A Paradigm from Securities Law ofUninformed Supreme Court Decisionmaking

I. Introduction Supreme Court Justices rarely are experts in the highly specialized and difficult areas of law that have at their cores statutes administered by federal agencies. Securities law is one of these areas, and I will use it as a paradigm for the problems that result from Supreme Court decisionmaking by Justices who are uninformed about the law governing the specific issues of a case or about the general area of law out of which the issues grew.1 Securities law cannot be understood on one's own. "[I]t is a puzzle that can be put together in many ways that look right, but only one of them is."2 In this situation, uninformed decisionmaking translates to wrong decisionmaking, for unless one knows what the whole puzzle looks like when put together, it is virtually impossible to decide correctly what to do with an individual piece. The adversarial process might reasonably be expected to solve this problem, but too often it does not, probably for three reasons. First, Justices know that they will not get, and should not get, an unbiased view from advocates. Second, a general knowledge of how a particular securities law issue fits into the structure of securities law is not usually provided by the adversarial process, which almost always focuses simply on specific issues. Third, most securities law cases are argued by general business litigators who rarely are securities law specialists.3 Good litigators will, of course, try to become experts in the area of securities law involved in a case, but the problem they face is the one mentioned above: they cannot truly understand one part of, say, the Securities Act of 1933 (Securities Act),4 without a knowledge of the Act as a whole. If the adversarial process does not solve the problem, one might hope that the amicus briefs that frequently are filed by the Securities and Exchange Commission (Commission) would. It is likely that such briefs have prevented problems in decisionmaking, but since these problems did not occur, observers have no way of accessing how often a Commission brief has prevented a problem. What we do know from decided cases is that amicus briefs have not come close to solving the problem of uninformed decisionmaking, likely because the Commission properly has its own agenda and is viewed by Justices as essentially an extra advocate for one side or the other. After discussing a sample of securities law cases where uninformed decisionmaking has been a problem in the Supreme Court, I will propose a solution. In doing so I am mindful that one should not lightly tamper with an institution that generally has worked well since the country's founding. On the other hand, it should not be surprising that some tinkering is necessary to fix a process devised two centuries ago by people who had no inkling of the legal complexities that would accompany the rise of the modern regulatory state. The secret is to tinker only to the extent essential, and to tinker in a way that is controlled by the Justices of the Court, so that the Justices can guide the process as they think best. II. Examples of Uninformed Supreme Court Decisionmaking in Securities Law The first examples of uninformed Supreme Court decisionmaking in securities law that I will discuss are from an area that is easiest for non-- experts to deal with, since it involves the Supreme Court's own interpretation of the statutory definition of a security. In this area the Commission has not made rules, put out general interpretive releases, or otherwise intruded much into the area. Even so, the Court's uninformed decisionmaking itself has been a problem. What is worse, one of its decisions on the definition of a security has led to a serious problem in a later case where the Court confronted an issue deeply involved in rules, regulations, interpretations, and decisions by the Commission sitting in its quasi-judicial capacity. I will discuss that case at the end of this section. …