Amicus Brief: Johnson & Johnson v. San Diego County Employees Retirement Association

The federal securities laws as enacted by Congress contain only a public enforcement mechanism—through the Securities and Exchange Commission—rather than private lawsuits.  But federal courts have long accepted an “implied” private right of action through which a “class” of plaintiffs can sue corporations under federal law over alleged fraudulent statements.

The class action securities bar today extracts a significant litigation tax on corporate America, particularly pronounced in innovative industries that see significant price volatility. Specialized plaintiffs’ law firms track stock movements. Any drop in a stock price can trigger a lawsuit—originated by the lawyers, effectively operating without clients—with the lawyers concocting a theory of fraud created after the fact. From 2016 through 2024, plaintiffs’ class action securities firms extracted $38 billion from target companies. 

Both Congress and the Supreme Court, however, have understood that such lawsuits, if not constrained, can have pernicious effects.  More than 30 years ago, Congress passed legislation placing limits on class action securities filings. Congressional leaders of both parties have continued to decry how securities class action lawsuits have inhibited the public listing of American companies. In a series of cases, the Supreme Court has placed “guardrails” intended to constrain these types of lawsuits. 

In this case, however, the U.S. Court of Appeals for the Third Circuit effectively sidestepped these guardrails. The Third Circuit’s novel approach would allow lawsuits over corporate statements with only an attenuated link to false information, and further allow lawsuits to be certified even when information correcting alleged misstatements was already in the public domain.

The Manhattan Institute has filed a brief, in conjunction with former U.S. Attorney General William Barr and his colleagues at Torridon Law PLLC, arguing that the Supreme Court should grant certiorari to correct the Third Circuit’s error. The brief argues that Third Circuit’s approach destroys the key safeguards adopted by the Supreme Court and establishes an untethered standard that, if not corrected, would impose an enormous tax on American companies and the public. The brief further argues that the Third Circuit’s improper legal standard would hurt America’s ability to attract investment and negatively impact economic growth.

Ilya Shapiro is a senior fellow and director of Constitutional Studies at the Manhattan Institute. Follow him on Twitter here.

James R. Copland is a senior fellow at the Manhattan Institute and director of Legal Policy.

Special thanks to MI legal policy fellow Trevor Burrus for his assistance.

Photo: joe daniel price / Moment via Getty Images