Stoneridge and Senator Specter

The saga of Stoneridge v. Scientific-Atlanta continues.  This is the case that adopted a very restrictive interpreation of primary liability under Rule 10b-5.  The reasoning was more or less adopted by the 5th Circuit and used to excuse the investment banking firms involved with Enron from liability.  It is an important case.

The case was made more interesting when the SEC voted 3-2 to ask the Solicitor General to file a brief on its behalf urging reversal.  The SEC, despite its independent status, has no authority to file its own brief in the Supreme Court.  We have talked about that lack of authority here. 

The Solicitor General refused, ostensibly because of the views of President Bush and the Department of Treasury.  Thus, the pro-shareholder views of the Commission were not presented to the Court.

Stoneridge nonetheless generated a plethora of amicus briefs from pro-shareholder groups.  Many of the briefs are posted at DU Corporate Governance web site.  The Solicitor General's failure, however, caught some off guard.  As a result, a motion has been filed for leave to file an amicus by a shadow SEC (two former chairmen and one former commissioner) and by two highly placed members of the House of Representatives (Conyers and Frank). Senator Dodd, the Chair of the Senate Banking Committee, has signaled that he too many join the fray. 

The latest salvo was fired by Senator Specter (R-Pa), also a member of the Senate Banking Committee.  His missive went not to the Supreme Court but directly to the President. 

On August 3, Senator Specter sent a letter to the President (a copy will be posted on the DU Corporate Governance web site on Monday) expressing his concern over the Solicitor General's failure to file the brief requested by the Commission in Stoneridge.  He noted that "It has been reported that the Solicitor General did not file the brief based upon your views, and that the Solicitor General may actually file an amicus brief arguing the opposite position recommended by the SEC."  He further reminded the President that the independent role of the Commission allowed the Agency "to take positions or engage in actions that do not necessarily reflect the policies and views of the Administration."   

After reviewing the SEC's position on the case and the potential impact of the reasoning in Stoneridge in the Enron litigation, Senator Specter rather obliquely indicated his opposition to the position take by the Solicitor General.

• "The Solicitor General is entitled to aid the Court in its interpretation of the law, and I applaud his close attention to this critical case.  I am concerned, however, that he has been unable to articulate a legal position -- either for or against the plaintiffs -- that is independent from the Administration's policy preferences.  As you have said often, substantive changes to the law should be made through the legislative process, not through the courts."

He was a bit more direct in a handwritten note at the end of the letter.  "Mr. President -- The SEC is right to have the Solicitor General argue to reverse the Stoneridge case where the court made new law reversing what Congress did in the statute."  

It is unclear what Senator Specter hoped to accomplish with the letter.  He is, at a minimum, expressing dissatisfaction with any plan to have the Administration weigh in to support the Stoneridge reasoning.  Perhaps the letter will encourage the Solicitor General to authorize the SEC to file its own brief in the case.  There is precedent for this.  The SEC filed its own brief with the Supreme Court in Dirks.