Hastings Law Journal


In Mirkin v. Wasserman, the California Supreme Court refused to apply the "fraud-on-the-market" theory of market reliance in a securities fraud class action brought under state law. Although this theory had previously been acknowledged under federal securities laws, the Mirkin court claimed that the California law of deceit required proof of actual reliance in all cases. The court also asserted that if it were to recognize this theory, the number of frivolous securities fraud suits would increase because of the availability of punitive damages under state law.

In his Note, the author explains that principles of market reliance (a form of indirect reliance) have existed for centuries and were embraced by American state courts, including California state courts, before federal securities laws were enacted. The author argues that the Mirin court treated these market-reliance cases improperly in its decision, and that when dealing with this issue, other state courts should not blindly follow Mirkin. The author also points out that legislative and judicial control over jury awards would prevent excessive punitive damage awards in state-law securities fraud cases.

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