Court limits securities lawsuits
on Mar 21, 2006 at 10:02 am
The Supreme Court ruled on Tuesday that investors may not sue for securities fraud in a class action lawsuit based on state law, even if the claim is only that they were induced to hold on to their stocks, not to buy or sell. Such a lawsuit, the Court said in Merrill Lynch v. Dabit (04-1371), is preempted by the Securities Litigation Uniform Standards Act of 1998.
In an opinion for a unanimous Court, Justice John Paul Stevens rejected the argument that the 1998 law only preempted lawsuits involving a purchaser or seller. A narrow construction of the Act, Stevens said, would give rise to wasteful and duplicative litigation. Thus, the opinion said, the phrase “in connection with the purchase or sale” of securities is to be given a broad reading, with broad preemptive results for state law-based claims.
The decision overturned a ruling of the Second Circuit Court that a claim that brokers fraudulently induced investors not to sell or buy stock but only to retain or delay selling them was outside the 1998 law’s preemptive scope.
In the second of two decisions, the Court declared that police may sometimes obtain a search warrant that is to be executed only after a future event has occurred. So long as there is probable cause to believe that contraband will be at a place when the warrant is actually carried out, the mere fact that it was obtained in advance does not violate the Fourth Amendment, the Court decided.
Although the result was reached by a unanimous vote, there was a concurring opinion and some division over the rationale. Justice Antonin Scalia wrote the main opinion in U.S. v. Grubbs (04-1414). The ruling clearly was unanimous on the broader holding that the Fourth Amendment does not outlaw anticipatory warrants. The vote was 5-3 for the decision that the warrant itself need not spell out the condition that must exist before the warrant comes into effect and may be executed. On that, three Justices voiced some caution.
Justice Samuel A. Alito, Jr., did not take part in either of the decisions Tuesday. Both were argued before he joined the Court in February,.
