Amicus Brief: Zillow Group v. Jaeger

Federal securities class action lawsuits—in which a “class” of plaintiffs can sue corporations under over alleged fraudulent statements—extract a significant litigation tax on investors. Certain plaintiffs’ law firms track stock movements and file lawsuits after any significant drop in a stock price, concocting a theory of fraud after the fact. These lawsuits are thus originated by the lawyers, who effectively operate without clients. And these suits almost inevitably settle, redistributing money from one group of shareholders to another—with the lawyers taking a big cut. From 2016 through 2024, plaintiffs’ class action securities firms extracted $38 billion from target companies. 

Federal securities lawsuits did not originate through an act of Congress but rather through federal courts’ reading an unarticulated “implied” private right of action in the securities statutes. Still, 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 Ninth Circuit effectively sidestepped these guardrails. The Ninth Circuit’s approach allows lawsuits over corporate statements with only an attenuated link to false information, and further allow class action 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 Ninth Circuit’s error. The brief argues that Ninth 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 Ninth 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.