Nvidia (NVDA) and Facebook (META) are fighting two Supreme Court cases this year that they claim will flood the legal system with investor lawsuits if a decision is not made in their favor.
So far things are not going as they should.
Nvidia’s lawyers took their case to the Supreme Court on Wednesday, drawing skepticism from justices across the ideological spectrum. The same thing happened to Facebook’s lawyers last week.
“It seems to me that you are asking us to engage in a kind of analysis that we are not good at,” Justice Elena Kagan, an appointee of Democratic President Barack Obama, told Nvidia lawyer Neil Kumar Katyal.
The outcomes of these cases could undermine or embolden litigants in future securities fraud cases.
In Nvidia’s case, investors who have sued the company alleging that Nvidia CEO Jensen Huang made false statements should be required to provide more specific information in their lawsuit about what Huang knew at the time of his statements.
Investors claim that in 2017 and 2018, Huang intentionally deviated from internal Nvidia data by falsely attributing the company’s demand for chips to the video game market.
Investors assumed that demand at the time was actually driven by the more volatile market for cryptocurrency mining. This hypothesis was based on the opinion of a financial analyst who based his conclusion on publicly available documents, rather than Nvidia documents.
Supreme Court Justice Samuel Alito, appointed by Republican President George W. Bush, told Nvidia’s lawyers: “This is a very technical issue, and I don’t understand how the court is opposed to evaluating that at the pleading stage.”
The justices pressed Nvidia to explain why the Ninth Circuit Court of Appeals decision should be overturned, repeating a point they made on Facebook. issueStem argued last week.
In both cases, the appeals court allowed investors to bring lawsuits against companies through proposed securities fraud class actions.
Jonathan Massey, a professor at Yale Law School, said he was surprised by the justices’ questions in the Facebook case.
“The one thing that was amazing about the oral argument is that you got this kind of coalition across the aisle,” he said, with conservative Justice Clarence Thomas and liberal Justice Sonia Sotomayor expressing concerns that were “very pro-plaintiff.”
Facebook, for its part, said investors should not be able to claim that it misled its shareholders by overlooking that its partnership with British political consulting firm Cambridge Analytica exposed data on 87 million Facebook users.
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