This is Bloomberg Law with June Brusso from Bloomberg Radio.
It's one of two Supreme Court cases within a week over securities fraud class action lawsuits against giant tech companies. Last Wednesday, it was Meta's Facebook. This Wednesday it was in Vidia. Investors are suing in Vidia, now the world's most valuable company, for misleading them about how much its profits depended on the volatile cryptomney market. But the tech company says the lawsuit relies on an expert opinion and doesn't have evidence like company documents to back up its claims.
Justice Katanji Brown Jackson questioned how the investors could have company documents before discovery the information gathering stage of litigation has even taken place.
I guess my concern is that you appeared to be requiring for plaintiffs to actually have the evidence in order to plead their case. And I didn't understand the pleading standards, even with particularity, to require that they have the documents, Nor do I understand how they could have the documents when discovery hasn't occurred yet.
And several of the justices seem to have a bit of buyer's remorse about granting review in the case, saying it was two facts specific and didn't present the kind of broad legal issues that normally prompt Supreme Court review. Here justice is Sonya Sotmayor Elena Kagan and Samuel Alito.
We often don't grant, sir to error correct? Is this entire case just an error correction? Oh, these particular documents are not precise enough. I'm not actually sure what rule we could articulate that would be clearer than our cases already say. It becomes less and less clear why we took this case number one as just as Sodama your suggested, and number two why you should win it.
But this is a highly technical subject and I just don't understand how a court is supposed to evaluate that at the pleading stage.
Joining me is Gregory gar a partner at Latham and Watkins, and the former Solicitor General of the United States, Greg tell Us about the issue before the court.
So, this case involves the pleading requirements under the Private Securities Litigation Reform Act, and specifically what a plaintiff has to show to plead with the requisite particularity when the claim is that a company misled investors based on internal
information that it knew. And the question is, does a planiff in that situation have to actually produce or describe in detail the internal company documents that the PLANEFF says represents the company's knowledge, or can you prove that knowledge through inferences by relying on expert reports and the like.
And so Justice Kotanji Brown Jackson said that in video was basically asking the plaintiffs to have the evidence at the pleating stage before they get.
Discovery, right, And that's the pushback that the more liberal justices had for the company's lawyer. The reason for these lawsuits is you typically get into federal court by passing the pleating requirements and then you get discovery and potentially access to the company's documents. So Justice Jackson sort of said that the company was trying to put the Planets in an impossible bind to produce the documents before discovery
had ensued. And the company's response to that was that they weren't actually requiring the documents themselves, or that they disc the documents in every detail, but they simply had to describe the documents with some particularity. But that was really the crux of the case that the company put before the court.
What did you see as the concerns of some of the other justices.
Well, I think that there was a frustration on the court that they really weren't presented with a clear legal rule on either side of the case, and that ultimately the case seemed to boil down to the application of existing law to a really long complaint, which is something that district courts do all the time, but the Supreme Court justices don't do, and particularly don't like to do.
And so you could see throughout the argument that there was a frustration on the part of the justices that they were being asked to undertake a task that they typically don't do in engaging in a sort of error correction based on their own reading of the complaint.
Yeah, it seems like justices across the ideological spectrum were concerned about that. And did it seem like that of buyer's remorse, Because just as Sodomayor said, you know, we don't grant sert to error correct and Justice Alitos said that I don't understand how a court is supposed to evaluate this highly technical subject at this preliminary stage. Just as Kagan said, it becomes less and less clear why
we took this case. I mean, were they questioning whether they should have granted cert in the first place.
I think they were. And of course, the Supreme Court gets to decide which cases it hears every year, and so it can pick the cases it likes. And here I think you're right that there were some buyer's remorse that the case, once it was fully briefed and presented to the Court at argument, wasn't necessarily the case that they thought they were buying when they agreed to hear it.
And so one possible outcome is that the Court would simply decline to decide the case at all and to dig it, which means that they would dismiss the writ of Cercherai that thet agreed to hear the case as improvidently granted, so the case could simply go away.
Justice Kavanaugh expressed a concern that outside groups and in Vidia's lawyer had raised that the Ninth Circuit decision below here created a sort of blueprint or roadmap for plaintiffs to get around the heightened pleading standard that Congress set out in the Private Securities Litigation Reform Act.
Right, and Just Kavanaugh was probably the most outspoken justice on the side of the company at the oral argument, and his concern was that if the Ninth Circuit decision in this case is allowed, then it just creates a blueprint or recipe for points to file where anytime you have a stop drop, you can just go out and find an expert that would put together numbers that would contradict a company's public statements and then enledge in a
lawsuit that the company keeps records that its executives look at and argued that those records would have matched their own experts numbers. So there you have it. Presto a securities action that would proceed past the motion to dismiss stage. And in these sorts of cases, particularly with class actions, that's really the ballgame, because.
The pressure on the company is then to settle.
There's enormous pressure on the companies to settle in that context given the potential damages. Although here Justice Kavanaugh actually pressed the plaineoff's lawyer on what the magnitude of the damages would be, and the planiff's lawyer was a little bit coy and ultimately said he did not know the answer to that question, perhaps because the amount was potentially quite large.
Here's part of that exchange between Justice Kavanaugh and the attorney for the shareholders, Deepak Gupta.
How much money is at stake in this case?
The words, the fewer to prevail ultimately in the class, not as much as it might seem, because I don't want the court to get the impression that this enormous delta of sales is what's that issue? It would be an issue would be you would have to show lost causation and materiality.
What are you seeking?
Like if you ran the table, what are you seeking?
Roughly, I don't know what the numbers are. You're on her?
What did you make of Justice score such? He sort of went into what the CEO knew at the.
Time, right, So he pressed the lawyers on both sides really about what inferences could be drawn about what the CEO knew and sort of, you know, question whether or not it was plausible that a CEO wouldn't know about potential downtick in sales and the magnitude alleged here billions of dollars, and so he had tough questions and he clearly was, you know, I think prepared to get into the weeds of this case to resolve it.
Several of the justices seemed to be saying, too Invidia's lawyer, well, you want a bright line test, and we can't give you a bright line test. And the Chief Justice didn't seem to be happy with either side's position.
He wasn't, as he put it, I think, you know, both sides want to present this in black and white terms, but there really wasn't a clear rule on either side that the Court was likely to adopt, and so they were left in this middle ground that again probably would produce a very narrow ruling that would require the justices to roll up their sleeves and apply the pleading standard to the particular allegations here in this extensive complaint, which
is something that the Supreme Court justices you know, probably don't want to spend their time doing.
Greg. This case is about pleading under the Private Securities Litigation Reform Act, which was passed in nineteen ninety five. Will you tell us a little about it?
Sure?
So this Act was passed in response to concerns about a flood of potentially frivolous securities actions and the like, and so Congress specifically ramped up the pleading requirements for these types of actions by stating what you know, arguably the law required in some respects before then, but stating in a statute that the planiffs must plead with particularity the facts constituting securities fraud, and must you know, plead facts that create a strong inference that the defendants acted
knowingly or recklessly. And so in this area, and with respect to pleading standards more generally, you know, the slightest uptick in the rigorousness of the pleating requirements can screen out a number of cases. And you know, I think that that was one of Converse's goals here and has
had that effect. And so the court in this case is revisiting the strength of those standards, and in particular the requirement of stating with particularity in this context where the planiffs don't have access to documents that would show what the company knew, but have an expert who's willing to say, based on his or her own opinion, what is likely the company's executives would have had or seen prior to this dock drop that issue.
So in Vidia in twenty twenty two agree to pay five point five million to US authorities to settle charges that it didn't properly disclose the impact of crypto mining on its gaming business without admitting or denying the findings as usual. Does that have any impact here that settlement not really.
It came up in oral argument. The government was participating in the case, and the Biden administration came in on the side of the plaintiffs here and argued that the Ninth Circuit had gotten it right. And the Justices did ask about that sec action. But this case is really going to rise or fall on its own allegations under the demands of the PSLRA.
Just last week, the Justices were considering whether to shut down another class action investors lawsuit against Facebook stemming from the privacy scandal, involving the Cambridge Analytical Political consulting firm. Is there a reason why they have two sort of similar cases in this term? Is this a real problem?
I think it's probably fortuitous that the two cases happened to come to the court at the same time. That said, both cases came out of the Ninth Circuit, and the Ninth Circuit has been sort of a hotbed for this kind of litigation, and so it's not surprising in that sense that some of these cases has gotten to the Supreme Court. But having taken two of these cases and heard them in the same week, and I think it's there to say that in both cases justices were grappling
for answers. It may be a while before the justices decided to wade back into this area.
So what's your take. Do you think that there needs to be more specificity and pleading in these kinds of cases.
I think, you know, Congress was wise to pass the Private Securities Litigation Reform Act, and those pleading standards you know have and should have teeth. I think in this area usually the pleating standard at the motion to dismiths stage is you know, the critical test in the litigation, because once you get past that pleading stage, then you
get discovery. The cost of litigation rise greatly and you have a threat of enormous damages that often push defendants into settlement even when they strongly believe that there was no securities fraud in the first place. So I think courts you have to police these requirements carefully. So in that sense, it's not surprising that the Supreme Court with intervene fears that a court has either veered from the law or where courts have taken conflicting positions on what these standards require.
Thanks so much, Greg, Always a pleasure to have you on the show. That's Gregory gar of Latham and Watkins, the former US Solicitor General. This bill mandates the display of the Ten Commandments in every classroom in public, elementary, secondary.
And post education schools in the state of Louisiana.
Louisiana was the first state to require that the Ten Commandments be displayed in every public school classroom since nineteen eighty when the Supreme Court struck down a similar Kentucky law on First Amendment grounds. Governor Jeff Landry signed the bill into law, which requires a poster size display or framed document of the Ten Commandments to be put up in every classroom by January.
Because if you want to respect the rule of law, you got to start from the original lawgiver, which was Moses.
But a federal judge has stepped in to stop that from happening, finding that the law is unconstitutional on its face. The legal showdown won't end at the district court level, however, with the state Attorney General saying she'll ask the Fifth Circuit Court of Appeals to stay the judge's ruling while she appeals, joining me his first Amendment. Law expert Caroline Malak Corbin, a professor at the University of Miami Law School, tell us about the judges ruling almost two hundred pages.
It was indeed very long. It was one hundred seventy
seven pages. So Louisiana had passed a law mandating the posting of a particular version of the Ten Commandments in every single classroom in the public schools of Louisiana, both K through twelve and the university level, and this was challenged, not surprisingly on establishment claws grounds, and the district court gave sort of two paths of why this was in fact in violation of the establishment clause, and his first line of discussion was that there is very clear precedent
on this matter. Kentucky had tried the same thing back in nineteen eighty. It too, had passed the law requiring the posting of the Ten Commandments in every single classroom, and the court said, no, yead to that there is no real secular reason for this. You can't impose a
religion in the walls like that. It is unconstitutional. And so there is Supreme Court precedent directly on point, and so they said, under this decision, which is still good law, because the Supreme Court has not yet explicitly overruled it, this law cannot survive. And so that was one approach, which is very straightforward. There is a Supreme Court decision that considered the same issue, and when it did, it found it unconstitutional.
And then it had.
Another line of argumentation because there is concern that the Supreme Court is going to overrule that decision, and in
fact that's partly what Louisiana is hoping. And so given this new Christian friendly Supreme Court, it may well decide that that precedent is no longer good, in part because it relied on some doctrine that the Supreme Court had rejected, so anticipating that that argument, which should be enough, might not be enough, it also analyzed the case under the Supreme Court's more recent rulings, and the Supreme Court's more recent rulings on the matter have said, when you're trying
to decide whether something violates the Establishment clause or not, you must refer to the history and tradition of the practice in question. And so that's what the Dissecurt did, and in fact, there was even an expert who testified. And then the question was is there a history and tradition of posting the Ten Commandments on the walls of public schools? And the answer was no, there's not.
The supporters of the bill had specifically referenced religious motivations like the importance of children learning what God says is right and what he says is wrong. Did that come up in the oral arguments or the judge's decision?
So the bill did not say that. The bill tried to claim a more secular purpose, but the sponsors of the bill were quite straightforward in their goals, which, as you mentioned, was to make sure children understood what God thought was right and wrong. And so though the bill tried to construct some potential understanding of the Ten Commandments as a non religious doctrine, that text was really blied by what the sponsors of the bill said when promoting it.
So now you mentioned the Supreme Court, and Louisiana argued that based on the twenty two rulings in a case where I think people know it mostly as the football coach who wanted to pray at the fifty yard line right after the games. So they're saying that since that ruling, the courts have to interpret by reference to historical practices and understandings. Is that basically their argument.
Yeah.
There used to be several different tests the court might rely on in evaluating establishment clause challenges, and they have different names. There was the lemon test, the endorsement test, the history and tradition test, the coercion test. In that decision, the Supreme Court essentially killed off two of them, and it said, we are no longer going to rely on the lemon tests, We're no longer going to rely on
the endorsement test. So what the court is going to consider going forward when faced with an establishment clause challenge is a history and tradition analysis, and also it will consider whether anyone is being compelled into practice being religion against their will. And so those the two frameworks the
court will use going forward. And the District Court in fact used them again in anticipation of its reliance on precedent not being enough for the current court and conducted a history and tradition analysis and also found them to be rather coercive.
Louisiana is going to appeal and they're in the Fifth Circuit, which Indeed, the most conservative circuit in the country has handed down some novel rulings lately, some of them even too much for the Supreme Court. Do you have any confidence in how the Fifth Circuit will rule?
I do not have any confidence in how they were ruled. But it would not surprise me if they pick up the baton that the Louisiana Statute laid down and argue that there is in fact a history and tradition of the Ten Commandments in school and therefore there is nothing wrong with having posters. And it would not surprise me if they said it was not at all coercives, because no one's being forced to pray or do any particular
religious exercise. So I would not be surprised if again, they constructed a history inaccurate history, by the way, because the expert did quite a good job of dismantling some of the claims that Louisiana made in its text, including
a completely fabricated quotation from James Madison. But nonetheless, they will claim that there is plenty of evidence of having the Ten Commandments of schools, and even if there's no evidence of Ten Commandment posters in schools, it doesn't matter it's enough that there were mention of the ten Commandment or reading of the ten Commandment, and therefore there's no
violation of the Establishment clause. And there were a claim that simply looking at the ten command is not going to force children into doing anything religious, and therefore there is no Establishment cause violation.
With the football coach, during the oral arguments, there was a lot of discussion about whether it was coercive, whether the players felt like they had to pray with him, and you know, the justice is the conservative justices said, oh, no, it's not coercive.
And there's a really important difference between the coach case and this case because a lot of the case about the praying coach turned on the court conclusion that he was speaking as an individual and not as the government.
So they really viewed his action as a private person's attempt to practice his own space, and consequently they really viewed it through a free exercise lens and went out of their way to ensure protection of his ability to practice his religion, and that this would clearly take precedent over any hypothetical Establishment Clause claim of coercion, for which
there was no proof that that asides. But the very big difference here is there is no individual practicing their faith in this case, and there is no question that is is the government that is posting these Ten Commandments, these religious documents on the walls. And so they have to confront more directly the fact that the government is
posting something that's really inherently religious. And they were able to dodge that more with a coach by saying, well, it was him practicing his religion, not the government trying to get the students to do it.
So you mentioned the Kentucky case. This is a very different Supreme Court, and you know, as you're referred to, I can't remember the last time religion lost at the Supreme Court with the Roberts Court and especially with the conservative majority. Do you think that the Kentucky case, if this gets to the Supreme Court, that the Kentucky case will stand.
I don't know, because the Supreme Court has traditionally been especially mindful of the establishment clause in the school context for a couple of reasons. The first is that you know, the children in school are considered very young and very impressionable, and therefore the government has heightened responsibilities towards them. And second is that the students at school are a captive audience. They have no choice but to be there. They're sort
of doubly captives. The government requires that they attend school at then as school, they're under the control of the school, and therefore, again there are heightened responsibilities when you're dealing with the young, impressional students who are also a captive audience. Will the Supreme Court continue to honor these considerations. I don't know. Possibly not so, Caroline.
I know that this Louisiana was the first state to enact this requirement, but in June and Oklahoma the state superintendent ordered that the Bible be incorporated into lessons, and Florida recently approved allowing volunteer religious chaplains to serve as school counselors. I mean, is there a conservative Christian movement to try to sort of move the line and get religion into public schools.
Oh, I don't think there's any questions. I think that the Supreme Court has made it clear that it is very sympathetic towards lanes of religious exercise. It has also made it clear that it does not hold the establishment clause in highest scheme, and so I think this is the vanguard of trying to get religion back into the schools, and depending on the outcome of this case, we'll see what happens in the rest of the country. I do want to add one more point about the District court
s ruling. It sort of belongs a little bit more in the earlier discussion. One of the really interesting things about this challenge is it's not just the introduction of religion into school, but it's the introduction of only one faith tradition into the school. Because the Ten Commandments on the wall are the Protestant kingings of versions of the
Ten Commandments. Different faith traditions have different types of Ten Commandments. So, for example, the Catholic version is different because this one says thou shalt make to thyself no graven images, whereas that particular prohibition is not in the Catholic version of the Ten Commandments, Whereas in the Jewish version of the Ten Commandments. The first commandment here is I am the Lord thy God, and the Jewish Ten Commandments it is I Am the Lord thy God that brought you forth
from Egypt. And these are actually crucial theological differences. And I mention this because under existing doctrine, as the District Court highlighted, the court made it clear that the state cannot discriminate against any other religion. It can't favor one religion over others, it can't intentionally discriminate against other religions. And the choice of this particular version seems to be
doing exactly that. And it's particularly problematic because if you look at our history and tradition, at one point, to the extent there was any religion in the schools, it was Protestant religion, and it was explicitly meant to exclude Catholics. So I'm taking a long time to say that the court has long expressed concern about anti Catholic sentiments in our country's history, and this could be seen as the remnant of that historical hostility the Catholics that they so
often complain about and revile. So it might be a little more complicated for them than it would otherwise be with another particular religious practice in the schools. But the fact that this is a Protestant ten commandment before a court long characterize much of the history in the United States as anti Catholic, maybe you would give them pause.
Well, the next stop is the fifth circuit. We'll see what happens there. Thanks so much, Caroline. That's Professor Caroline Mali Corbin of the University of Miami Law School. And that's it for this edition of the Bloomberg Law Show. Remember you can always get the latest legal news by subscribing to the Bloomberg Law Podcast or downloading this show at Bloomberg dot com, slash podcast, Slash Law. I'm Drewn Bronco and you're listening to Bloomberg