Judge Neil Gorsuch’s confirmation hearings do not begin until March 20th, but if he is confirmed to replace the seat vacated by the late Justice Antonin Scalia, Judge Gorsuch could bring some skepticism of securities litigation plaintiffs to the high court. Although Judge Gorsuch has only authored a handful of opinions analyzing securities litigation cases while on the bench for the Tenth Circuit Court of Appeals, two opinions stand out as worth analyzing to give some insight into his views of securities litigation.
In MHC Mutual Conversion Fund, L.P. v. Sandler O’Neill & Partners, L.P., Judge Gorsuch analyzed the issue of when Section 11 of the Securities Act of 1933 imposes liability on issuers who offer statements of opinions. 761 F.3d 1109, 110 (10th Cir. 2014). Judge Gorsuch thoroughly analyzed the case law and determined that there were three possibilities: (1) an issuer’s opinions about future events can never be actionable, (2) “a plaintiff must show both that the defendant expressed an opinion that wasn’t his real opinion (sometimes called ‘subjective disbelief’) and that the opinion didn’t prove out in the end (sometimes called ‘objective falsity’),” and (3) when a fiduciary or someone who holds himself out to be an expert offers an opinion that lacks an objectively reasonable basis. Id at 1112-15 (emphasis original). Although Judge Gorsuch seemed inclined to go with the second possibility as the correct standard, he concluded that he did not have to select a single approach because in the case at hand, plaintiffs’ complaint failed even under the third, investor-friendly, objectively reasonable basis test. Id. at 1117. Notably, when the Supreme Court looked at the same issue a year later in Omnicare, Inc. v. Laborers District Council Construction Industry Pension Fund, it followed Judge Gorsuch’s inclination. Now, under Section 11, an affirmative statement of opinion is only actionable when it is incorrect and when the speaker did not actually hold the stated belief. 135 S. Ct. 1318, 1326 (2015). This standard is more favorable to issuers than the objectively reasonable basis standard Judge Gorsuch seemed less inclined to adopt.
Even more telling is Judge Gorsuch’s opinion in ACAP Financial, Inc. v. SEC. In that case, the court denied a petition for review of an SEC review of a FINRA decision that imposed a $125,000 fine on a broker-dealer and its registered representative and suspended the registered representative from the securities industry for six months for failing to take sufficient steps to guard against the petitioners’ involvement in trading unregistered shares. 783 F.3d 763, 765 (10th Cir. 2015). Although the Court did not find any reason to overturn the SEC’s punishment based on the grounds raised by the petitioners, Judge Gorsuch noted that the petitioners failed to raise what he considered to be the more substantive arguments. Id. at 767-69. For example, Judge Gorsuch took the time to note that the petitioners did not argue that the SEC used this administrative proceeding to expand the definition of “egregious” and then retroactively applied that expanded definition to petitioners. Id. at 767. Nor did petitioners challenge the SEC’s ability to employ multi-factor balancing tests in deciding what sanctions to issue against petitioners. Id. at 769. As Judge Gorsuch noted somewhat wistfully, “the petitioners before us have repeatedly demurred when presented with the opportunity to challenge the propriety of the SEC’s decisionmaking process.” Id.
This opinion closely echoes Judge Gorsuch’s opinion—and concurrence to his own majority opinion—in Gutierrez-Brizuela v. Lynch. That case was not a securities litigation case but dealt with whether the Bureau of Immigration Affairs could retroactively apply a policy that interpreted an ambiguous statute contrary to a Tenth Circuit opinion. 834 F.3d 1142, 1143 (10th Cir. 2016). Judge Gorsuch determined that the Bureau of Immigration Affairs could not retroactively apply its policy, but he wrote separately in a concurring opinion to criticize the Chevron doctrine, which requires a court to give deference to an executive agency’s interpretation of an ambiguous statute when the agency’s interpretation is reasonable. Id. at 1149-58 (Gorsuch, J., concurring). In Judge Gorsuch’s view, de novo judicial review about what an ambiguous law means should replace the judicial deference given to the executive agency’s interpretation under the Chevron doctrine. Id. at 1158. As alluded to in ACAP Financial, Judge Gorsuch’s view of increasing judicial supervision of an executive agency’s interpretations would include increased judicial supervision of the SEC.
Finally, a handful of other cases in which Judge Gorsuch sat on the panel but did not author the opinion involved what were largely pro-defendant results in private securities litigation cases. See, e.g., Farley v. Stacy, 645 F. App’x 684 (10th Cir. 2016); United Food & Commercial Workers Union Local 880 Pension Fund, 774 F.3d 1229 (10th Cir. 2014); Cook v. Baca, 512 F. App’x 810 (10th Cir. 2013); Thomas v. Metropolitan Life Ins. Co., 631 F.3d 1153 (10th Cir. 2011). Although these cases are not a crystal ball for determining how Judge Gorsuch would come out on the next securities litigation issue facing the Supreme Court, those opinions do give some indication that Judge Gorsuch may take a skeptical view of securities litigation lawsuits, especially cases involving the SEC’s discretion in making and applying policies and rules.
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