The Supreme Court on Monday issued a significant antitrust and securities ruling in Billing v. Credit Suisse First Boston, a case that was closely watched by the securities industry. The Court reversed the Second Circuit and held that underwriters are entitled to “implied immunity” from private antitrust suits for their actions in underwriting initial public offerings. The ruling means that, while private plaintiffs may still bring suit under the securities laws for alleged wrongdoing related to IPOs, they cannot seek treble damages under the federal antitrust laws or avoid the heightened pleading standards of the PSLRA. The case also likely means that courts will be less inclined to allow antitrust cases to proceed in other areas where the SEC or other regulatory agencies have broad powers to regulate.
The Plaintiffs in Billing were investors who brought private antitrust actions seeking treble damages and alleging that various underwriters and institutional investors had violated federal and state antitrust laws by manipulating the prices of securities through illegal tie-in agreements and “laddering” schemes that affected the allocation of shares during IPOs and prices in the aftermarket. An example of the alleged tiein arrangement is the claim that certain underwriters allegedly required purchasers to buy shares of “cold” IPOs in order to receive an allocation of “hot” IPOs. The “laddering” allegations related to the alleged practice of requiring purchasers to continue to purchase shares in the aftermarket to keep share prices artificially high.
In finding that the underwriters were protected by implied immunity, the Court, in a 7-1 decision authored by Justice Breyer1, clarified its prior precedent and explicated the four factors to be considered when deciding whether a regulatory system should immunize defendants from the antitrust laws. The four factors are: (i) the existence of a regulatory authority that can clearly regulate the activities in question; (ii) evidence that such regulating entity actually exercises its authority; (iii) a resulting risk that the antitrust laws will be in conflict with the rules and regulations governing the activity in question; and (iv) whether the activities in question lie squarely in the “heartland” of the regulated area. The Court also clarified that “plain repugnancy” — which has long been the cornerstone standard used in deciding whether a regulatory system demands implied immunity — arises when the regulatory system and the antitrust laws are “clearly incompatible.” Such incompatibility may arise even where the challenged conduct is currently prohibited by antitrust law and SEC regulations, where application of the antitrust laws would inhibit the SEC’s ability to modify its regulation of such conduct in the future.
In applying these four factors to the IPO claims, the Court held that the underwriters and institutional investors were immune from the investors’ antitrust challenge to their conduct because: (1) the SEC has the clear authority to regulate IPOs and related activities, (2) the SEC, in fact, regulates the very conduct at issue, (3) there is a “serious conflict between the antitrust and regulatory regimes,” and (4) regulation of IPOs and related activities is “squarely within the heartland of securities regulation.”
The Court spent a significant portion of the opinion analyzing the potential conflicts between securities regulation and the antitrust laws and found that several considerations demonstrated that the securities laws and the antitrust laws were “clearly incompatible” in this context. The Court noted the “fine, complex line” drawn in securities law between what acts underwriters and other parties involved in an IPO are permitted to engage in and what acts are forbidden; the potential for overlapping evidence that could point to unlawful activity under the antitrust laws that might be perfectly legal under securities laws; and the potential for inconsistent court results throughout the United States. The Court’s analysis focused more on potential future conflicts than actual conflicts, rejecting the Second Circuit’s holding that actual conflict was necessary to find that application of the antitrust laws was precluded.
The Court also noted that Congress has made it more difficult for plaintiffs to plead and maintain securities cases through the Private Securities Litigation Reform Act of 1995 (PSLRA) and the Securities Litigation Uniform Standards Act (SLUSA). It would therefore be inconsistent to allow those same plaintiffs to “dress what is essentially a securities complaint in antitrust clothing.”
Justice Thomas, in his dissent, questioned one of the basic premises on which the majority’s ruling was based, namely, that the securities statutes are silent as to antitrust law. He pointed out that the Securities Act of 1933, and the Securities Exchange Act of 1934, among others, have “broad saving clauses” that preserve all rights and remedies that a person may have outside of the securities statutes themselves.
Justice Thomas stressed that such a saving clause does not have to state explicitly that antitrust remedies are preserved in order for those remedies to remain viable. He also explained that these “saving clauses” remain significant even if prior related cases did not recognize them, because the prior cases gave no “reasoned analysis” as to why they were not being recognized.
While the holding in Billing is limited to the IPO context, the Court’s analysis will likely make it easier for district courts to dismiss antitrust claims that relate to activities that that the SEC or other regulatory bodies have the power to regulate. This is a significant victory for potential antitrust defendants, especially when considered in tandem with the Supreme Court’s Twombly decision of earlier this year, which requires, at least in certain circumstances, a heightened pleading standard for antitrust cases.