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Limiting Access to the Courts backfires

Posted on Oct 09, 2009

 

American business corporations strongly supported a 1995 law that they thought would help prevent "frivolous" business lawsuits.  That law, the Private Securities Litigation Reform Act essentially says that when a case is filed in court, it must be very specific as to the facts describing what fraud has occurred, or else the court will dismiss it immediately.  Since most people bringing a fraud case against a securities firm do not have inside information, it is very difficult to be specific until you actually do discovery and take depositions.  So the plaintiff's case gets thrown out before he can find out what really happened.  Interestingly, now that the financial crisis has occurred on Wall street, many corporations wish to sue securities firms because the corporations bought things like "auction-rate securities" that they thought were safe short term investments, and now have lost it all.  They want to sue the securities firms, but the 1995 law is preventing it.  Remember the old saying, "Be careful what you ask for.  You just might get it".  Well, Corporate America got the law they wanted limiting access to the courts, and now Corporate America can't file the lawsuits it wants to.  Just last month a federal judge in Manhattan dismissed a case filed by a corporation because of the 1995 law.  Those same corporations that cheered when the 1995 law passed are not cheering now, as they find it keeps them from recovering their losses.

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