Morrison has, and will continue to have, a significant impact on the reach of securities and non-securities law. In this article, we examine how the lower courts have applied Morrison and identify some of the issues raised in Morrison but not addressed by the decision itself.
Could the next wave of the credit crisis flood courthouses with commercial real estate securities lawsuits? The Wall Street Journal recently reported nearly unprecedented delinquency rates for the $700 billion of securitized loans backed by commercial real property assets and warned of alarming default and loss rates, particularly given the current climate for refinancing commercial mortgages. Standard & Poor's has announced that it intends to place on negative ratings watch an array of structured financial products backed by commercial real estate assets. Similar developments in the residential real estate market released a flood of litigation a little more than a year ago. Even if the commercial real estate market manages to keep its head above water, litigation is likely.
In Central Bank of Denver N.A. v. First Interstate Bank of Denver N.A., the Supreme Court held that Section 10(b) of the Securities Exchange Act and Rule 10b-5 provide a private right of action for securities fraud against primary violators, but not against those who aid and abet primary violators. The lower courts were left to sort out actionable primary conduct from merely aiding and abetting.
Because the 2d U.S. Circuit Court of Appeals includes the financial center of New York, it hears many important securities law cases. In the past year, the 2d Circuit decided three issues of first impression in federal securities fraud law.
In a decision of first impression, the U.S. Court of Appeals for the Second Circuit recently held that the new, longer statute of limitations for federal securities fraud claims that Congress adopted as part of the Sarbanes-Oxley Act ("Sarbanes-Oxley" or the "Act") does not revive claims that already were time-barred under the former, shorter limitations period as of the Act's effective date, July 30, 2002.