Supreme Court Thwarts Securities "Holder" Class Actions

Originally published 30 Mar 2006

On March 21, 2006, the U.S. Supreme Court, in Merrill Lynch v. Dabit, issued an important ruling that thwarted an attempt by investors to circumvent federal statutory limits on securities fraud class actions. The Court rejected an attempt by a class of plaintiffs to sue under state law for losses they claimed to have suffered because the defendants' misrepresentations induced them to hold onto securities. The Court's ruling significantly cut back on the ability of plaintiffs to file securities class actions in state court.

In its unanimous opinion, the Court once again expressed its concern that frivolous securities cases pose a unique threat to individual businesses and the economy as a whole, and re-affirmed the role of the courts in fulfilling Congress' intent to rein in abuses. The Court plainly signaled that it was in no mood to expand shareholder remedies where Congress had plainly attempted to limit them.