The Supreme Court made it somewhat easier to bring shareholder and other lawsuits in state court, but harder for retirement plan participants to sue unless there is clear harm, in two decisions released Monday.
Voting unanimously in a lawsuit brought by Escala Group Inc. shareholders against Merrill Lynch Pierce Fenner & Smith, UBS Securities, Citadel Derivatives Group and others over alleged short-selling of Escala Group shares, the justices said the Securities Exchange Act does not block shareholders from bringing claims in a New Jersey court. In the opinion, Justice Elena Kagan wrote: “Out of respect for state courts, this court has time and again declined to construe federal jurisdictional statutes more expansively than their language, most fairly read, requires.”
Several investor market groups, including Nasdaq, New York Stock Exchange and Securities Industry and Financial Markets Association, had filed amicus briefs arguing that such cases should be handled solely in federal courts. Today's decision “didn't give a definitive answer,” said Willy Jay, a partner with Goodwin Procter. “Now it's going to be narrower.” Mr. Jay was not involved in the case.
In a 6-2 decision in Spokeo Inc. vs. Robins et al., the high court vacated a lower court decision and answered the question of whether laws passed by Congress allow for lawsuits over violations of statutes such as the Employee Retirement Income Security Act if there is not “real and material” harm. A more narrow answer “could affect the retirement income security of millions of employees,” the Pension Rights Center in Washington argued in its amicus brief.
Spokeo, a consumer reporting agency, was sued for allegedly failing to comply with a federal credit reporting law. A lower court dismissed the case saying it failed to show injury, but an appeals court reversed that.
“Our cases have established that the 'irreducible constitutional minimum' of standing consists of three elements … The plaintiff must have (1) suffered an injury in fact, (2) that is fairly traceable to the challenged conduct of the defendant, and (3) that is likely to be redressed by a favorable judicial decision,” Justice Samuel Alito wrote in the majority opinion that vacated the original decision and remanded it for further analysis.
“You are more likely to see claims that won't meet this standard,” said Amanda Sonneborn, a partner in the ERISA practice at Seyfarth Shaw LLP.