It's called the Reform Act

Published on this site May 2000

Alas, this battle has been lost.

The Private Securities Litigation Reform Act of 1995 is a watershed in private securities litigation. In December 1995, acting over President Clinton's veto, Congress enacted this statute, which added or codified a series of changes to the securities law - including enhanced pleading requirements, substantive protection for forward-looking statements, proportionate damages, and even enhanced auditors' duties to audit for fraud. There will be many, many more articles and editorials about various aspects of the statute and its legislative history posted on this site in the upcoming months.

The ultimate outcome of these changes is contingent. Courts are still sorting out the precise contours of the statute, and some have asserted that the statute has produced unintended consequences (such as the mass solicitation of plaintiffs). In other words, as Zhou En Lai replied when asked for his assessment of the French Revolution, "it's too soon to tell."

Defense lawyers are fighting to make certain that the statute is not twisted into its opposite. But while we wait to see what gets tossed into the dustbin of history, there is something that can be done to advance that cause: imposing discipline in how we refer to the statute. Plaintiffs' lawyers always refer to statute as the "PSLRA."  Many courts have adopted the same nomenclature. Sometimes even defense lawyers fall into the trap of referring to the law in this manner.

In my opinion, this is a serious mistake. The Reform Act is not an acronym. The Reform Act was, and is, about reform. It is about making it more difficult to plead a securities fraud claim, at least in terms of prior practices. It is about making it more difficult to bring lawsuits based on second-guessing the inherently unpredictable - that is, forward-looking statements. It is about changing the way that cases are governed and litigated. Ultimately, it is about a system that is better for, and fairer to, shareholders - at least in the judgment of the duly elected representatives of the people of the United States.

Indeed, seeing the Reform Act referred to in the content-free term "PSLRA" brings to mind Orwell's Appendix to 1984, "The Principles of Newspeak." In that Appendix - a bridge from the powerful final four words of the novel, back to reality - Orwell attempts to illustrate how language affects and effects political thought, by way of a quasi-academic discourse regarding the contrived language used in the novel's totalitarian state. One branch of that language was the "B vocabulary," consisting of "words which had been deliberately constructed for political purposes . . ." A subset of the B vocabulary consisted of abbreviated proper names of organizations and other entities in the novel; for example, the Ministry of Peace was called Minipax, and so on.

All of this is wonderful material within the context of the novel. But then Orwell deepened his message by noting that the purposeful abbreviation of names for deliberate political purposes already had been evident in the word outside of the novel, particularly in the totalitarian societies of Orwell's day. In explaining the rationale of this practice, Orwell presented the following example:

It was perceived that in thus abbreviating a name one narrowed and subtly altered its meaning, by cutting out most of the associations that would otherwise cling to it. The words Communist International, for instance, call up a composite picture of universal human brotherhood, red flags, barricades, Karl Marx, and the Paris Commune. The word Comintern, on the other hand, suggests merely a tightly knit organization and a well-defined body of doctrine. It refers to something almost as easily recognized, and as limited in purpose. Comintern is a word that can be uttered almost without taking thought, whereas Communist International is a phrase over which one is obliged to linger at least momentarily.

It is almost (but not quite) a perfect analogy, Communist International:Comintern::Reform Act:PSLRA. It's not perfect because "PSLRA" is even more devoid of meaning than is the incomplete word "Comintern." There's nothing "subtle" about the manner in which the "PSLRA" label strips the meaning of the statute. Moreover, "Comintern," with the meanings listed by Orwell, may have been an accurate signification of the organization so signified. (But that is another story.)

In any event, Orwell's larger principle remains apt. Referring to the Reform Act as "PSLRA" is squelching political speech and political thought. Good defense lawyers - and, I submit, the most honest objective observers - should always make certain that the name by which the statute is referred reflects and displays its reformist nature. Here, it's truly a fine line between the sign and the signified. And it's not the job of defense lawyers to say things that make it tougher on them to make their point.