Stoneridge and the Enron zombie

I had hoped and predicted that the Court would take cert on Enron in order to ensure that “secondary civil liability under 10b-5 is really dead, and stays dead, rather than wandering in scheme liability form like some terrifying zombie.”

Unfortunately one of the things Stoneridge did not do is destroy the zombie – that is, it did not settle what would happen under the facts of Enron, which involve more central participants in securities transactions than in Stoneridge, as I noted in my post of yesterday.

The WSJ Blog reminds us today that this is of more than just academic interest. As the Justices

discuss whether they should hear the Enron class-action in light of their Stoneridge ruling this week… . .

In a brief filed yesterday, lead plaintiffs’ lawyer Coughlin Stoia said ”this court’s decision in Stoneridge demonstrates critical differences between Enron and Stoneridge — differences that warrant a grant” of certiorari. “Enron is, at its core, a case about financial fraud, executed by financial professionals targeting investors,” said the brief. The court should “clarify when financial professionals may be liable for deliberately misleading investors.”

The problem is that the Stoneridge reliance test does not easily permit clarification that the liability doesn't exist. In other words, I fear that the zombie is going keep walking. The worst case scenario is that the Court may bring it back to life, though I seriously doubt that given the policy considerations articulated in the opinion.