9

Alito and Securities Law: Part II

As Prof. Ribstein notes, there has been a significant amount of interest, both on the internet and offline, in Judge Alito’s record as a “business friendly” jurist. The emerging consensus is (for marketeers) bullish. Forbes quotes Ted Frank as saying “All and all, business wins,” and then (rather wistfully) the magazine continues that the “stock market may have signaled its agreement on Monday; the Dow Jones Industrial Average had risen 49 points at midday.”

In any event, I’ve done a bit more research into Judge Alito’s record as a judge in securities cases, and I think defense attorneys may not want to uncork the champagne just yet.

As I noted when discussing the Burlington Coat factory case, the Judge does not appear hostile (as some do) to securities claims as a general matter. Rather, he appears to want to force plaintiffs to plead scienter with particularity, and to measure materiality by its market impact. In this post, I’ll continue my analysis of two additional Alito securities decisions that Prof. Ribstein didn’t focus on.

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2

Beware of the Big Bad Bloggers

forbes.jpgIt’s Halloween, and who is the biggest scariest monster on the block? Me. That’s because I’m one of them “bloggers” according to a sensationalistic article published in Forbes Magazine.

The article, written by Daniel Lyons and entitled “Attack of the Blogs,” has been drawing the ire of the blogosphere. A stew of fear and vitriol, the article begins with the sentence:

Web logs are the prized platform of an online lynch mob spouting liberty but spewing lies, libel and invective.

He also writes:

Blogs started a few years ago as a simple way for people to keep online diaries. Suddenly they are the ultimate vehicle for brand-bashing, personal attacks, political extremism and smear campaigns. It’s not easy to fight back: Often a bashing victim can’t even figure out who his attacker is. No target is too mighty, or too obscure, for this new and virulent strain of oratory.

Bloggers should certainly be responsible and law-abiding, and bloggers shouldn’t (and don’t) have an immunity from lawsuits for defamation or invasion of privacy.

What is most ironic, however, is that after attacking bloggers for being lawless brigands, Lyons proceeds to offer some tips for “fighting back” against the bloggers that are equally as unethical and lawless as the bloggers in his caricature:

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10

Alito: The Business Friendly Justice?

Larry Ribstein has a great new post up on the jurisprudence of Third Circuit Judge Samuel Alito, a potential SCOTUS nominee. He sums up:

In short, Alito has displayed a marked tendency to enforce contracts as written, specifically including choice of law/forum and arbitration provisions that are intended to mitigate litigation costs. He’s also obviously aware of the problems that can be caused by lax proof standards and open-ended liability.

On the list that Prof. Ribstein has created, I was particularly interested in In re Burlington Coat Factories Sec. Lit. Prof. Ribstein says that decision involves a “deni[al] securities claims for failure to adequately allege scienter and materiality, and for lack of a duty to update.” My reading of the decision produced a somewhat more complicated picture, which may give some insights into Alito’s opinions about securities complaints.

First, unlike the district judge whose opinion the Third Circuit was passing on, Alito’s opinion is significantly more respectful of the pleading standard, reversing (in effect) a dismissal on materiality grounds. This decision – if representative of Alito’s larger jurisprudence – suggests that he is not particularly hostile to securities plaintiffs. In the end, the opinion does dismiss claims on 9(B) grounds, but with leave to re-plead.

Most significantly, the Judge appears to buy into the efficient capital markets hypothesis without hesitation, dismissing one claim which failed to result in a market reaction with the following reasoning.

In the context of an “efficient” market, the concept of materiality translates into information that alters the price of the firm’s stock. . . . This is so because efficient markets are those in which information important to reasonable investors (in effect, the market) … is immediately incorporated into stock prices. … Therefore, to the extent that information is not important to reasonable

investors, it follows that its release will have a negligible

effect on the stock price.

There are two basic problems with the idea that non-price-movement should mean immateriality as a matter of law. First, there will be times when market-wide distortions will dampen reaction to disclosures — which is why we require litigants to conduct expensive loss causation analyses which correct for the effect of the market-basket. Second, the behavioral finance literature, summarized by Ribstein (in a great paper) here, should give pause to judges, plaintiffs and others who seek to rely heavily on the ideal of a perfectly well-functioning market. To be fair, we can’t blame Judge Alito for not being aware of this literature back in 1997, but it would be interesting to know what he thinks today.

Needless to say, if I were on the judiciary committee, we’d have fewer questions on intellectually moribund subjects like con law, and many more of the following type(s): “How should judges go about evaluating the question of whether the stock market is fully efficient? Can securities class actions survive evidence of irrational decisionmaking?”

[UPDATE: I've investigated Judge Alito's securities decisions further here.]

5

Why Blawging is Bad For Law

Hello Folks.

I’ve joined Co-Op today from Prawfsblawg. This is by my count the fifth time I’ve introduced myself at a new blog-home. That makes me a bit of an itinerant blogger. It is also pretty ironic, because I generally think that the institution of blogging/blawging threatens to fundamentally disrupt some very valuable aspects of how law is currently organized, administered and transmitted.

To take an example I posted on recently on Prawfs, consider what happens to the common law when the primary sources which form its skeleton — judicial opinions – become the fodder for the entertainment of an audience of millions of eager web-surfers. Yes, I’m talking about you, Howard. It isn’t that How Appealing, and like blawgs, are bad. Indeed, I visit Howard’s blawg every day, and it is an invaluable resource. It is that Howard’s popularity, and the increasing linking of opinions by the MSM-online, provides incentives for judges to write witty, funny, entertaining, short, glib opinions, instead of careful, boring, technically precise ones. That is, to the extent that lower-court judges want to be noticed and profiled by (kind of silly) websites like these, it makes sense to be more like Scalia and Douglas than Souter and Rutledge.

Some might protest: surely federal judges don’t care much about having their opinions widely publicized? They have life tenure, and they care only about not being reversed. But the motivations of federal judges seem to me to be an open question, and I think that if I could somehow chart the growth of funny and media friendly opinions, we’d see a small bump beginning with the introduction of WL and a huge increase in the last five years.

So, why is this bad?

To find out, you’ll have to visit here again, as I will be retuning to this topic soon.

6

A Warm Welcome to David Hoffman

hoffman2.jpgI am delighted to announce that Professor David Hoffman will be joining us from PrawfsBlawg. Dave teaches at Temple University’s Beasley School of Law. He teaches contracts, law and economics, and business associations.

His most recent scholarship has focused on empirical and behavioral investigations of corporate and securities law. His recent articles include: The ‘Duty’ To Be a Rational Shareholder, 90 Minn. L. Rev. (forthcoming 2005), Nullificatory Juries, 2003 Wisc. L. Rev. 1115 (with Kaimipono Wenger), How Relevant is Jury Rationality?, 2003 U. Ill. L. Rev. 507, and Can Law and Economics Be Both Practical and Principled?, 53 Ala. L. Rev. 335 (2002) (with Michael O’Shea).

His topics of interest are behavioral law and economics, securities law, dispute resolution, corporate law, legal theory, and empirical studies.

We’re absolutely thrilled to have Dave on board!

4

The Problem with Superprecedent

constitution5.jpgJack Balkin (law, Yale) has an excellent post over at Balkinization about my colleague Jeffrey Rosen’s New York Times essay about superprecedents. The notion of superprecedent is that there are cases that are so firmly entrenched that they ought not to be overturned despite being in error. Roe v. Wade is the superprecedent that most have in mind.

In his post, Jack Balkin explains that a strategy of many conservatives is to “accept Roe as settled (as modified by Casey) but begin to chip away at it over the long haul.”

He explores three justifications for superprecedents. The first justification is that a precedent has held on for a long time and weathered some attacks. But this justification does little to justify why the precedent deserves to stand.

A second justification is that a lot of law has built up upon a precedent. The precedent serves as “a support beam in a house that, even if not installed correctly or in the right place, cannot now be removed without seriously endangering the safety of the occupants.”

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5

Unusual Action Figures

actionfigure-shakespeare4.jpgWhat does Moses have in common with Rosie the Riveter? How is Oscar Wilde similar to Alexander the Great?

Stumped?

They’re all action figures. Yes, really. Since I’ve now earned a reputation blogging about toys with the Playmobil airline screening playset toy, I thought I’d point out that there’s a bizarre line of action figures of famous authors, artists, musicians, scientists, and others.

Now instead of playing with GI Joe or Star Wars action figures, you can have William Shakespeare battle Edgar Allen Poe. There’s also one of Albert Einstein, Ben Franklin, Wolfgang Amadeus Mozart, Leonardo da Vinci, Johann Sebastian Bach, Jane Austin, and Sigmund Freud to name a few.

actionfigures3a.jpg

I don’t quite understand the whole collection. Why are Bigfoot and Blackbeard included? Why is there an action figure of an obsessive compulsive man or an albino bowler?

What action figures are coming next? Can anybody crack the logic of the series? Perhaps the Volokh Conspiracy’s puzzleblogger, Kevan Choset, can figure it all out!

10

Editing the Blogosphere

pencil1.jpgThere’s an interesting conversation going on over at PrawfsBlawg about the norms regarding editing or deleting one’s blog posts. Ethan Leib wrote:

It is certainly true that one finds many bloggers who “update” their posts, informing readers of changes made to the original posts. But I suppose my view is that I am entitled to do whatever I want with my posts. One could argue, I guess, that I have duties to the blogosphere–whatever ethical community that is. Still, my tentative view is that if I want to edit or delete my posts with or without disclosure, that is my prerogative.

A good discussion has ensued in the comments to Ethan’s post and in subsequent posts by Dan Markel and Marcy Peek.

I generally don’t delete my posts or parts of my posts, but I think that it is very important that a norm doesn’t develop that deletion is taboo. True, it can be annoying for readers to find a post deleted or altered. But that’s a small price to pay for encouraging people to engage in a robust debate in the blogosphere. Sometimes we say things we regret, and a non-deletion norm might be more chilling of speech than an ok-to-delete-when-really-embarrassed norm.

6

Liability for unauthorized picture use?

I recently heard about a blog scandal involving a “fake” blog. Some bloggers got together and, for kicks, created a fake blog. They created fake identities for the blog, and wrote fake stories about fake lives. They originally intended this to be an experiment in participatory fiction; when the ruse was discovered, many readers responded angrily.

An interesting legal question arises out of these bloggers’ use of photos. In order to create identities, the participants went online and searched through google images until they found realistic looking photos for their characters. The photos they used were of unknown provenance, and (with one exception) it is probably all but impossible for most people to trace them to their real source. Each photo was matched with a bio to create the fictional characters.Biographical information (“favorite move: Star Wars”) matched with the photo creates the illusion of reality.

The site’s participants have stated that no permission was ever sought (or obtained) from the photos’ real owners. Do the real people whose photos were used to create these fictional identities have any legal cause of action against the bloggers who appropriated their images?

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