Stoneridge and the Consequences of Unprincipled Reasoning

Stoneridge had the potential to be a ground breaking case or, as Don Langevoort put it, a Roe v. Wade for shareholders.   The decision was result oriented.  The Supreme Court as a political rather than legal matter wanted to send a strong message that litigation under Rule 10b-5 was disfavored.  Unfortunately for the majority, the case presented very bad facts, containing allegations that the vendors in the case backdated documents and falsified the reasons for the change in price of the goods sold.  The majority wanted to restrict the reach of Rule 10b-5 by imposing a narrow definition of primary liability, exonerating anyone not actually making the disclosure.  Unfortunately, the Solicitor General did not cooperate, filing an amicus brief concluding that deceptive conduct (as opposed to false disclosure) could constitute a primary violation of the antifraud provision.  This left the majority without a clear theory of exoneration (or the ability to devise one) and instead the Justices turned to reliance, manufacturing an actual reliance requirement for vendors.

As a result, the lower courts were left with no clarification of the standards for primary liability (except to clarify that it applied to deceptive acts) but were left with a decidedly unclear and analytically unsound doctrine of reliance.  With this in mind, we take the opportunity to examine a few post-Stoneridge cases.   The bottom line?  Plus ca change, plus c'est la meme chose.