October Term, 2006
June 18, 2007
Today the Supreme Court issued two decisions, described below, of interest to the business community.
Credit Suisse Securities (USA) LLC v. Billing, No. 05-1157 (previously discussed in the
December 7, 2006 Docket Report). Conduct is impliedly immune from suit under the antitrust laws if application of those laws would conflict with the operation of another statutory scheme. Today the Supreme Court held, in the context of antitrust suits challenging underwriter conduct during initial public offerings of stock (“IPOs”), that there was a conflict between the federal securities laws and antitrust laws that prevented the antitrust suits from going forward.
Credit Suisse involved antitrust class actions in which investors brought suit against ten leading underwriters, alleging that they agreed to engage in anticompetitive tactics involving some 900 technology-related IPOs during the market “bubble” of the late 1990s. Plaintiffs claimed that the underwriters required investors, in order to obtain IPO allocations, to agree to purchase additional shares of the IPO stock in the aftermarket and to pay excessive commissions on other transactions.
The underwriters argued, and the district court held, that the antitrust claims were precluded by the securities laws. The Second Circuit reversed the dismissal of the plaintiffs’ complaints. The Court granted the underwriters’ petition for certiorari.
In a 7-1 decision authored by Justice Breyer, the Supreme Court reversed. The Court recognized that three “critical” factors for implied immunity were easily satisfied: the existence of SEC authority over the alleged IPO conduct, evidence that the “responsible regulatory entities exercise that authority,” and practices at issue that constitute “heartland securities activity.” The Court then held that there was a conflict between securities regulation and application of the antitrust laws that rises to the level of “incompatibility.” Private antitrust litigation would require “dozens of different courts with different nonexpert judges and different nonexpert juries” to evaluate conduct in an area of the Nation’s economy in which the SEC has drawn fine and nuanced lines between activities that are essential to the operation of the capital markets and activities that are unlawful. The Court pointed out that if that were allowed to occur, courts and juries would inevitably reach decisions inconsistent with SEC regulation. To avoid the risk of massive liability in a private antitrust treble damages suit, underwriters would have to “act in ways that will avoid not simply conduct that the securities law forbids . . . but also a wide range of joint conduct that the securities law permits or encourages.” That would interfere with “the effective functioning of capital markets” and “‘disrupt the full range of the [SEC’s] ability to exercise its regulatory authority.’” The Court rejected the Solicitor General’s suggestion that the case be remanded to determine whether alleged conduct prohibited by the SEC could be separated from conduct permitted by the SEC. The risk of inconsistent and incorrect results by judges and juries making such a determination would undermine the securities regulatory regime.
The holding in Credit Suisse is a resounding victory for the business community. It establishes clearer guidelines for the application of the implied antitrust immunity doctrine in the securities field, and clarifies that private antitrust lawsuits should not be allowed to discourage beneficial IPO activity.
Mayer Brown served as counsel of record for the petitioners, and Stephen M. Shapiro of our Chicago office argued the case on their behalf.
Powerex Corp. v. Reliant Energy Services, Inc., No. 05-85 (previously discussed in the
January 22, 2007 Docket Report). 28 U.S.C. § 1447(d) provides that “[a]n order remanding a case to the State court from which it was removed is not reviewable on appeal or otherwise.” The petitioner in this case argued that there should be an exception to Section 1447(d) when removal is based on the Foreign Sovereign Immunity Act (FSIA), which allows litigation to be removed by foreign states and organs thereof. See 28 U.S.C. §§ 1441(d), 1603. Today, in a 7-2 decision by Justice Scalia, the Court disagreed, holding that nothing in the FSIA creates an exception to Section 1447(d). In a short concurrence, Justice Kennedy acknowledged that the Court’s decision creates the possibility of a foreign state defendant being forced to litigate in state court, thus jeopardizing the United States’ relationship with other nations. Justice Kennedy explained that the text of § 1447(d) left the Court no latitude for a different interpretation, and thus that Congress is the appropriate body to decide whether the special concern for foreign governments should outweigh the general interest in precluding appellate review of remand orders.
In reaching its decision, the Court clarified more generally that under Section 1447(d) appellate courts do not have authority to review a remand order that is “colorably” based on lack of subject matter jurisdiction. The Court noted that deferring to a district court’s classification of the grounds for remand will avoid lengthy appellate disputes concerning the proper classification, thus serving § 1447(d)’s goal of avoiding prolonged litigation on jurisdictional questions.
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