The Supreme Court has finished hearing arguments for the 2018-2019 term, the first with controversial Justice Brett Kavanaugh on the bench. Kavanaugh’s ascension gave the high court a clear majority of justices to the right of the political spectrum, raising anticipation for, among other things, a series of business-friendly rulings.
Ultimately, the Supreme Court’s agenda featured a smattering of key business and securities rulings, with several still to come. Here’s an overview of some of the more notable cases.
Lorenzo v. SEC
Background: We wrote about Lorenzo in September, noting that then-nominee Kavanaugh’s participation in the D.C. Circuit Court of Appeals decision complicated things. The case itself involved the SEC’s application of Rule 10b-5 to ban investment banker Francis Lorenzo from the securities business. Lorenzo had passed on bogus information from his boss about an investment opportunity to prospective investors. The SEC said that made Lorenzo liable for securities fraud.
The D.C. Circuit sided with the SEC, but Kavanaugh dissented.
How SCOTUS ruled: As expected, Kavanaugh recused himself from the case, setting the stage for a potential 4-4 split along ideological lines. Instead, Chief Justice Roberts and Justice Alito joined the liberal justices in voting to hold Lorenzo liable for securities fraud.
Bottom line: Kavanaugh’s vote would not have impacted the decision, which plugged a potentially large hole in Rule 10b-5.
Apple Inc. v. Pepper
Background: The tech unicorns now galloping onto the public markets had a heightened interest in this antitrust appeal. Antitrust law distinguishes between a “direct” purchaser of a product (e.g., a grocery store) and an “indirect” or downstream purchaser (e.g., a consumer). Generally speaking, only “direct” purchasers can sue for antitrust damages. However, tech marketplaces like Apple’s app store — where Apple sells “directly” to consumers, but only as an agent of the app developer — blur that neat distinction. The question here is whether consumers can sue the tech company for antitrust damages.
How SCOTUS ruled: TBD. The court has yet to issue a ruling.
Bottom line: The Pepper case is attracting major attention from business organizations and consumer watchdogs alike as the tech industry comes under scrutiny for allegedly anti-competitive business practices. The Trump administration and the U.S. Chamber of Commerce have filed amicus briefs supporting Apple. An Apple win will embolden it and other tech giants to jack up their surcharges on products, according to critics.
The Arbitration Cases
Background: One of the boldest proposals that the SEC has floated during Chairman Clayton’s tenure was the idea of letting public companies send investor disputes to arbitration. That notion may feel less radical as mandatory arbitration becomes the norm in the workplace, which could be one effect of last term’s decision in Epic Systems v. Lewis blessing employment agreements that require individual arbitration. This term, the Supreme Court took up three more cases in the area, answering:
- Whether a truck driver’s occupation made him a worker “engaged in foreign or interstate commerce,” negating his mandatory arbitration agreement. (New Prime Inc. v. Oliveira)
- Whether an agreement delegating questions of arbitrability to an arbitrator has to stand if a court finds the claim of arbitrability is “wholly groundless.” (Henry Schein, Inc. v. Archer and White Sales)
- How ambiguous contracts should be interpreted with regard to whether employees can arbitrate on a class basis. (Lamps Plus v. Varela)
How SCOTUS ruled: The justices unanimously rejected the claim for arbitration in New Prime, and against arbitration in the Henry Schein case. The 5-4 Lamps Plus decision held that a court cannot require class arbitration without an indication that the parties affirmatively agreed to it.
Bottom line: The high court has earned its reputation for having a pro-arbitration bent; its rulings in these three cases represent a mixed bag on that matter. The New Prime decision represented the closest thing to a curveball that the court could offer in this term. Ronald Mann of SCOTUSblog pointed out that the decision may constitute the first time in decades that the Supreme Court has ruled against a claim for arbitration.
Emulex v. Varjabedian
One of the more closely watched Supreme Court cases of this term for securities law junkies was Emulex v. Varjabedian.
The issue: In shareholder class actions claiming that a company made deficient disclosures in connection with a tender offer, do the plaintiffs have to prove that the company had fraudulent intent, or merely show that it was negligent? That was the narrow question at least, but the case presented an opportunity for the conservative bloc of justices to address a broader one and find that shareholders have no right to sue over tender offer disclosures at all.