Wednesday, March 7, 2007

Thomas on the 7th Amendment Problem in Private Securities Fraud Litigation

Perhaps the 7th Amendment was made for legal historians. 7th amendment analysis relies on legal history, since the Supreme Court has interpreted the amendment as preserving the right of trial by jury in civil cases as it ''existed under the English common law when the amendment was adopted.'' New procedures that impact the right to a jury must always be analogized to those in 1791. This is why a new article by Suja A. Thomas, Cincinnati, about the role of the jury in private securities fraud litigation has a serious legal history component. It is history in service of a particular legal argument. But, of course, much other history published in law reviews is this sort of legal history. This form of "law office" history may have a particular legitimacy, in that the Supreme Court, in its 7th Amendment jurisprudence, has called for it.

Thomas's paper is The PSLRA's Seventh Amendment Problem (PSRLA = Private Securities Litigation Reform Act). Here's the abstract:
This Article is the first to examine the proper role of the jury in private securities fraud litigation. In the Private Securities Litigation Reform Act, Congress required that a securities fraud complaint plead "a strong inference" of scienter. The courts have disagreed on the standard that satisfies this requirement, and likewise, the involved parties disagree. Defendant corporations argue for a stringent standard that would result in the dismissal of many claims, while plaintiff investors support a flexible standard that would allow more claims to go forward. Indeed, the Supreme Court's resolution of this issue may have an impact beyond securities litigation. If a stringent standard is adopted, special pleading may be permitted in other types of cases, including employment discrimination cases. Thus these cases may be dismissed before any discovery has been conducted. In the present context, securities law experts have not addressed the constitutional issue posed by the special pleading requirement; whether this requirement violates the Seventh Amendment right to a jury trial. The Supreme Court has held that a modern procedure must satisfy the substance of the English common law jury trial in 1791 to be constitutional under the Seventh Amendment. Accordingly, the special pleading rules developed in 21st century securities litigation must be viewed through an 18th century common law lens. This Article argues that the scienter standards developed by the courts in securities cases do not comport with substance of the common law jury trial and thus are constitutionally problematic. Contrary to the common law, the courts improperly engage in one or more steps of assessing the reasonableness of facts and corresponding inferences pled by the plaintiffs. This Article also acknowledges the possible constitutional infirmity posed by the PSLRA's "strong inference" standard itself and the heightened pleading requirements and proposes an alternative standard to dismiss a securities fraud claim that comports with the Seventh Amendment.