WASHINGTON -- The Supreme Court yesterday let stand a lower court ruling that municipal bond lawyers said threatens to broaden their liability under the antifraud provisions of securities law.

The lower court ruling would increase the liability of lawyers under Section 10(b) of the Securities Exchange Act and change the accepted pattern of investor reliance on legal opinions by municipal bond and other attorneys, according to the National Association of Bond Lawyers and a group of law firms that intervened in the case, Arvey, Hodes, Costello & Buman v. Kline and Knops.

At issue is a ruling last May by the U.S. Court of Appeals for the Third Circuit, which held that investors may rely on statements in legal opinions rendered for a specific client, even if the opinions are intended for the client's internal use and contain numerous disclaimers to discourage thirdparty reliance.

Although the high court declined to hear the case yesterday, it ultimately could grant review because the lower court litigation is still at an interim stage, an attorney said. The law firm of Arvey, Hodes, Costello & Burman could appeal any future final judgment by the lower court that finds the firm to be liable.

The federal appeals court had remanded the case to a U.S. district court for further proceedings when Arvey Hodes filed for Supreme Court review. The high court, which can review interim judgments if it wishes, issued no comment about why it declined to hear the case.

The case now could go to trial in district court, but an attorney for Arvey Hodes could not be reached for comment on the future plansxxx.

If the ruling ultimately prevails in the Philadelphia-based Third Circuit, lawyers in that circuit will have to be even more tentative than they are now in rendering legal opinions, said Carmr G. Phillips, an attorney with the law firm of Sidley & Austin in Washington. Phillips represents the intervening bond lawyer association and law firms.

"Bond lawyers by nature are about as tentative as anybody can be, and they are going to be placed under even more serious constraints in terms of what they can say without creating problems," Phillips said. "You make all these disclosures and statements as to who can use this information and what it means, and it still doesn't help you ulftmately, at least in terms of getting out from under fairly expensive litigation."

The litigation involved reliance by two investors, Ernest Kline and Eugene Knops, on statements in tax opinions rendered by Arvey Hodes for a client, First Western Government Securities Inc., about its securities program.

The two investors relied on the Arvey Hodes opinions when they purchased First Western portfolios of forward contracts, which are agreements to buy or sell a specified security on a fixed future date.

Kline and Knops made the investments despite numerous disclaimers by Arvey Hodes that the opinions contained unverified facts and were intended solely for First Western's internal use.

Arvey Hodes had concluded in the opinions that the investments would result in tax benefits, but the Internal Revenue Service disallowed the expected benefits, prompting Kline and Knops to sue Arvey Hodes for misleading them.

The Third Circuit largely upheld a district court ruling that investors like Kline and Knops could reasonably have relied on Arvey Hodes' opinions if the investors lacked the sophistication or information needed to assess potential investments.

Also yesterday, the Supreme Court let stand a ruling by the U.S. Court of Appeals for the District of Columbia that a federal law providing "seed" money to the .district and states to help the homeless gives homeless children the right to sue for educational and related benefits under the program.

The case, District of Columbia v. Lampkin, involves the McKirmey Homeless Assistance Act of 1983, which required the district and states to submit plans for helping the homeless as a condition to receiving the modest federal grants. The district said it receives $50,000 a year under the program.

But as a result of the appeals court decision, "a modest federal grant program has been transformed into a largely statefunded entitlement program," the district told the high court in a brief filed in September. The district "is now faced with the choice of withdrawing from the program or being saddled with large financial obligations that Congress did not intend to impose," the brief says.

The case arose out of a suit filed on behalf of homeless children by their parents, who alleged that the district had violated fights they said were conferred by the McKinney Act. The parents sought to have the district assign homeless children to schools, provide for transportation to and from school, and ensure that the children have access to various educational and school meal programs.

The district sought high court review because it said "Congress has increasingly used federal grant programs to assist hard-pressed states and the District of Columbia in addressing widespread, serious, and intractable social problems. The question of just what conditions accompany federal grants;' and what obligations states and the district have when accepting such grants, "is thus of important, nationwide significance."

In other action, the high court declined to review a case, Doherty v. Pennington, involving base periods set by states for administering unemployment insurance programs.

Lynn Doherty, Illinois' director of employment security, sought high court review of an April ruling by the U.S. Court of Appeals for the Seventh Circuit, which 111inois and other states said casts doubt on the validity of base period statutes in 47 states.

The appeals court held that the Illinois statute prescribing the time period in which wage earnings will be counted for determining eligibility for state unemployment insurance benefits is subject to a provision of the Social Security Act that requires states to develop programs that provide for payments "when due." The appeals court interpretation means recipients must receive benefits sooner than Illinois now provides.

States, which receive federal funding for the programs, have had broad latitude to develop eligibility criteria, according to a group of intervening states led by California. Illinois and most other states set the base period for purposes of determining eligibility for benefits, not for meeting the requirement for prompt payment, the states said.

The intervenors said that if the Seventh Circuit ruling stands, they will probably face challenges to their base period statutes that "will impose substantial defense burdens" and potentially result in "massive and costly restructuring of the unemployment wage information collection and processing systems ."

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