65 Pages Posted: 8 Mar 2001
This Article tells a story about judges and the development of doctrine (or, arguably, lack thereof), and what happens when Congress both legislatively and rhetorically gives overworked federal courts the permission and the power to exercise docket control by eliminating cases at the motion-to-dismiss stage. It is also a story about the long-run implications of a focus on procedure and form over substance in the realm of securities law. The moral of the story is that when form over substance is the input, form over substance is the output.
The story focuses on federal district court judges who are trial management specialists, faced with lengthy dockets. It is drawn from the courts' moves and language, followed, largely, by exploring cases in which courts have deployed judge-made heuristics to securities-fraud claims. In the end, it is a story about the limits of the rule of law.
The larger story has its roots in the many years of cases decided since the Securities Act of 1933 and the Securities Exchange Act of 1934 were passed. But, the focus of this story is more recent, unfolding primarily since December of 1995, when Congress passed the Private Securities Litigation Reform Act (the "PSLRA"), and statutorily created pleading standards for securities-fraud claims. Although the story could be a novel, with chapters encompassing all types of claims and reforms included in the PSLRA, the securities-law portion of this Article is only part of the tale - a backdrop for the story about judging and judges and the heuristics they use and the impression those heuristics create.
Section One of the Article discusses district court judges, their workloads, and motives. Then, in Section Two, I explore the heuristics, or shortcuts that are evolving out of those, largely, district court opinions, through the ways in which they have developed and applied one pre-PSLRA standard, called the Motive and Opportunity Test, to the scienter element of claims brought pursuant to the Securities Exchange Act. The district courts have eagerly and overwhelmingly accepted the "opportunity" Congress offered them by creating and using heuristics to eliminate cases on motions to dismiss that are arguably better preserved for summary judgment. In Section Three, I review those courts' rhetoric; how they exercise their discretion and the comments and powers they invoke in doing so, arguing that the courts' commentaries create the appearance of disdain for these cases and, sometimes, contempt for the plaintiffs' lawyers involved. Using that language and rhetoric, in combination with the heuristics discussed in Section Two, I then focus on the impressions created by the heuristics and rhetoric, arguing that the district courts are creating the impression that their own desires to clear their dockets have the potential to overwhelm the merits of the cases before them. Lastly, in Section Four, I explore the potential implications of these opinions and the heuristics for the legitimacy of both the securities markets and the courts.
Keywords: Judge, Court, Heuristic, Securities, Fraud, Rule
JEL Classification: K00, K22, K41
Suggested Citation: Suggested Citation