In an unanimous decision, the Supreme Court sided with Merrill Lynch & Co. in limiting the rights of some shareholders to bring class-action cases. The loophole would have allowed class-action securities lawsuits to proceed at the state level.
In the opinion, written by Justice John Paul Stevens, the justices said that the case fell outside the scope of the Securities Litigation Uniform Standards Act of 1998. The law had been aimed at restricting civil class-action securities lawsuits, but several attorneys have sought ways around the statutes to the state level, where local laws can allow broader claims.
The actual case concerned a lawsuit filed by a former Merrill Lynch broker, Shadi Dabit, who said that research reports issued by the securities firm were biased. Among other things, the class-action suit alleged that the fraud harmed brokers' personal portfolios and their businesses. Dabit pursued his case under Oklahoma state law.
Merrill Lynch has already paid $100 million in fines related to its research-reports practices and has faced lawsuits from different classes of investors beyond the brokers' case.
"[The decision] is of great significance to all publicly traded companies and financial services firms, as securities class-action plaintiffs will no longer have the ability to bring so-called 'holders' class-action suits," said Merrill Lynch's law firm, Skadden Arps Slate Meagher & Flom, in a statement.
Most shareholder class actions involve allegations that an investor was misled in being convinced to buy or sell stock. " Holders" are investors who supposedly would have sold their shares but instead held them or were convinced not to buy shares.
