Author Archive | John Elwood

Professors and Former SEC Commissioners’ Brief in Halliburton

As promised, here is the brief submitted by a second group of professors, together with former SEC Commissioners, in Halliburton Inc. v. Erica P. John Fund, Inc.

It argues that the Court “need not wade into the complex and highly technical debate over the efficient markets hypothesis to answer the question presented here.  Instead, the Court can, and should, decide this case by applying well-established principles of statutory construction.”  It argues that, to infer how the 1934 Congress would have addressed the issues had the 10b–5 action been included as an express provision in the 1934 Act, the Court should consult the express causes of action in the securities laws, and borrow from the most analogous one.  The brief argues that

that “most analogous” provision is Section 18(a) of the Securities Exchange Act of 1934. Section 18(a) is the only express right of action in existence in 1934 that authorizes damages actions for misrepresentations or omissions that affect secondary, aftermarket trading. It is the only express right that provides a cause of action for damages in favor of openmarket purchasers and sellers against those (such as issuers or their executives) who allegedly made false or misleading statements, but did not transact with the plaintiffs—the quintessential Section 10(b) class claim today.

Section 18(a) explicitly states that plaintiffs must demonstrate that they transacted “in reliance upon such [false or misleading] statement[s].” 15 U.S.C. § 78r(a). They must, in other words, demonstrate actual, “eyeball” reliance.14 Section 18(a)’s legislative history, moreover, underscores the need for plaintiffs to demonstrate actual reliance for aftermarket fraud. As originally drafted, Section 18(a) contained no reliance requirement, but Congress rejected that no reliance version in the face of a torrent of criticism. As enacted, Section 18(a) thus prohibits recovery “unless the buyer bought the security with knowledge of

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Law Professors’ Brief in Halliburton

It’s been a busy enough week that I haven’t yet been able to post on the brief that colleagues and I filed on behalf of law professors Adam Pritchard and Todd Henderson in Halliburton Co. v. Erica P. John Fund, Inc., involving the continuing validity of Basic Inc. v. Levinson.  Below is a short summary of the argument.

Basic’s view of capital market efficiency was unrealistic. Rather than being totally “efficient” or “inefficient,” securities markets enjoy varying degrees of efficiency, and incorporate information at varying rates. Although some well-developed markets incorporate most information into prices relatively quickly, research conducted since Basic suggests that even the most open markets are not completely efficient and incorporate some information slowly (if at all). Accordingly, Basic’s understanding that a particular alleged fraud will necessarily be incorporated into the stock price is no longer sound.

Moreover, lower courts’ attempts to estimate efficiency have been inconsistent and empirically inaccurate. Faced with the difficult task of determining whether a market is “efficient,” courts have resorted to examining proxies for efficiency. Many such proxies are highly correlated with each other (and therefore redundant), while others have little empirical relationship with efficiency, and there is confusion about how to weigh the various factors. The result is a doctrinal and empirical muddle for both courts and litigants.

The brief argues that “[i]n light of the difficulties in evaluating efficiency, the Court should shift the focus of fraud on the market inquiries from a market’s overall efficiency to the question whether the alleged fraud affected market price.”

The most novel aspect of the argument is our contention that the conventional measure of damages “should be limited to cases in which the plaintiff can show actual reliance or that a material misstatement has distorted the market price for a security. If a plaintiff cannot make that showing, the remedy should be limited to disgorgement.”

There’s a second law professors brief supporting [...]

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Recess Appointments Reading List (bis)

Back in April, I posted a list of relevant materials on the recess appointments debate that Marty Lederman and I had compiled.  Since then, there has been far more extensive briefing on the subject, and more historical materials have become available.  (One of the great things about the pendency of this case has been all the additional research that has become available.)  I have revised and updated the list, deleting briefs from prior challenges (which is not as comprehensive as the Noel Canning merits briefs) and to add newly available historical materials.  Over the course of the next few weeks, as I dig through the Noel Canning briefs’ footnotes, I hope to add more materials.

If you have suggestions for additional materials, please post them in the comments. Thanks. [...]

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The Not-So-Hypothetical

Robert Barnes’ piece in the Washington Post today recounts a hypothetical from Justice Breyer at yesterday’s argument in Lozano v. Alvarezinvolving the tolling of the statute of limitations under the 1980 Hague Convention on the Civil Aspects of International Child Abduction.  Following up on Justice Sotomayor’s hypothetical about the effect of a parent taking a child and concealing them in Peoria, Illinois, Justice Breyer asked (see p.33) about a circumstance where a “mother kidnaps the child” and they “live in a grain elevator, a nicely refurbished grain elevator, in Peoria for a year.”

Because Peoria is my (much-loved) hometown, I happen to have a photo of “a nicely refurbished grain elevator” just outside Peoria.  Peoria is more industrial than agricultural, so there’s many more refurbished warehouses than grain elevators; indeed, this is the only one I know of, which why it warranted a photo.

Edwards Grain Elevator

I hasten to add that the question is very much a hypothetical in the most relevant sense, in that there is no reason whatever to believe that anyone is living there in violation of a custody order.

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Senate Rules Change and Noel Canning

Although most of the coverage of the Senate Rules change has concerned the immediate effect on the composition of the D.C. Circuit, it occurs to me that it is also relevant to NLRB v. Noel Canning.  Many recess appointments in recent years were of nominees who enjoyed majority support, but a Senate minority prevented a vote on their nominations.

Thus, if Noel Canning prevails in the Supreme Court in its challenge to President Obama’s recess appointment power, the effect on Executive Branch operations (and judicial operations, for that matter) will likely be less severe–at least until the Senate and the presidency are not in the hands of the same party.   In other words, the government’s “parade of horribles” just got a little less horrible (in the near term). [...]

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White House: No Plans To Pull Back on Recess Appointments Case

People with too much time on their hands know that I’ve made a cottage injustry out of addressing questions about whether new appointments to the NLRB would moot the NLRB v. Noel Canning case before the Supreme Court, involving the constitutionality of President Obama’s January 2012 recess appointment of three NLRB members.

I’ve also heard questions about whether the Administration would want to get rid of the case now that it looks like it will be able to get a full slate of confirmed Board members.  The answer, apparently, is “no.”  From today’s White House Press Briefing:

Q Now that you have this deal, do you want to see the — does the administration and the President want to see the Supreme Court weigh in on recess appointments? Or are there any considerations of asking them to dismiss that case?

MR. CARNEY: Well, I would refer you to the Department of Justice, but I would say that the question of whether any President should retain the ability that has been enjoyed by Presidents for over a century to make recess appointments is one that is still at issue. And our views on this have not changed. What the next steps are I would leave to the Justice Department to describe, but as you noted, that case is before the Supreme Court, and our position on it and the right of this President and any President going forward to make recess appointments as predecessors have for more than a century remains very strong.

Q So it sounds like you would like to see the Supreme Court continue –

MR. CARNEY: Well, again, the answer is, yes. But for specific legal questions I would refer you to Justice.

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Divided Panel of Fourth Circuit Invalidates NLRB Recess Appointments

Late this afternoon, a divided panel panel of the Fourth Circuit invalidated President Obama’s January 2012 recess appointment of three NLRB members. People who have remarked on the fact that only judges appointed by Republican presidents have so far voted to invalidate these appointments, while judges appointed by Democrats have voted to uphold them, will note that the same was also true here: the majority opinion was written by Senior Judge Clyde Hamilton (appointed by George H.W. Bush) and joined by Judge Allyson K. Duncan (appointed by George W. Bush); the opinion concurring in part and dissenting in (relevant) part was written by Judge Albert Diaz (appointed by Barack Obama).  (If you look back at my prior posts on this subject, you will see that I am not one of those people; but there are enough people who have noted it that I feel like I have to address  the issue.)  I think a more noteworthy pattern  is how the opinions on this subject are growing in length: the opinions in Noel Canning v. NLRB totalled a relatively brisk 47 pages; NLRB v. New Vista Nursing totalled 157 pages; NLRB v. Enterprise Leasing Co. Southeast weighs in at an awesome 167 pages.  (In fairness to the Fourth Circuit, their discussion of the constitutionality of recess appointments doesn’t even begin until page 56, after they’ve addressed other issues.)

The majority concluded that the President’s power under the Constitution to make recess appointments during “the Recess of the Senate” is limited to “intersession” recesses.  While the court said it “may not agree with the level of significance placed on ‘the’ by the court in Noel Canning, we agree that the use of the definite article suggests some ‘specificity.’”  Slip op. 92.  It agreed with (my recollection of) the Third Circuit’s opinion that [...]

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Could Senate Action After Cloture Reform Moot Noel Canning?

Over at Concurring Opinions, Gerard Magliocca notes that the Senate Democrats are considering a rule change that would bar filibusters for executive branch nominees, and states that “[p]art of the plan (or bluff) involves the confirmation of all the President’s nominees for the vacancies on the NLRB. These are the same vacancies that the President filled with recess appointments last year and were declared unconstitutional by the Third and D.C. Circuits.” He then asks the following:

Suppose the Senate does confirm these people. Can they then confirm retroactively all of the decisions made by the recess appointees? (Since I think the recess appointees and the nominees are the same, it would be confirming their own decisions.) If so, then that would moot the appeal from the D.C. Circuit on which the Supreme Court granted certiorari.

Likewise, the Washington Post yesterday wrote that “[i]f the Senate confirms those temporary appointees to full terms, the board could presumably reissue those rulings and render moot the debate over their validity.”

I’m no expert. (Since when has that stopped me before?) But based on the jurisdictional rules that apply to the NLRB and which are common for review of agency adjudications (and, in a slightly different way, district court decisions), it appears that an NLRB with newly confirmed members could not simply ratify the decision in a particular matter previously made by the Board while it still had recess-appointed members. As with many agency adjudications, the governing statutes shift jurisdiction from the agency to the reviewing courts. The National Labor Relations Act provides in relevant part that:

[u]pon the filing of such petition [to review in the court of appeals], the court . . . shall have jurisdiction of the proceeding and of the question determined therein . . . . Upon the filing

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Supreme Court Grants Review in Recess Appointments Case

To no one’s great surprise, the Court agreed to take the NLRB v. Noel Canning recess appointments case.  As I predicted, the Court added a third question, in addition to the inter/intrasession question and the happens to arise/happens to exist question:  ”Whether the President’s recess-appointment power may be exercised when the Senate is convening every three days in pro forma sessions.”  Noel Canning/the Chamber of Commerce and amici Republican Senators had recommended that; the SG had recommended against it.  So all the major questions are squarely teed up!  I haven’t checked again recently, but I suspect this would be a January argument.

  [...]

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Reading the Tea Leaves on the Supreme Court’s Outstanding Cases

With today’s decisions, there are three opinions left from the Supreme Court’s March argument sitting: Hollingsworth v. Perry (the Prop 8 case); United States v. Windsor (the DOMA case); and Mutual Pharmaceutical v. Bartlett (this Term’s pharma preemption case).  There are three Justices who haven’t yet had opinion assignments from that sitting: the Chief Justice, Justice Kennedy, and Justice Alito.

Predictions are hard–especially about the future.  But it looks like Justice Alito probably was assigned the Bartlett opinion, and the Chief Justice and Kennedy are splitting DOMA and Prop 8.  Now who has which, and what are they writing? [...]

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Noel Canning Recess Appointments Case Fully Briefed And Ready for Decision

Yesterday, the government filed its cert. stage reply brief in NLRB v. Noel Canning, 12-1281, the case seeking review of the D.C. Circuit’s decision invalidating President Obama’s 2012 recess appointments to the NLRB.  The challenge to the appointments was brought by the U.S. Chamber of Commerce’s National Chamber Litigation Center.

The cert papers were distributed to Chambers on June 4.  Ordinarily, the petitioner would like to have its reply brief filed by that point so that the cert. pool memo writer never has any time with the respondent’s brief in opposition without having the petitioner’s reply at hand.  But because this is no ordinary case, I guess the SG felt he could stand to get the reply brief in a couple days late.  As the SG notes on page 1 of the reply,

All of the parties to this case–and all of the amici curiae–agree that this Court should grant certiorari to review th[e D.C. Circuit's] decision.

After disputing some of Noel Canning’s merits arguments, the SG argues that the Court shouldn’t take the additional question proposed by respondent, regarding the effect of pro forma sessions on the President’s ability to make recess appointments. The SG argues it should not because (as I mused in an earlier post), the Supreme Court is a “court of review, not of first view,” and disposing of this case on that ground would  leave in place the circuit splits on the questions reached by the D.C. Circuit about intrasession/intersession appointments and when the vacancy must “happen.”   It shouldn’t add that issue, the SG says, unless at a minimum some lower court addresses it first, presumably while this case is pending before the Supreme Court.

But if the Court is “inclined to use this case to decide what [...]

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Reading The Tea Leaves On Shelby County v. Holder

Based on today’s decision in Maryland v. King, there are now three opinions outstanding from the February sitting (Shelby County v. Holder, Peugh v. United States, and American Express Co. v. Italian Colors Restaurant), and three Justices who have no majority opinion for that sitting yet (the Chief Justice, Justice Scalia, and Justice Sotomayor).

Making predictions is always a risky enterprise, but I suspect that the Chief Justice assigned Shelby County (the Voting Rights Act challenge) to himself.  (If so, as William S. notes in the comment thread, Sotomayor has recused herself from Italian Colors, meaning Scalia would have that case and Sotomayor would have Peugh.)  We’ll know within a few weeks!  And as an aside, who would have guessed that Peugh would take longer to decide than Maryland v. King? [...]

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Noel Canning Recess Appointments Case — Amici Weigh In

NLRB v. Noel Canning, 12-1281, the case seeking Supreme Court review of the validity of President Obama’s 2012 recess appointments to the NLRB, is now on a glide path for a June Conference (setting up a decision whether to hear the case before the Justices go into recess).  Amici are now weighing in on whether, and on what terms, the Court ought to consider the case.

Amicus briefs supporting respondent are unusual at the cert. stage, because they tend to highlight the importance of a case and thus can be counterproductive to respondents trying to avoid Supreme Court review.  But there is nothing untoward about them where, as here, respondent affirmatively seeks cert.

Yesterday, Senate Republican Leader Mitch McConnell and 44 other Republican Senators (i.e., every Republican Senator) filed this brief supporting cert.  (This group participated in briefing and argument before the D.C. Circuit.)  Unsurprisingly, the brief focuses on the Senate’s constitutional role in appointments.  It supports Noel Canning’s effort (discussed here) to have the Court consider the additional question whether the President may make recess appointments even while the Senate is convening every three days in pro forma sessions.  It argues that the President lacks authority to second-guess the Senate’s determination that it remained in session, arguing that the Senate was available throughout to consider nominations by unanimous consent (as demonstrated by its passage of legislation during this time).

The brief also argues that cert. is “appropriate given the Executive’s ongoing defiance of the decision below and its inevitable at tempts to evade that ruling in the future,” noting that the NLRB ”has publicly declared, with the Executive’s explicit blessing, that the decision below ‘applies to only one specific case’ and has no bearing on the Board’s ability to act in others.”  McConnell Br. [...]

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Noel Canning Recess-Appointments Case: Battle Is Joined

Respondent in NLRB v. Noel Canning, 12-1281, the case seeking review of the D.C. Circuit’s judgment invalidating the President’s recess appointments of several NLRB members, has filed its brief respecting certiorari–five days early, no less, probably to ensure the Court has time to consider the case before leaving for summer recess.  As anticipated, respondent does not oppose certiorari, noting  the case “presents a constitutional question of extreme importance” (Noel Canning Br. 9) that warrants Supreme Court review.  That position is not a surprise: The Noel Canning case was brought by the U.S. Chamber of Commerce, which has an interest in not simply preserving its victory in the D.C. Circuit, but in achieving definitive nationwide resolution.

Noel Canning proposes that in addition to the two questions presented by the government’s petition, to wit:

1. Whether the President’s recess-appointment power may be exercised during a recess that occurs within a session of the Senate, or is instead limited to recesses that occur between enumerated sessions of the Senate.
2. Whether the President’s recess-appointment power may be exercised to fill vacancies that exist during a recess, or is instead limited to vacancies that first arose during the recess.

the Court should consider a third question, which the D.C. Circuit did not reach because it invalidated the appointments on other grounds:

3. Whether the President’s recess-appointment power may be exercised when the Senate is convening every three days in pro forma sessions.

Noel Canning argues that addressing only the questions posed by the government “could potentially leave the validity of the ‘recess’ appointments at issue unresolved.”  Noel Canning Br. 9.

It will be interesting to see what the Government says in its reply brief (which we’ll be seeing no later than June 4) about the proposed third question. The [...]

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Further Thoughts on the Third Circuit’s Recess Appointment Decision

One of the frequently explanations for why the Supreme Court prefers to let circuit splits develop is that the Justices benefit from having the views of many court of appeals judges before addressing a subject themselves.  Today’s Third Circuit opinion in NLRB v. New Vista Nursing & Rehabilitation serves that role admirably, adding two new perspectives to the existing circuit split on the breadth of the President’s recess appointment power.

The majority opinion took a different tack than the D.C. Circuit in Noel Canning v. NLRB.  To begin with, it limited the scope of its decision to concluding that the Recess Appointments Clause applies only to recesses between Senate sessions (“intersession recesses”) and not recesses during those sessions (“intrasession recesses”), and did not take the additional step the D.C. Circuit did of addressing whether the vacancies so filled must arise during the recess of the Senate or whether the recess appointment power extends to vacancies that existed before the recess.

The majority’s reasoning also differed in significant respects.  The majority found Founding era dictionaries inconclusive, saying that “[t]he word ‘recess’ lacks a natural meaning that clearly identifies whether it includes only intersession breaks or also includes intrasession breaks.”  Slip op. 40.  The majority concluded that state constitutions during the Founding era suggested the term “recess” was limited to intersession recesses (I’m not sure I was persuaded, but I can be dim), id. at 46-48, but that executive practice during the same period (which it noted “should be viewed with some skepticism” because of institutional self-interest in applying powers expansively) was consistent with the term also applying to “long intrasession breaks.”  Id. at 50-52.  The majority therefore concluded that “[s]tanding alone, ‘Recess of the Senate’ is thus ambiguous.”  Id. at 54. [...]

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