The Supreme Court ruled 5-3 against investors in a lawsuit that restricted their ability to sue third parties unless investors rely directly on their advice.
The Supreme Court listened to arguments in the case, Stonefield Investment Partners LLC vs. Scientific Atlanta Inc. and Motorola Inc., last October (see Supreme Court Hears Arguments in Investor Case). Stoneridge, an investment fund, lost money in shares of Charter Communications Inc. and accused third parties Motorola and Scientific-Atlanta (now part of Cisco Systems) of helping Charter inflate its revenues. Stoneridge did not claim that Motorola and Scientific-Atlanta made any misstatements to the public, but said they engaged in transactions with Charter that it mischaracterized on its financial statements.
Judge Anthony Kennedy wrote the majority decision. “We conclude the private right of action does not reach the customer/supplier companies because the investors did not rely upon their statements or representations,” he wrote.
The American Institute of CPAs, which filed a brief in the case, hailed the decision.
“In this common-sense and balanced ruling, the court said that investors may only sue those who issued statements or otherwise took direct action that the investors had relied upon in buying or selling stock,” said Richard I. Miller, AICPA general counsel, in a statement.
Lisa Wood, co-chair of the securities litigation group at Foley Hoag LLP in Boston, noted that Stoneridge is the third securities case decided by the Supreme Court in the last three years, following Tellabs Inc. v. Makor Issues and Rights Ltd and Dura Pharmaceuticals v. Broudo, in which the court has favored businesses.
“Stoneridge continues the court’s recent trend of raising the bar for plaintiffs in securities class actions, and in fact this decision goes much further than any previous ruling in limiting the potential scope of liability of outside professionals in a shareholder lawsuit,” she said in a statement.
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