Legal reform is far from dead, although the battleground is not in Congress – yet. Here are three very important examples.
Halliburton Co. v. Erica P. John Fund, Inc. This case will be argued before the Supreme Court in March and probably decided in June. At issue, as one amicus brief put it, “is the most powerful engine of civil liability ever established in American law: the fraud-on-the-market presumption of reliance.”
Created by the Supreme Court in Basic Inc. v. Levinson (1988) fraud-on-the-market, which embraces the efficient capital markets hypothesis, profoundly facilitated the creation of securities class actions under Section 10(b) of the Securities and Exchange Act of 1934. Under Basic, individuals did not have to show actual reliance upon company misstatements to seek redress because, the Court argued, “the market price of shares traded on well-developed markets reflects all publicly available information, and, hence, any material misrepresentations.”
We are not in the business of handicapping upcoming Supreme Court decisions, but those who do are betting that the Court will repudiate Basic both on the basis of the confusion it has caused (for example, what is a well-developed market”?) and because the efficient market hypothesis has come under fire recently and anyhow was never intended to influence private rights of action under the securities laws. If Basic is overturned, it will put a big hole in the securities class action juggernaut.
Changing Discovery The Advisory Committee on Federal Civil Rules is considering some major changes to the basic rule on discovery Rule 26, which applies to all litigation in federal courts. The changes are out for comment. The deadline for cmments is February 15.
There are three proposed changes to the rule that could change the dynamics of big litigation:
- narrow the definition of discoverable material;
- permit judges to require the party seeking discovery to bear the cost (this could be huge); and,
- limit the liability risk for routine record destruction.
ABC will be offering positive comments on this initiative; others concerned about the litigation explosion should as well.
Diversity Reform Mass tort cases – asbestos litigation comes to mind – are susceptible to “forum shopping.” Forum shopping is the means by which plaintiffs’ attorneys direct law suits to “friendly” state courts that typically make outsize awards to plaintiffs at the expense of corporate defendants. A new group, the Access to Courts Initiative (ACI), argues that the bulk of such cases should be removed to federal courts. Removing these large interstate cases to federal courts is consistent with Article III’s diversity provisions and would assure a more neutral forum for resolving interstate disputes. This article, just published in the Harvard Journal of Law and Public Policy and written by the distinguished attorney Charles Cooper, makes the Constitutional case for diversity reform.