic Inc. v. Levinson, 485 U.S. 224 (1988), to the extent that it recognizes a presumption of classwide reliance derived from the fraud-on-the-market theory.
2. Whether, in a case where the plaintiff invokes the presumption of reliance to seek class certification, the defendant may rebut the presumption and prevent class certification by introducing evidence that the alleged misrepresentations did not distort the market price of its stock.
The fact that the plaintiffs in Chadbourne & Parke live to fight another day provides a Ray of Hope for their brethren and sisteren in the Halliburton case.
But what about the Kennedy dissent? He says that federal law alone should apply to just about any securities transaction and that the availability of state-law claims somehow weakens federal-law protections of investors. Having more grounds for relief is bad for investors, according to the dissent.
Does that imply a hostility to expansive private remedies for securities investors? Justice Kennedy (and Justice Scalia) sat on the Court that handed down Basic, Inc. v. Levinson but did not participate in the decision. During the argument in the Amgen case from last Term, Justice Kennedy said "24 years of economic scholarship -- I think that's how long it's been since Basic was decided -- has shown that the -- the efficient market theory is -- is really -- really an overgeneralization. It could be much more subtle than that". Which suggests skepticism.