The Supreme Court seemed inclined on Wednesday to allow a lawsuit accusing Nvidia, the giant maker of computer chips, of misrepresenting its reliance on the cryptocurrency mining industry in 2017 and 2018.
The argument was the second one this month in a securities fraud suit against a leading technology company. Last week, the justices appeared torn about whether investors should be allowed to sue Facebook over whether it had adequately disclosed a data breach.
The two cases concerned different legal issues but the same practical one: If courts allow securities fraud suits seeking enormous sums to survive motions to dismiss at the earliest stages of a litigation, companies face pressure to settle the cases.
Justice Brett M. Kavanaugh made this point in the Facebook argument. “Just to put the real world into this for a second, getting past the motion to dismiss is kind of — it’s the game, right?” he asked.
In response to concerns like those, Congress in 1995 enacted the Private Securities Litigation Reform Act, which tightened the requirements for how much detail investors had to provide at the outset. The law, Justice Ruth Bader Ginsburg wrote in 2007, had “twin goals: to curb frivolous, lawyer-driven litigation, while preserving investors’ ability to recover on meritorious claims.”
At Wednesday’s argument, Neal K. Katyal, a lawyer for Nvidia, said the plaintiffs, an investment firm and a pension fund, had not cleared a hurdle imposed by the 1995 law requiring detailed accusations about which statements from the company were false. He added that the plaintiffs had also failed to satisfy a second part of the law requiring them to describe “facts giving rise to a strong inference” that company officials knew the statements were false.
He said the plaintiffs had based the suit on an outside expert’s report and should instead have been required to cite internal Nvidia documents to prove their case. “The complaint relies on an expert opinion with a series of implausible assumptions and inferences,” he said, “not particularized allegations of fact.”
“A series of maybes,” he added, “is not enough.”
Justice Ketanji Brown Jackson said that reading of the law could put an impossible burden on plaintiffs, requiring them to describe documents they could gain access to only if the lawsuit were allowed to proceed.
Deepak Gupta, a lawyer for the plaintiffs, said his clients had in any event presented an array of information, including from former employees.
Justice Kavanaugh, returning to his concerns about the practical effects of securities fraud class actions, said they could harm the American economy “if businesses, any time a stock price falls, you can get an expert and get past a motion to dismiss.”
He added, citing friend-of-the-court briefs, that “it’s our role to make sure that we police the lines that Congress drew so that the economy is not harmed.”
Mr. Gupta responded that those lines were already clear. “Congress’s role is to balance these competing objectives about needing meritorious suits to discipline capital markets and ensure that there aren’t frivolous suits that are going to harm the economy,” he said. “Congress struck that balance with this statute.”
He added: “Congress recognized that there is a value to having private securities litigation as a supplement to public enforcement to ensure that our capital markets are the best in the world, that they are efficient, that they are honest, that people can rely on our stock markets.”
Justice Kavanaugh asked how much money the plaintiffs wanted, and Mr. Gupta did not respond directly. “You don’t have any idea how much you would be seeking?” the justice asked.
“I don’t know the answer to that,” Mr. Gupta responded.
Justice Elena Kagan said that much depended on timing and that the drop in Nvidia’s price after a cryptocurrency crash in 2018 would have been masked had it happened later, after the company became the dominant manufacturer of chips for artificial intelligence services. “Nvidia is now the company that’s sending the stock market into the stratosphere,” she said.
Several justices across the ideological spectrum expressed frustration with the case, Nvidia v. E. Ohman J:or Fonder AB, No. 23-970, with some suggesting the court should not have granted review.
“This is a highly technical subject, and I just don’t understand how a court is supposed to evaluate that” at a preliminary stage, Justice Samuel A. Alito Jr. said.
Justice Kagan made a similar point to Mr. Katyal. “It just seems to me that you’re asking us to engage in a kind of analysis that we are not very good at and weren’t expecting to when we took this case,” she said, “to decide whether this particular report is flawed or not in the way that you suggest.”
She added that “it becomes less and less clear why we took this case.”
Chief Justice John G. Roberts Jr. said he was dissatisfied with both parties’ positions.
“It’s a little black and white,” he told Mr. Katyal. “I gather you wouldn’t be terribly upset about a complaint with a lot of direct evidence, and you know, some expert reports that sort of help shore that up. And I’m assuming the other side would be fine, if, you know, the balance was, was the other way.”
“Now, if I think that the positions on both sides are a little too absolute,” he asked, “how do you find sort of the sweet spot?”
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