The world’s most valuable company is before the justices today for oral arguments in NVIDIA Corp. v. E. Ohman J:or Fonder AB
. Each weekday, we select a short list of news articles and commentary related to the Supreme Court. Here’s the Wednesday morning read:
NVIDIA, the world’s most valuable company, sells computer graphics processing chips designed primarily for use in video games, which it sells to manufacturers of game devices. As it happens, NVIDIA’s chips also are useful for mining cryptocurrency, and in 2017 many crypto miners started to buy NVIDIA chips for that purpose. As that use increased, NVIDIA’s chip sales increased. But in 2018, when the price of bitcoin went through a period of sharp decline, reducing the incentive for crypto mining, NVIDIA’s sales declined.
Shareholders responded by filing the proposed class action here, alleging that NVIDIA executives (including CEO Jensen Huang) made false and misleading statements about the extent to which use in crypto mining was propping up NVIDIA’s chip sales. The U.S. Court of Appeals for the 9th Circuit allowed the action to proceed, and the Supreme Court agreed to review the matter.
At issue in the case is the Private Securities Litigation Reform Act, a statute adopted in 1995 to stem securities class actions. Among other things, it establishes a high bar for crafting a successful complaint in such a case. If the case alleges a false or misleading statement, it must not only specify the reasons why each statement is believed to be misleading but also “state with particularity all facts on which that belief is formed.” Moreover, the complaint also must “state with particularity facts” that “giv[e] rise to a strong inference that the defendant acted with the required state of mind.” That “strong inference” standard is notably higher than the normal standard for a complaint.
Under that statute, the shareholders have a hard time showing that Huang spoke falsely when he made statements downplaying the share of NVIDIA chip sales attributable to crypto mining. The shareholders do not have any documents or statements that directly show any reason to think Huang knew what share of sales were made to crypto miners. Rather, they rely on an expert report that estimated the number of crypto-mining processors built during the relevant time, the number of chips that would have been required, and the share of those chips likely to have been sold by NVIDIA. Because the numbers produced by those estimates were inconsistent with Huang’s public statements, the shareholders allege that his statements were false – indeed that he must have known they were false.
NVIDIA ridicules this as a potential theory of the case. The company argues that when the theory of “scienter” (the securities law standard of intent – a Latin term that means something like “with knowledge”) is that internal company documents contradict public statements, the PSLRA’s requirements of particularity mean that the plaintiff has to allege the contents of those internal documents. So in this case, because the shareholders have not made any such allegations – they allege nothing at all about any documents Huang might have seen – they have failed to satisfy their burden.
For similar reasons, NVIDIA contends that the shareholders have not done enough to allege that any of Huang’s statements are false. The complaint offers no direct allegations at all about NVIDIA chip sales or the share made to crypto miners; rather, it offers only the generalized estimations of its expert witness based on the size of the crypto market and NVIDIA’s likely share of it. That kind of “generic market research,” NVIDIA argues, cannot make out a case of falsity “with particularity.”
In the Supreme Court, the shareholders back away from exclusive reliance on the expert report. Instead, they point to a variety of evidence suggesting that various employees at NVIDIA tracked the rise of crypto mining and that NVIDIA executives were paying attention to that information. Because existing Supreme Court cases about the PSLRA call for a “holistic inquiry” that assesses the information in context, they argue that the justices should reject the “bright line” rule the shareholders see in NVIDIA’s argument, which would require plaintiffs to produce the “smoking gun” internal document when they file their complaint.
For its part, NVIDIA responds forcefully that – contrary to what the shareholders allege in the Supreme Court – the lower court decision validates the fraud allegations as resting entirely on the failure of Huang to make statements about crypto mining sales that match the findings of the plaintiff’s expert.
As with last week’s argument in Facebook v. Amalgamated Bank, the shareholders here surely will face some skeptical questioning from justices who will think that the complaint in this case is precisely the kind of thing that the PSLRA was designed to squelch. When they say that the rule NVIDIA proposes makes this kind of case basically impossible – because of the difficulty in obtaining confidential and compromising corporate documents to support a complaint – those justices are as likely as not to agree, and respond that the PSLRA was designed for exactly that result.
President-elect Donald Trump announced on Thursday that he intends to nominate D. John Sauer, who successfully argued in the Supreme Court earlier this year that Trump is entitled to broad immunity from prosecution, to serve as the solicitor general of the United States.
Trump made the announcement in a statement on Thursday evening, calling Sauer a “deeply accomplished, masterful appellate attorney.”
The 50-year-old Sauer has many of the credentials associated with others who have served as the country’s top lawyer before the Supreme Court. A Rhodes Scholar and a graduate of Harvard Law School, he clerked on the U.S. Court of Appeals for the 4th Circuit for Judge J. Michael Luttig, a conservative star who has since become an outspoken critic of the president-elect. Sauer then went on to clerk for the late Justice Antonin Scalia and spent five years as a federal prosecutor.
In 2017, Sauer became the solicitor general of Missouri, a job he held for six years – and one that allowed him to take conservative, and sometimes controversial, positions.
During that time, he made his first appearance as an advocate before the Supreme Court. In Bucklew v. Precythe, he successfully defended the state’s lethal injection protocol against a challenge by an inmate who argued that executing him would violate the Eighth Amendment’s ban on cruel and unusual punishment because of the likelihood that he would end up choking on his own blood.
In December 2020, Sauer led a group of states in filing a “friend of the court” brief supporting Texas’s unsuccessful efforts to overturn the results of the 2020 election in four battleground states won by Joe Biden. Sauer wrote
that Texas’s allegations “raise important questions about election integrity and public confidence in the administration of Presidential elections,” but the justices concluded that Texas lacked a legal right, known as standing, to bring its case.
And in 2022, Sauer (along with nine other states) challenged the Biden administration’s COVID vaccine mandate for workers in federally funded healthcare facilities. The Supreme Court declined to take up his petition for review.
After stepping down as Missouri’s solicitor general, Sauer formed his own law firm, the James Otis Law Group. James Otis was a Massachusetts defense lawyer and legislator whom Smithsonian Magazine
describes as “one of the most influential protesters against Britain’s colonial laws.” The magazine also observed that although Otis is often credited with coining the phrase “Taxation without representation is tyranny,” it is an “overstatement” to do so. (Otis largely disappeared from public life in the early 1770s due to mental health issues.)
In private practice, Sauer has continued to litigate hot-button issues. Last term he represented Louisiana in its unsuccessful effort
, joined by Missouri, to limit the government’s ability to communicate with social media companies about their content moderation policies. And he currently represents state officials
defending an Arizona law that bars transgender women and girls from competing in college and school sports.
But it was no doubt his work for Trump himself that helped Sauer to secure the job. Although Trump lost in the U.S. Court of Appeals for the District of Columbia Circuit in February, he appealed to the Supreme Court, which agreed to take up his case and heard oral argument in late April. By a vote of 6-3, the court ruled that former presidents have broad immunity from criminal prosecution for their official acts, and they sent the election-interference charges against Trump back to a federal trial court in Washington, D.C., for U.S. District Judge Tanya Chutkan to take another look at the charges against Trump. With Trump’s victory at the polls this month, Special Counsel Jack Smith has signaled that he will wind down the prosecution and step down before Trump takes office.
Trump’s announcement that he intends to nominate Sauer came shortly after Trump revealed that he also intends to nominate Todd Blanche, a criminal defense attorney who represented the president-elect at his state criminal trial in New York for falsifying business records, as deputy attorney general, the second-highest-ranking job in the Department of Justice.
Mark your calendars, the court announced on Friday that the first opinion day of the term will be Nov. 22. Each weekday, we select a short list of news articles and commentary related to the Supreme Court. Here’s the Monday morning read:
For the second week in a row, the Supreme Court did not add any new cases to its docket for the 2024-25 term. In a list of orders
released on Monday morning, the justices turned down several dozen petitions for review that they had considered at their private conference on Friday, including petitions asking them to weigh in on the constitutionality of state campaign finance laws and an Alabama man’s death sentence.
The justices once again did not act on several high-profile petitions for review, involving issues such as the constitutionality of the admissions program for three of Boston’s elite public high schools and a challenge to a Wisconsin school district’s plan to provide support to transgender and nonbinary students. The justices will meet again for another private conference on Friday, Nov. 22.
The laws were put in place to target the role of “dark money” – money spent to influence elections, but without the public knowing the source of the funds. One regulation requires anyone who gives more than $2,000 in a calendar year to groups that spend money to influence the elections of candidates to report the donation within 24 hours. A second regulation requires election ads to disclose when a majority of the donations that fund it come from outside Alaska.
Five voters and two groups that spend money on elections went to federal court in Alaska, arguing that the regulations violate the First Amendment. A federal district judge rejected their request to block the regulations before the 2022 elections, and the U.S. Court of Appeals for the 9th Circuit upheld that decision.
The challengers came to the Supreme Court this summer, asking the justices to take up their case. They contended that the regulations are an “outlier among all state and federal campaign finance rules” that place “unprecedented burdens on citizens’ right to speak about matters of public concern.” But after considering the appeal at five consecutive conferences, the justices ultimately denied review on Monday without comment.
The Supreme Court on Monday also refused to overturn the death sentence of Michael Iervolino
, who was convicted of the 2019 shooting death of 20-year-old Sloan Harmon. Iervolino argued that his trial should have been moved to another venue, but Alabama’s highest court for criminal cases rejected that argument and upheld his sentence.
Prosecutors described Harmon’s murder as the result of a road rage incident. The case received widespread publicity because the victim was the son of the local district attorney. News articles discussed Iervolino’s history of criminal convictions and his recent release from jail; the coverage also contained comments from law enforcement officials describing the victim as a “great citizen” and a “great serviceman” and lamenting the impact of his loss on the community.
At Iervolino’s trial, both the district attorney and the judges in St. Clair County recused themselves from the proceeding. Iervolino argued that he could not receive a fair trial because of the victim’s relationship to the local district attorney and because of the news coverage that the case had received. But the trial judge twice denied Iervolino’s request to move the trial elsewhere, and he was convicted and sentenced to death.
The Alabama Court of Criminal Appeals upheld the trial court’s denial of Iervolino’s motion to move the trial, as well as his conviction and death sentence. The Alabama Supreme Court declined to review his case.
Iervolino came to the Supreme Court this summer, asking the justices to take up his case and reverse. He contended that the “failure to provide a fair hearing by a panel of impartial, indifferent jurors violates the most basic requirement of due process.”
The state countered that Iervolino had not shown that he could not receive a fair trial in St. Clair County. Most of the news coverage of the murder was published nearly two years before the trial began, it observed. Only 18 of the 70 prospective jurors said that they had heard about the case, the state emphasized. Of those 18 prospective jurors, the state wrote, six were excused from the jury pool, while the other 12 said they had not prejudged the case based on their knowledge of it.
The justices requested the record in Iervolino’s case from the lower court – a sign that at least some justices were giving the case a close look – but ultimately denied review without comment.
The justices also declined to weigh in on a technical question
arising from the challenge to a West Virginia law that bans transgender girls and women from competing in girls’ and women’s sports at the middle school, high school, and college levels. The justices did not act, however, on West Virginia’s petition for review
of a ruling by the U.S. Court of Appeals for the 4th Circuit that allowed a 13-year-old transgender girl to remain on her school’s track and cross-country teams.
The justices closed the November session on Wednesday with NVIDIA Corp v. E. Ohman J:or Fonder AB
, a case arising out of the use of NVIDIA chips by crypto miners. The legal problem presented for the justices is whether the complaint – which alleges that NVIDIA misled investors by downplaying the sale of its chips for crypto mining rather than gaming – was sufficiently particular to get over the relatively high pleading standard required for such cases.
Investors say the company did not disclose the extent to which sales to crypto-miners put their shares at risk. NVIDIA argues that the shareholders don’t have the hard evidence required for such a case – specifically, internal documents showing executives knew and withheld information.
Appearing on behalf of NVIDIA, Neal Katyal argued that the court of appeals was too lax in letting the case go forward, but he had to spend most of his time fencing off questions about why such a fact-specific dispute warranted the court’s attention. Justice Sonia Sotomayor in particular burned through a large portion of Katyal’s time pressing the idea that he is just asking for “error correction,” a task the justices typically regard as beneath them. It was not a great sign for him that the references to error correction kept surfacing from almost all the questioners during his argument: he got the same line from justices spanning “both sides of the aisle,” if you will: Elena Kagan, Amy Coney Barrett, and Neil Gorsuch.
About the only substantive discussion Katyal had on the merits was with Justice Ketanji Brown Jackson, who pretty clearly thought that he was asking for far too much. In her words, Katyal was insisting that “plaintiffs … actually have the evidence in order to plead their case,” while she opined that the standards in fact don’t “require that they have the documents,” and indeed couldn’t “understand how they could have the documents when discovery hasn’t occurred yet.”
To be sure, it was not all bad for Katyal. Chief Justice John Roberts repeatedly observed that Congress clearly intended in the 1995 Private Securities Litigation Reform Act to limit this type of lawsuit. Because in Roberts’ view Congress thought the law did “a good bit more than simply keep out frivolous lawsuits,” Roberts seemed to believe that the justices should put some content in the pleading standards that NVIDIA is challenging.
Justice Brett Kavanaugh echoed Roberts’ concern, as he worried openly about the ease with which the lower court’s decision would permit shareholders, “any time a stock price falls,” to “get past a motion to dismiss” by simply providing a vague expert report.
The shareholders in this case relied on an expert report that looked at the number of of crypto-mining processors built during the relevant time to estimate the likely share of chip sales sold by NVIDIA. But Deepak Gupta, representing the investors, told the justices that the group had presented a variety of other types of evidence.
Late in Katyal’s argument, Roberts interrupted him to ask about his repeated statements that the complaint approved in this case “eats itself.” Roberts commented that he found “the analogy … very vivid,” but he confessed that he’d “never heard” the phrase before and wondered “what does that mean?” After Katyal labored at some length to explain that he intended only to suggest that the complaint was internally inconsistent, Roberts responded that he remained “not sure how that’s ‘eating itself,’ but I’ll take your word [for it].”
It’s a little puzzling for so many justices to spend argument time asking an advocate why they’re hearing his case – four of the people sitting on the bench doubtless voted to hear it, and if they don’t regret that decision then it’s pretty likely the justices will proceed to decide the case. But it does suggest that NVIDIA has a long way to go in persuading a majority of the justices that the court of appeals erred in any important way.
