June 05, 2009
More on Sotomayor's Securities Law Record
Posted by Christine Hurt

Out of curiosity, I pulled the cases that Sotomayor decided as a trial judge or reviewed as an appellate judge that had Section 10(b)/Rule 10b-5 of the Securities Exchange Act as at least one issue.  For these purposes, I did not include either cases involving other sections (a handful of Section 11, 12 and 5 cases, for example) or cases involving post-judgment issues (such as attorney fees, sanctions, Fair Funds, etc.).  Using the Westlaw database Sotomayor-nom, I gathered 26 cases, dating back to 1994.  Of these 26 cases, three were actions brought by the SEC, and two were criminal actions brought by the U.S. government.  Of those cases, the SEC won all three and the U.S. government won both of its prosecutions.

The remaining 21 lawsuits seem to have results typical to those of most private securities lawsuits:  the defendant wins, usually on a motion to dismiss, which is affirmed by the court of appeals.  Specifically, in 16 cases the defendant was granted relief.  In four cases, the defendant was granted some, but not all, of the relief requested or one defendant was granted relief, but not all.  Of these four cases, no plaintiff won on a core 10b-5 securities law issue (was there reliance?  materiality?  loss causation?).  For example, in one case, the second circuit held that although the federal securities claims were dismissed, a state law duty existed for a fiduciary duty claim.  In another, several individual defendants were not granted a motion to dismiss on Section 11 claims.  In another, even though the case was dismissed, the court held that the lead plaintiff had standing.  The other case in which plaintiffs won partial relief was Dabit v. Merrill Lynch, which Sotomayor probably got right and the Supreme Court (reversing) probably got wrong.  (My colleague Larry Ribstein's post on this is here.)  In the one case where the plaintiff won outright, the plaintiff won summary judgment in a bench trial against a foreign bank. 

Although pundits are scouring her other opinions to find judicial activism, there's none here in the 10b-5 arena.  If we're worried about the nominee showing empathy instead of following the law, there's no evidence of runaway shareholder empathy!

I did enjoy reading this passage, however, in Sotomayor's order granting summary judgment for the SEC in SEC v. Softpoint, Inc., 958 F. Supp. 846 (S.D.N.Y. 1997), rebuking the SEC for seeking penalties against two co-defendants that were not inconsistent with a default judgment asked for and received against a third:

The Court is deeply troubled by the manner in which penalties have been sought by the SEC in this case. Co-defendant Cosby, whose conduct was equal to or more egregious than Stoecklein's, was assessed a civil penalty of $100,000 pursuant to a Default Order submitted by the SEC. (Cosby Default J. signed 8/23/96.) Similarly, co-defendant Lane, whose conduct was equal to or only slightly less egregious than Stoecklein's, also was assessed a civil penalty of $100,000 pursuant to a Default Order submitted by the SEC. (Lane Default J. filed 6/11/96.) The SEC, however, sought and obtained an order from this Court assessing against co-defendant Remington a civil penalty of $847,248, which is triple the amount that it profited, with Stoecklein, from insider trading. (Remington Default J. filed 6/11/96.) The Court believes this represents a fundamental inconsistency. Accordingly, the civil penalty assessed against Remington is reduced to $100,000.

How rare to strive for porportionality and fairness in white-collar criminal penalties.

And finally, for those keeping score at home, of the 21 cases, one (Dabit), was reversed by the Supreme Court, one circuit court case sought rehearing and was denied, and certiorari to the Supreme Court in four other circuit cases was sought but denied.  One district court case opinion was reversed in part, and affirmed in part.  I'm pretty sure that within the realm of reason, reversal rates are red herrings (similar to counting errors in baseball), but there they are.

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