Second thoughts on Dabit

Those who are skeptical of the social value of business regulation and litigation might celebrate yesterday’s Supreme Court opinion in Dabit because it shuts down a significant way to escape federal limitations on state securities fraud class actions, thereby forcing plaintiffs to play by the restrictive rules of the Private Securities Litigation Reform Act.

In yesterday's post on Dabit yesterday, I said that the opinion supports “the hypothesis that the Court’s securities cases evince a “nationalistic” rather than “new federalism” philosophy.” I also observed that some of the same pro-business conservatives who support this opinion also support federalism in other contexts.

Some might say that Dabit is a triumph of pragmatism over principle. But, as I recently argued in another context, there’s no great divide between the two. Abandoning federalism may come back to haunt opponents of federal regulation of business.

It is worth noting that the Dabit opinion was (1) unanimous; and (2) written by a leader of the Court’s liberal wing, Justice Stevens. More importantly, consider these opening words of the reasoning part of the opinion:

The magnitude of the federal interest in protecting the integrity and efficient operation of the market for nationally traded securities cannot be overstated. In response to the sudden and disastrous collapse in prices of listed stocks in 1929, and the Great Depression that followed, Congress enacted the Securities Act of 1933 (1933 Act), 48 Stat. 74, and the Securities Exchange Act of 1934 (1934 Act), 48 Stat. 881. Since their enactment, these two statutes have anchored federal regulation of vital elements of our economy.

It’s also worth noting, as did a commenter to yesterday’s post, that there have been a lot of unanimous opinions under C.J. Roberts. It may be that the new Chief is seeking to build the Court’s credibility through unanimity. This requires finding something the liberal and conservative wings can agree on: here, expansive interpretation and enforcement of federal securities law that knocks out both the bad parts of state law and the positive value of the “laboratory” of state law.

In other words, conservatives may not be so happy with Dabit when the Court cites it in the first SOX case (e.g., the PCAOB case?).