Supreme Court Update Stoneridge v. Scientific-Atlanta, 552 U.S. ____ (2008) Decided January 15, 2008 | See opinion here In this closely-watched securities fraud case, the Supreme Court limited the ability of investors to sue third parties who are alleged to have facilitated fraudulent conduct.  In its 5-3 decision, the Court ruled that secondary actors (including by way of example, vendors, accountants, and lawyers) cannot be liable for corporate fraud if investors did not rely on statements from them in making investment decisions.  At issue in the case was whether a proposed class of investors could seek damages against two technology companies (Scientific-Atlanta and Motorola) for allegedly helping Charter Communications inflate its revenue through a series of sham deals.  According to the majority opinion, which was authored by Justice Kennedy, the claims of the investors were defective because reliance, an essential element of a section 10(b) private cause of action, could not be established.  Although specific proof of reliance is not required where an omission of material fact is made by one with a duty to disclose, Scientific-Atlanta and Motorola in fact owed no such duty to Charter's shareholders.  Likewise, their deceptive acts were not communicated to the public, thus negating application of the fraud-on-the-market doctrine.  Consequently, said the majority, the investors "cannot show reliance upon any of the respondents' actions except in an indirect chain that we find too remote for liability."  The majority also rejected the investors' attempt to invoke the doctrine of "scheme liability," specifically citing a decision by Judge Melinda Harmon in the Enron securities litigation as a source of that doctrine.  As described by the majority, the investors argued in essence that an efficient market presumes reliance not only upon public statements relating to a security but also upon the transactions those statements reflect.  For the majority, this concept of reliance was much too broad because it would "reach the whole marketplace in which the issuing company does business," including for example, Charter's "purchase and supply contracts" which, according to the majority, belong to the "realm of ordinary business operations."  The majority also placed heavy emphasis on the enactment of the PSLRA which provided for limited coverage of aiders and abettors of violations of the securities laws, such provisions being adopted in the aftermath of the Supreme Court's 1994 decision in Central Bank (holding that there is no private causes of action for aiding and abetting a section 10(b) violation).  Justice Kennedy was joined in the majority opinion by Chief Justice Roberts and Justices Scalia, Thomas, and Alito. The dissent was written by Justice Stevens and was joined by Justices Souter and Ginsburg.  According to the dissent, the majority's analysis rested on an overly broad reading of Central Bank, which according to the minority, applied only to secondary actors who did not engage in deceptive acts and were not themselves violators of section 10(b).  The dissent likewise took issue with the majority's reliance analysis, concluding that the causation necessary to demonstrate reliance is sufficiently pled where "respondents' acts had the foreseeable effect of causing petitioner to engage in the relevant securities transactions."  Finally, the dissent's views of the legislative history of the PSLRA sharply diverged from the majority opinion, an unsurprising outcome given its reading of Central Bank. Justice Breyer did not participate in the decision due, I believe, to his status as a shareholder of Cisco, the parent of Scientific-Atlanta.    view is that after Stoneridge, there is very little if any room to assert section 10(b) liability against secondary actors.