Reading tea leaves

It’s always risky to try to guess which way Supreme Court justices are leaning in a case based on the questions they ask during oral argument.

But it seems from Tuesday’s questioning in the case of Stoneridge Investment Partners v. Scientific-Atlanta, Inc., at least a few justices were having a tough time buying the argument that the respondents – venders of a cable company that inflated its revenue numbers by overpaying the venders for cable boxes so the venders could use the funds to ‘purchase’ advertising – can be sued by investors under a primary liability theory.

For example, the petitioners’ argument that the respondents intended to defraud investors by agreeing to the sale – an element of their desired cause of action – didn’t seem to persuade justices.

“I don’t see . . .  what’s in it for Scientific-Atlantic to defraud the shareholders,” said Justice Antonin Scalia to the investors’ attorney Stanley M. Grossman. “Is it enough that they just knew it would be used for that purpose?”

The fact that the vendors had a possible independent motive – getting free advertising – made the argument a harder sell for the justices.

“Well, when you say ‘in furtherance of’ you import intent,” Scalia said. “They didn’t care what [cable company] Charter [Communications] was going to do with it, but they pretty well knew that what Charter was going to do was to make its books look better. Would that be enough?”

“I think that would be reckless,” Grossman replied.

“That’s what I thought your position was,” Scalia said.

Soon justices David Souter and Anthony Kennedy chimed in, saying that recklessness didn’t clear the hurdle.

“[You need] more than knowledge,” Souter said. “You mentioned recklessness. It’s got to have either knowledge of or a willingness to maintain indifference to the consequence.”

Kennedy echoed the sentiment later. “Well, I agree with Justice Scalia’s earlier comment,” Kennedy said. “I don’t think that Scientific-Atlanta or Motorola really cared anything . . . one way or the other about the investors. For them the scheme made a certain amount of sense, they didn’t really care.”

Read more on Stoneridge Investment Partners here, and even more in the next issue of Lawyers USA.

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