Enron, AOL, and Stoneridge

There has been considerable press attention to the Supreme Court's decision to deny certiorari in Regents v. Credit Suisse, the Enron case involving allegations against an assortment of investment banking firms.  Often missed and potentially more interesting was that the Supreme Court did grant the cert petition in Simpson v. AOL/Time Warner, 452 F.3d 1040 (9th Cir. 2006), the one circuit case to find that vendors could be liable under Rule 10b-5.  See Avis Budget Group, Inc. v. Cal. State Teachers' Ret. Syst., 2008 U.S. LEXIS 1170 (U.S. Jan. 22, 2008) but promptly remanded for reconsideration in light of the Stoneridge opinion. 

That opinion held that conduct could be a deceptive act and that the fraud on the market theory was enough to meet the reliance issue.  Presumably the 9th Circuit will have to decide whether plaintiff has alleged facts that allow for the conclusion that the market more directly relied on the activities of the vendors.  It is in fact an opportunity to undertake an analysis that the Supreme Court did not allow in Stoneridge.  As the dissent in Stoneridge observes, the majority's decision that the plaintiffs had not shown reliance could have and should have been returned to the circuit court to allow plaintiff's an opportunity to address the issue.  It had received almost no mention by the 8th Circuit and had not been fully addressed at that court. 

That issue will now likely be addressed by a more sympathetic court when the Ninth Circuit considers the remand.