That’s how the Wall Street Journal’s opinion page sees yesterday’s 5-3 Supreme Court decision in Stoneridge v. Scientific Atlanta, providing a nice corrective to the media shorthand, “Court Rules Against Investors.” The Journal chides the three dissenting justices for buying into the “scheme liability” argument and seeking to expand liability, as captured by Justice Stevens’ “every wrong shall have a remedy.”
Well, Stoneridge does have a remedy, and that is the right to sue the perpetrator of the fraud — Charter. Even class actions against actual fraudsters are of dubious merit, because they merely transfer wealth from one set of shareholders to another, neither of whom are guilty parties. The lawyers bringing the suit are the only net winners in almost every case, since over time an investor is as likely to be a payor as a recipient of such claims. But a class action against companies in which the “class” never even owned any shares is at an even further remove from any claim to justice. It is wealth redistribution, pure and simple.
Yesterday’s early stories on the case described the ruling as a setback for “investors,” which says a lot about the sympathies or ignorance of the press. Investors were fortunate that at least five Justices know the difference between genuine fraud and legal opportunism.
Elsewhere, the Heritage Foundation’s Robert Alt and Brian Walsh praise “Stoneridge Sanity.”
Stoneridge is a decisive loss for plaintiffs’ attorneys. “Scheme fraud” cases would have been a lucrative new business line for the lawsuit industry. Even the threat of such a lawsuit would cause most deep-pocketed companies to settle, thereby avoiding the painful exposure of discovery proceedings. In that respect, the U.S. economy is the big winner. It is also an important victory for the separation of powers, and for those who believe that Congress, rather than the courts, should be making policy. Because this exemplifies the rule of law as opposed to the rule of men, such results should be commonplace. Because they are no longer commonplace, each one should be applauded.
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