DALLAS, Aug. 6, 2004 – Legal news, law news, law firm announcements & research onf LAWFUELThe recent corporate financial scandals
involving Enron, MCI WorldCom and even Martha Stewart pose the question “When
and how did this corporate fraud begin?” The Summer 2004 edition of Voir Dire
magazine tackles major developments in the war against private litigation and
the role of the jury.
The study, “What the law giveth, the law taketh away,” is an exclusive
report. The American Board of Trial Advocates turned to Baylor Law School
professor Larry Bates, the author of the study, to answer questions regarding
the decline in jury trials and how that may correlate to recent corporate
scandals.
Dr. Bates argues that during the past 30 years both Congress and the
courts have worked in unison to undermine what had, in effect, become our most
important mechanism for enforcing the securities laws that were enacted after
the market collapse of 1929.
Here’s a summary:
1. Elimination of aiding and abetting liability: The practical effect of
eliminating aiding and abetting liability is to limit liability for
securities fraud to the primary violator, making it virtually
impossible for litigants to pursue a cause of action against parties
who indirectly supported the commission of securities fraud — such
as in Enron.
2. Heightened pleading requirements: Congress expanded on the pleading
requirements of Rule 9(b) to now require that plaintiffs plead with
“particularity facts giving rise to a strong inference that the
defendant acted with the required state of mind.” Courts now have
far more discretion to dismiss securities cases at the most
preliminary stage, which will result in far fewer cases making it to
the jury.
3. Mandatory stay of discovery: Federal law now provides that in the
most common form of private enforcement litigation, discovery against
defendants will be indeterminately stayed upon the filing of a motion
to dismiss by the defendant. Plaintiffs will be unable to use
discovery to unearth evidence of fraud early in the proceedings,
which will make it more likely that defendants will prevail on their
motions to dismiss, and thus many plaintiffs will never have the
opportunity to present their claims to a jury.
4. Expanded safe harbor provisions: Congress has substantially expanded
the safe harbor provision for forward-looking statements. New safe
harbor also includes oral statements which means companies can now
make protected forward-looking statements by mass media. Expanded
safe harbor will make it easier for defendants to obtain summary
judgments — regardless of the merits of a particular plaintiff’s
claims.
5. Sanctions provisions for Rule 11 violations: Congress has now
mandated sanctions for rule 11 violations in securities lawsuits and
created a rebuttable presumption that an award of attorneys fees and
costs to the defendant is the appropriate sanction. The new
sanctions rule appears to have discouraged plaintiffs from pursuing
claims in federal courts.
6. Preemption of state class actions: Congress has preempted most class
actions alleging securities fraud in connection with the purchase of
securities traded on the major exchanges. Preemption here displaces
state law entirely. Plaintiffs not only lose their right to litigate
their claim in state court, but they also lose the right to litigate
the state claim in federal court through supplemental jurisdiction.
Significantly, the discovery stay applicable in securities lawsuits
when defendants move to dismiss a case will be available to stay
discovery in any private action in state court while the federal case
is pending.
The full study is available by calling (800) 932-2682 or e-mailing Brian
Tyson, editor, at briant@abota.org .
Voir Dire magazine, the flagship publication of the American Board of
Trial Advocates, has released its spring issue. The magazine features in-
depth articles on current and historical issues relating to preserving civil
trial by jury. Voir Dire is an award winning publication that was named one
of the top 50 publications in the country by the League of American
Communication Professionals. To subscribe, call (800) 932-2682.
ABOUT ABOTA:
Founded in 1958, the American Board of Trial Advocates is a national
association of experienced trial lawyers and judges. ABOTA and its members
are dedicated to the preservation and promotion of the civil jury trial right
provided by the Seventh Amendment to the U.S. Constitution. The Foundation of
ABOTA is an affiliated charitable entity, the mission of which is to support
the purposes of ABOTA through education and research. ABOTA membership
consists of more than 6,000 lawyers and judges spread among 90 Chapters in all
50 States and the District of Columbia.
For more information or
to arrange an interview, contact:
Brian Tyson at (800) 932-2682
briant@abota.org .
SOURCE American Board of Trial Advocates
Web Site: http://www.abota.org
