Saturday, March 29, 2014

Going Off Book

This semester, I’m teaching Securities Litigation at Duke Law.  It’s my first time teaching, so I’ve had to construct a syllabus (relying in part on syllabi provided to me by instructors at other law schools who teach similar courses).

There is a casebook, Securities Litigation and Enforcement, that I’ve been relying upon.  However, in my class, I plan to deal not only with federal law claims, but also claims brought under state law.  State law isn’t a part of this casebook, and I haven't found anyone else who has taught it.  So, for this part of the class, I’m on my own.

[More under the cut]

I think it’s important to teach state law because as the standards for bringing claims under federal law have tightened, more investors are turning to state law (notwithstanding SLUSA’s bar on state law class actions).  In the wake of the mortgage crisis, there have been a number of cases brought under state law, forcing courts to directly confront a variety of questions that previously had only been addressed under federal law.  And if the Supreme Court curtails fraud on the market in Halliburton Co. v. Erica P. John Fund, Inc., I think state law will become even more important.

The difficulty with constructing a syllabus for state law is, of course, that there are 50 of them.  So I’ve come up with a few organizing principles. 

First, claims brought under state law are either brought under state statutory law, or state common law.  And (luckily for me) there are two uniform securities acts upon which most, though certainly not all, state laws are based.  So I can start by teaching the students about the Acts and some of the basic interpretations of these Acts. 

Then, I plan to move on to where the variations tend to be.  Obviously, with 50 states, there’s a lot of room for variation.  Still, there are particular themes.  First, though the main private cause of action under the Uniform Acts is something like Section 12 of the Securities Act, some – but not all – states also allow claims based on the state law equivalent of Rule 10b-5.

Second, there are significant variations with respect to aiding and abetting claims – states have different definitions of what counts as material aid, and what sorts of persons can be held liable as aiders and abettors.  So, I’ve found a couple of cases that examine this issue (including one case that involves Duke University – as a third party, not a defendant! – which might spark the students’ interest).

After that, my plan is to move on to the common law.  For common law claims (which basically mean fraud, fraudulent inducement, and negligent misrepresentation), I plan to focus on a few specific issues.

First, what is the class of persons who can bring claims under the common law?  That is, common law claims are not privity-based, but they do require that the defendant have “intended” the representations to be heard by certain classes of persons.  These restrictions are essentially covered in the Restatement Second of Torts, but states vary as to which provisions of the Restatement have been adopted, and how those provisions are interpreted.

Second, how does the scope of conduct prohibited under the common law differ from federal law?  Once again, the critical issue is aiding-and-abetting.  State law often permits aiding and abetting claims, and does not draw the distinctions that federal law does between “makers” of statements (see Janus Capital Group v. First Derivative Traders) and other persons who assist in drafting and dissemination.  There may also be different approaches under state law with respect to how opinion statements are treated – although, as I discussed in an earlier post, federal law is pretty uncertain on this as well, which is why the Supreme Court will resolve the issue in the 2014 Term.

Anyway, as I search for materials to assign, I’m particularly looking for cases that talk about the state law variations and summarize the different approaches before choosing one to apply in that state particularly.  Happily, there are several cases out there that fit the bill, so, we’ll see how it goes.  And if anyone has any suggestions, fire away.

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