October 5, 2020 marks the first Monday in October, and the opening of the Supreme Court’s 2020-21 term. A dark cloud will hang over the proceedings, coming just weeks after the death of Justice Ruth Bader Ginsburg and during a continuing pandemic. The Justices will gather—via telephone—as a group of eight. Meanwhile, a debate rages whether Judge Amy Coney Barrett can be confirmed in the waning weeks of a presidential election.
Depending on timing, the next Justice could play a pivotal role in the 2020-21 Supreme Court term. The Court is poised to hear a number of significant cases, including disputes: exploring the scope of and limits on religious freedom in the context of discrimination claims; challenging the Affordable Care Act; questioning whether Google is liable for billions in a dispute over its Android operating system; and defining the limits of personal jurisdiction and rules of criminal procedure.
As for investor rights, while there are no pending cases that directly impact federal securities laws, there is a petition for review that could redefine the fraud-on-the-market presumption established in Basic Inc. v. Levinson—a presumption crucial to investor’s ability to prove “reliance” in claims brought under Section 10(b) of the Securities Exchange Act of 1934. Justice Ginsburg repeatedly sided with investors in prior decisions addressing this presumption. Her successor could play a pivotal role in deciding whether the Court will entertain the appeal and address the issue.
In Goldman Sachs Group Inc. v. Arkansas Teacher Retirement System, defendants appeal from the grant of class certification in a case stemming from the financial crisis of 2008. In their petition for review, the defendants raise two issues: (i) whether a defendant may rebut the presumption of class wide reliance by pointing to the generic nature of the alleged misstatements in showing that the statements had no impact on the price of the security, even though that evidence is also relevant to the substantive element of materiality, and (ii) whether a defendant seeking to rebut the presumption has only a burden of production or also the ultimate burden of persuasion. Several business advocacy groups, including the U.S. Chamber of Commerce, have filed amicus briefs asking the Court to take up the case and reverse the lower court decisions. The Goldman investor’s response will be filed later this month. The Court will decide whether to hear the petition likely later this year.
Finally, the question remains: if confirmed, what impact will Judge Amy Coney Barrett have on securities litigation and investor protection. On this, her record is slim. Judge Barrett has only spent three years as an appeals court judge on the U.S. Court of Appeals for the Seventh Circuit, after a long stint in academia. She has not issued any rulings related to the Private Securities Litigation Reform Act of 1995 (“PSLRA”) or other investors rights issues. This is not surprising, as the Seventh Circuit traditionally has far fewer PSLRA filings than the Second, Third and Ninth Circuits. In this respect, she may be a blank slate.
Judge Barrett, however, is also a former clerk to former Justice Antonin Scalia and in her Rose Garden speech noted that that Scalia’s “judicial philosophy is mine, too.” In this respect, Judge Barrett could be a threat to the private right of action and fraud-on-the-market doctrine. Prior to his death, Justice Scalia often dissented from rulings preserving the fraud-on-the-market presumption, calling the private right of action under the federal securities laws “a relic of the heady days in which this Court assumed common-law powers to create causes of action” and outright stating that Basic v. Levinson should be overruled. Current Justices Thomas and Alito shared this view. Now, with a new conservative majority, and the possibility of the Goldman Sach’s appeal, a worst-case scenario exists for the Court to roll back investor protections under the federal securities laws. But, of course, time will tell.