US court tightens rules on shareholder suits
US court tightens rules on shareholder suits
By Patti Waldmeir in Washington
Copyright The Financial Times Limited 2007
Published: June 21 2007 18:38 | Last updated: June 21 2007 19:49
The US Supreme Court on Thursday made it tougher for investors to bring lawsuits against American companies, a move that could improve the competitiveness of domestic markets by reducing the costs of shareholder litigation.
The ruling in Tellabs v Makor was the second big victory for corporate America in the past week from a Supreme Court that has made clear its concern about the burden of what it on Thursday called “frivolous, lawyer-driven litigation”.
Top administration policymakers believe excessive litigation costs are burdening the competitiveness of US capital markets.
Ruling 8-1 in the Tellabs case, the justices set a high barrier that investors must clear to get their cases heard by the court. The majority said investors must do more than simply allege it was plausible that company officials knew what they were doing was wrong. Courts must consider possible innocent explanations for apparently fraudulent behaviour, and the suggestion of wrongdoing must be “at least as compelling” as the innocent explanation, the court said.
The majority said a lower court used too lax a standard in allowing investors to pursue a lawsuit accusing Tellabs, a telecoms equipment maker, of fraudulently inflating revenue.
Corporate America welcomed the tougher standard, which will give companies a new tool to get lawsuits dismissed before they have spent large sums of money fighting them off.
“This will go a long way in weeding out frivolous securities class actions,” said Robin Conrad of the National Chamber Litigation Center, the legal arm of the US Chamber of Commerce.
Thomas Dubbs, of the law firm Labaton Sucharow, said the standard set by the court was roughly in line with the one used by most district courts now. “We’re dealing with a somewhat hostile court so the preservation of the status quo is a win for plaintiffs,” he said.
The majority opinion, written by one of the court’s most liberal members, Justice Ruth Bader Ginsburg, displayed the court’s concern over shareholder litigation. “Private securities fraud actions . . . if not adequately contained, can be employed abusively to impose substantial costs on companies and individuals whose conduct conforms to the law.”
The court made clear it wanted to give teeth to the 1995 Private Securities Litigation Reform Act, passed by Congress to crack down on shareholder litigation.
Earlier this week the court handed a big victory to Wall Street when it ruled investors could not use treble-damages antitrust laws to pursue the securities industry over underwriting during the technology stock bubble of the late 1990s.
By Patti Waldmeir in Washington
Copyright The Financial Times Limited 2007
Published: June 21 2007 18:38 | Last updated: June 21 2007 19:49
The US Supreme Court on Thursday made it tougher for investors to bring lawsuits against American companies, a move that could improve the competitiveness of domestic markets by reducing the costs of shareholder litigation.
The ruling in Tellabs v Makor was the second big victory for corporate America in the past week from a Supreme Court that has made clear its concern about the burden of what it on Thursday called “frivolous, lawyer-driven litigation”.
Top administration policymakers believe excessive litigation costs are burdening the competitiveness of US capital markets.
Ruling 8-1 in the Tellabs case, the justices set a high barrier that investors must clear to get their cases heard by the court. The majority said investors must do more than simply allege it was plausible that company officials knew what they were doing was wrong. Courts must consider possible innocent explanations for apparently fraudulent behaviour, and the suggestion of wrongdoing must be “at least as compelling” as the innocent explanation, the court said.
The majority said a lower court used too lax a standard in allowing investors to pursue a lawsuit accusing Tellabs, a telecoms equipment maker, of fraudulently inflating revenue.
Corporate America welcomed the tougher standard, which will give companies a new tool to get lawsuits dismissed before they have spent large sums of money fighting them off.
“This will go a long way in weeding out frivolous securities class actions,” said Robin Conrad of the National Chamber Litigation Center, the legal arm of the US Chamber of Commerce.
Thomas Dubbs, of the law firm Labaton Sucharow, said the standard set by the court was roughly in line with the one used by most district courts now. “We’re dealing with a somewhat hostile court so the preservation of the status quo is a win for plaintiffs,” he said.
The majority opinion, written by one of the court’s most liberal members, Justice Ruth Bader Ginsburg, displayed the court’s concern over shareholder litigation. “Private securities fraud actions . . . if not adequately contained, can be employed abusively to impose substantial costs on companies and individuals whose conduct conforms to the law.”
The court made clear it wanted to give teeth to the 1995 Private Securities Litigation Reform Act, passed by Congress to crack down on shareholder litigation.
Earlier this week the court handed a big victory to Wall Street when it ruled investors could not use treble-damages antitrust laws to pursue the securities industry over underwriting during the technology stock bubble of the late 1990s.
posted by Carlos T Mock @ 7:22 PM
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