What is your favorite part of practicing in securities?
A number of things: First, the issues in cases tend to be very complex. Second, the people drawn to the practice tend to be deep thinkers in economics and related disciplines, and I enjoy spending time learning from them. Third, the stakes are high and you deal with very experienced business people, such as boards of directors, C-suite decision makers, and investment-banking folks, who tend to be very smart and savvy and demand your best work. Fourth, much of the practice is in federal court, where judges often give you a fair amount of leeway to argue the complex issues that are often presented in securities cases. Yet, these days, some of the practice is in state court, where you have less time, but things move faster and you can employ more trial and courtroom skills.
Name and describe one case that anyone who practices in securities litigation should know.
Dura Pharmaceuticals, Inc. v. Broudo, 544 U.S. 336 (2005). It is the case that established the rules for the element of loss causation in securities class actions. It has had a profound impact on the securities class-action cases that are brought these days, including the pre-suit analysis that occurs and the damages issues. I am proud to say that my partner Bill Sullivan argued and won that case in the U.S. Supreme Court.
Describe a case on which you have worked that involved a lot of the key issues in securities litigation.
In re Aspeon Securities Litigation, 316 F.3d 1048 (9th Cir. 2003), dismissed on remand, Case No. CV-00-00995-AHS (C.D. Cal), aff’d 168 F. App’x 836 (9th Cir. 2006). We handled this case fairly soon after the Private Securities Litigation Reform Act, and it raised many of the then-cutting-edge issues around pleading securities fraud. We won the case in district court for failure to plead scienter or actionable misrepresentations, but then the decision was reversed in the U.S. Court of Appeals for the Ninth Circuit on the grounds that the plaintiffs should have been given a fourth opportunity to amend. We won the case after two more motions to dismiss in district court, and then it was affirmed on a second appeal to the Ninth Circuit.
What is a common mistake people make when practicing securities litigation?
Getting too involved in the details and not seeing the big picture. These cases can present many complex issues, but often they are still decided on whether the judge has an overall feeling that something wrongful has happened. Explaining facts that are not pled in the complaints (for example, the complaint does not plead that the Securities and Exchange Commission has commenced an investigation or the complaint does not plead that any of the officers sold any stock) can be more important than citing the sixth straight district-court case in a string cite.
What advice would you give to junior attorneys in securities litigation? Are there any key skills that new lawyers should develop to excel in securities litigation?
Read treatises such as Bloomenthal to get a big-picture view. Become excellent writers. Review new decisions in your circuit, both appellate and district court. Read articles by experienced practitioners. Go to court and watch all the lawyers (not just your senior lawyer) argue matters; you will learn as much about what not to do as what to do.
What trends have you seen in securities litigation over the last several years?
Traditional securities class actions have decreased. The last few years has seen a focus on cases stemming from the financial crisis. Fewer securities class actions have been filed against issuers. I believe this is a function of at least three economic factors: (1) the initial public offering (IPO) window has mostly been closed, and fewer young public companies means fewer securities suits based on IPOs and secondary offerings; (2) the stock markets have not been particularly volatile; they have mostly been moving down or up (recently up) without wild swings that give rise to large stock drops; and (3) the “supply” of plaintiff-lawyer time necessary to investigate and file cases has been taken up somewhat with financial-crisis litigation. Some of my colleagues and economists believe the Private Securities Litigation Reform Act has had a significant impact in decreasing the volume of cases being filed. I don’t believe that to be the case—if the markets were swinging and there were lots of IPOs, there would be many more securities class actions.
Shareholder and derivative litigation is increasing. All public-company mergers are drawing shareholder challenges and, most often, in more than one jurisdiction. Derivative and other lawsuits are being filed concerning executive compensation, related “say on pay,” and stock-option-grant practices. Many of these cases are filed in state court, often in the Delaware Court of Chancery.
There also are many more government investigations, including in the Federal Corrupt Practices Act space. Relatedly, there have been many more internal investigations, some because of whistleblowers and Dodd-Frank.
What do you do to stay abreast of emerging issues in securities litigation? Are there any specific practice publications or web resources that are particularly helpful?
I regularly review reports by the Stanford Clearinghouse and Cornerstone, and accounting firms like Deloitte. I also regularly read decisions on securities litigation in the U.S. Supreme Court and Ninth Circuit and as many new district-court decisions as I can. I regularly review summaries of Delaware law developments.
What changes do you expect to see in securities litigation over the next five years?
I think the pendulum will eventually swing back a bit, with more traditional securities class actions getting filed against issuers once the financial-crisis litigation is resolved, IPO windows return, and the stock market becomes more volatile. Nonetheless, the other two trends I have identified—more shareholder cases and more investigations (governmental or otherwise)—would seem to me to be here to stay.
If you weren’t practicing in securities litigation, in which area of law would you like to practice and why?
Antitrust litigation or intellectual-property (IP) litigation. Both are complex, high-stakes, and involve a heavy dose of federal-court practice. Many economic issues in antitrust have corollaries in securities; for example, both involve consideration of markets. IP does not share that as much (except for damages issues, perhaps), but is a vibrant practice with many more cases going to trial, which I enjoy.
Interview conducted by Lindsey Nelson, a content editor for the Young Advocates Committee.
Peter Stone is a partner with Paul Hastings LLP, in Palo Alto, California.