Justices stick to judging

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Twice last week, the United States Supreme Court balked at dictating legislative reforms through tortured interpretations of the Constitution or the Securities and Exchange Act of 1934 (Act).

In Stoneridge Investment Partners, LLC vs. Scientific-Atlanta Inc. (Jan. 15) Justice Anthony Kennedy, speaking for a 5-3 majority, declined to stretch the federal securities laws to enable private investors to sue companies who had simply aided or abetted a primary fraud.

Similarly, Justice Antonin Scalia, writing for a unanimous Court in New York State Board of Elections vs. Lopez Torres (Jan. 16), declined to disturb a 1921 New York law requiring political parties to nominate their candidates for the New York Supreme Court (a trial court) by a convention of delegates elected by party members.

The twin decisions honored the Constitution's distinction between legislation and interpretation; and its understanding that democracy will droop unless citizens are required to campaign or organize politically to protest against ill-conceived laws. A citizen spirit taught to turn collective fury on elected legislators for irresponsibility, pettiness, or unresponsiveness is the best preservative of our republican form of government.

Stoneridge pivoted on section 10(b) of the Act. Generally speaking, it prohibits misrepresentations or misleading omissions in connection with the purchase or sale of a security. The Act is silent on whether private investors are authorized to sue for section 10(b) transgressions in addition to the Securities and Exchange Commission (SEC). But In the heyday of the Supreme Court's paladin-like jurisprudence, the statute was interpreted in Superintendent of Insurance of New York vs. Bankers Life & Casualty Co. (1971) to imply a private cause of action for violations. Among other things, a private plaintiff must ordinarily proof "reliance" on a misrepresentation or omission made by the defendant.

Further, the Supreme Court held in Central Bank of Denver, N.A. vs. First Interstate Bank of Denver, N.A. (1994) that aiding or abetting a section 10(b) infraction does not expose the aider or abettor to liability. The ruling mortified trial lawyers and disappointed the SEC. They descended on Congress clamoring for an amendment overruling Central Bank's holding. But the law that emerged endowed the SEC, but not private investors, with authority to prosecute aiders and abettors.

In Stoneridge, Justice Kennedy concluded companies that concocted phony purchase and supply contracts to assist a primary section 10(b) violation were shielded from suit in private litigation. He explained that when the judiciary implies a private right of action that Congress did not intend, it transgresses on the authority of the legislature to circumscribe the jurisdiction of federal courts. Congress, not the Supreme Court, however, retains the last word on aiding and abetting liability. Trial lawyers and private investors may petition Congress, to vote in congressional elections, and orchestrate political contributions to secure a legislative amendment that would reverse Stoneridge.

The litigation in New York State Board of Elections was provoked by internecine peevishness over the dominance of Democratic Party bosses in selecting judicial nominees in 12 judicial districts for the state Supreme Court. A 1921 state law requires political parties to make their selections via a convention composed of delegates elected by party members.

The process operates to ensure nominees are aligned with the Democratic Party leadership and, that party mavericks are excluded. Within a 37-day period preceding filing, delegate candidates from each of New York's 150 assembly districts must obtain 500 supporting signatures from the assembly district. The candidates seek election as uncommitted delegates to the party's judicial convention for the judicial district where the assembly district is located. The nomination rules, party loyalty and the clout of party bosses make the Democratic Party leadership decisive in the election of state Supreme Court judges.

Disappointed judicial candidates who balked at toadyism brought suit alleging a First Amendment right to a "fair shot" at capturing a nomination from the Democratic Party. But Justice Scalia declined to open up what would be a "new and excitingly unpredictable theater of election jurisprudence." He noted that party heretics could run as independents on the general election ballot by submitting nominating petitions with 3,500 or 4,000 signatures from voters in that judicial district.

Moreover, detractors of the 1921 New York law remained free to petition the state legislature to require direct primary elections to select a party's judicial nominees, as was the case from 1911-1921.

The United States Supreme Court should not reflexively direct litigants to seek redress from legislative bodies. The Constitution's makers intended the judiciary to frustrate tyranny by the majority. But it is no easy task to discern whether a judicial decree would improperly encroach on the legislative domain. James Madison, father of the Constitution, lectured in Federalist 37: "Experience has instructed us that no skill in the science of government has yet been able to discriminate and define, with sufficient certainty, its three great provinces, the legislative, executive, and judiciary. Questions daily occur in the course of practice, which proves the obscurity which reigns in these subjects, and which puzzles the greatest adepts in political science." The best that can be said is that the Founding Fathers did not intend Supreme Court Justices to play the role of Platonic Guardians.

Bruce Fein is a constitutional and international lawyer at Bruce Fein & Associates and chairman of the American Freedom Agenda.