Stare Decisis

What does 'Stare Decisis' mean

Stare decisis is a legal doctrine that obligates courts to follow historical cases when making a ruling on a similar current or future case. Stare decisis ensures that cases with identical facts be approached in the same way, unless overruled by the same court or a higher court such as the US Supreme Court.

Stare decisis is a Latin term meaning "to stand by that which is decided".

BREAKING DOWN 'Stare Decisis'

The US common law system has a unified system of deciding legal matters from the principle of stare decisis and precedent. A past ruling or judgment on any case is known as a precedent. Stare decisis dictates that courts look to precedent when overseeing an on-going case with similar circumstances.

What makes a precedent? A unique case with hardly any past reference material may become a precedent when the judge makes a ruling on it. Also, any precedent that has been overruled in a current case may be replaced by the new ruling used on the similar present case.

For example, let’s look at the on-going regulatory fight against insider trading in the securities industry. Insider trading is basically the misuse of material non-public information for financial gain. The insider can trade the information for his personal portfolio, or sell the information to an outsider for a cost. The precedent looked to by courts dealing with insider trading is the 1983 case of Dirks v. SEC. In this case, the US Supreme Court held that an insider is guilty if he directly or indirectly received material benefits from disclosing the information to someone who acts on it. In addition, exploiting confidential information exists when the information is gifted to a relative or friend. This decision became precedent and is upheld by courts dealing with financial crimes similar to this nature.

In the 2016 ruling of Salman v. United States, stare decisis was used by the Supreme Court to make a ruling on this case. Bassam Salman made an estimated $1.2 million from insider information that he received indirectly from his brother-in-law, Maher Kara, a Citigroup investment banker. While Salman’s counsel believed that he should only be convicted if he compensated his brother-in-law in cash or kind, the Supreme Court judge ruled that insiders do not have to get something in return for divulging company secrets. Stare decisis, the confidential information given to Salman was considered a gift, and adhering to Dirks v. SEC which makes it clear that fiduciary duty is breached when a tipper gives confidential information as a gift, Salman was guilty of insider trading.

Under the rule of stare decisis, courts are obligated to uphold their own previous rulings or the rulings made by higher courts within the same court system. For example, the Kansas state appellate courts will follow their own precedent, the Kansas Supreme Court precedent, and the US Supreme Court precedent. Kansas is not obligated to follow precedent from the appellate courts of other states, say California. However, when faced with a unique case, Kansas may refer to the precedent of California or any other state that has an established ruling as a guide in setting its own precedent. For example, in 2014, the 2ndUS Circuit Court of appeals in New York overturned the insider trading conviction of two hedge fund managers, Todd Newman and Anthony Chiasson, stating that an insider can only be convicted if there was a real personal benefit gotten from the misappropriated information. When Bassam Salam appealed his 2013 conviction using the 2nd Circuit's ruling as precedent, the 9thUS Circuit of Appeals based in San-Francisco did not abide by the New York 2nd Circuit’s precedent which it was not obligated to uphold anyways. The Appeals Court upheld the conviction ruling on Salam.

In effect, all courts are bound to follow the rulings of the Supreme Court as this represents the highest court in the country. Therefore, decisions made by the highest court become binding precedent or obligatory stare decisis for the lower courts in the system. When the Supreme Court overturns a precedent made by courts below it in the legal hierarchy, the new ruling becomes stare decisis on similar court hearings. This means that if a case ruled in a Kansas court which has abided by a certain precedent for decades is taken to the US Supreme Court where the Kansas ruling gets overturned, the Court’s overrule replaces the former precedent, and Kansas courts would have to adapt to the new rule as precedent.

For example, when the US Supreme Court agreed to hear the case of Salam v. United States, the top court stated that the 2nd Circuit’s ruling was inconsistent with Supreme Court precedent set about by Dirks v. SEC, and the Appeal Court had, therefore,not adhered to the principle of stare decisis. If it had abound by the Supreme Court’s precedent, Newman and Chiasson would have probably been convicted.