A lawsuit was filed in Connecticut against Standard & Poor alleging that it fraudulently inflated credit ratings to gain customers. Though Standard & Poor attempted to have this business litigation moved to federal court, U.S. District Judge ruled that the case could rightfully be tried in Connecticut state court.
The ratings involved reportedly risky mortgages and other securities. By supposedly rating these securities too highly, there was much greater investor demand. Practices such as this allegedly led to the 2008 economic downturn as investors are said to have lost much of their portfolios.
Standard & Poor have been hoping to move a number of lawsuits to federal court in an effort to consolidate these matters. Their attorneys likely fear inconsistent rulings in the various state courts where these matters have been filed. Every state has its own set of laws and procedural rules, so no two state courts will be tried alike. Also, trial court costs will be reduced by trying this lawsuit only once.
There ultimately is no simple way to try such large security matters. And so long as we abide by the principles of federalism, states will have their say as to how these cases are to be tried. For these and other reasons, few attorneys are prepared for the challenges that come along with the representation of businesses and investors in these matters.
At heart is deciding whether these matters ultimately should be tried in federal or state court. Though these lawsuits are obviously going to involve claims in the billions of dollars, there are also concerns about the reach of federal courts.
Source: Fox Business, “S&P is dealt a setback in Connecticut case over ratings,” by Jonathan Stempel and Aruna Viswanatha, April 25, 2013