The Supreme Court made it harder Tuesday for investors to file class-action lawsuits claiming that companies misled them.
Justices ruled 8-0 that Merrill Lynch should have been shielded from a lawsuit by former and current brokers who alleged that the company released misleading research and manipulated stock prices.
Justice John Paul Stevens, writing for the court, said that the decision would help curb “wasteful, duplicative litigation.”
The case required the court to consider a 1995 federal law, passed over a presidential veto, and a follow-up law approved three years later intended to restrict investor class-action lawsuits.
Merrill Lynch brokers filed a class-action suit under state law in Oklahoma, but justices said in Tuesday’s decision that Congress intended to prevent that suit and others like it.
“The magnitude of the federal interest in protecting the integrity and efficient operation of the market for nationally traded securities cannot be overstated,” Stevens wrote for the court.
He said that laws passed after the stock market collapse in 1929 “have anchored federal regulation of vital elements of our economy.”
The court’s ruling does not apply to lawsuits filed by individual stock holders, only suits brought on behalf of larger groups.
“Public companies no longer have to fear the threat of securities class-actions in 50 different states under potentially 50 different sets of laws,” Merrill Lynch attorney Jay Kasner of New York said.
Lawsuits against the brokerage firm had been prompted in part by New York Attorney General Eliot Spitzer’s 2002 probe into the company’s practices.
Shadi Dabit, a former broker, sued claiming that the company issued overly positive appraisals of stock value, which caused brokers to give bad advice — and eventually lose customers and money in their own investments.
New Justice Samuel Alito did not participate in the case because it was argued before he joined the court.
The case is Merrill Lynch v. Dabit, 04-1371.