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Abstract

The focus of this Article is to suggest that the judicial decision-making process is often not as rational and objective as we would like to believe. Bias often affects the decision making of judges, sometimes to the extent that it appears that the writer of the opinion is living in an alternate universe.

As we progress professionally, and become more steeped in our biases, we sometimes move toward creating a world that exists in our heads and has little relation to the “real” world. While this assertion will be developed in the context of courts’ interpreting “particularly” in the Private Securities Litigation Reform Act, the Article first examines a recent and highly significant Supreme Court decision, Stoneridge Investment Partners, LLC v. Scientific-Atlanta.

The Article then focuses upon two cases, In re Spectrum Brands, Inc. Securities Litigation and In re Silicon Graphics Inc. Securities Litigation, to illustrate what I have called the “alternate universe” type of thinking that some courts have employed. In these two cases, the courts have either ignored or been unaware of sound management practices, the existence of which would have supported the “particularity” these courts found wanting in the pleadings. Some courts appear oblivious to both the widely recognized practice of manufacturing earnings and the economic incentives that exist for management to do just that. While courts employ a presumption that senior management is informed when applying the business judgment rule, all too often they also, in effect, employ a presumption that senior management is not informed when critiquing the specificity of plaintiffs’ pleadings. If senior management is not informed about the economic situation of the company that they represent to the public, representations which later turn out to be false, what then are they doing that justifies the million-dollar compensation packages that they enjoy?

The net effect of these two conflicting presumptions—that management is informed and that management is not informed—is to eviscerate the accountability of senior management for the misrepresentations it introduces into the securities markets.

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