After their April 27 conference, the justices relisted a securities law case, Quality Systems, Inc. v. City of Miami Fire Fighters’ and Police Officers’ Retirement Trust. When the court relists a case, it’s often a sign that the justices are seriously considering whether to grant review; indeed, in recent years the justices have normally relisted a case at least once before announcing that they would take up the case on the merits. Quality Systems also seemed like a strong candidate for a grant: The company had asked the court to weigh in on a ruling by the U.S. Court of Appeals for the 9th Circuit in favor of plaintiffs in a would-be class action. But now it seems unlikely that the court will consider the case, as lawyers for both sides have informed the justices that they have agreed to settle the case.
The case came to the court as a dispute over the interpretation of the “safe harbor” provision of the Private Securities Litigation Reform Act. That provision protects “forward-looking statements” from liability if they are “accompanied by meaningful cautionary statements identifying important factors that could cause actual results to differ materially from those in the forward-looking statement.” But the courts of appeals have disagreed on whether courts should only look at the cautionary statements themselves to determine whether the safe harbor applies, or should instead look more broadly at whether the company left out any mention of other risks.
In this case, two public retirement funds filed a would-be class action against Quality Systems, which creates software for electronic healthcare records, and some of its executives and board members. The funds contended that, over a 14-month period in 2011 and 2012, the company and its officers violated federal securities laws by making false or misleading statements about the company’s economic performance.
A federal trial judge dismissed the case, explaining that the company’s forward-looking statements were accompanied by the kind of “meaningful cautionary language” that falls within the PSLRA’s safe harbor and that the funds’ allegations were too “vague” to show that the company and its officers knew that their statements were false.
On appeal, the U.S. Court of Appeals for the 9th Circuit reversed. A three-judge panel that included Judge Stephen Reinhardt, who died last March, ruled that factual statements which are not forward-looking are not protected by the safe harbor when they are “mixed” with forward-looking statements. The court reasoned that “the safe harbor is not designed to protect companies and their officials when they knowingly make a materially false or misleading statement about current or past facts.”
In late January, Quality Systems asked the Supreme Court to weigh in, telling it that, if the 9th Circuit’s decision were allowed to stand, that court’s “rule will effectively nullify the PSLRA’s safe harbor for forward-looking statements,” thereby widening “the scope of liability in securities cases.” The justices first considered the company’s petition in late April, after which they relisted the case for reconsideration at their May 10 conference.
But on May 11, the court received a letter from Gregory Garre, the former U.S. solicitor general who now represents Quality Systems. Writing on behalf of both his client and the retirement funds, Garre told the justices that the two sides had reached a settlement, which they are now waiting for the district court to approve. Garre promised to provide the court with an update within 30 days, and he also indicated that, once the district court approves the settlement, the parties will file a joint request to dismiss the company’s petition.
