Sec News What It Means in Law, With Examples

What Is Stare Decisis?

Stare decisis is a legal doctrine that obligates courts to follow historical cases when making a ruling on a similar case. Stare decisis ensures that cases with similar scenarios and facts are approached in the same way. Simply put, it binds courts to follow legal precedents set by previous decisions.

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

Understanding Stare Decisis

The U.S. common law structure has a unified system of deciding legal matters with the principle of stare decisis at its core, making the concept of legal precedent extremely important. A prior ruling or judgment on any case is known as a precedent. Stare decisis dictates that courts look to precedents when overseeing an ongoing 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, the new ruling on a similar present case replaces any precedent that has been overruled in a current case. Under the rule of stare decisis, courts are obligated to uphold their previous rulings or the rulings made by higher courts within the same court system.

For example, the Kansas state appellate courts will follow their precedent, the Kansas Supreme Court precedent, and the U.S. Supreme Court precedent. Kansas is not obligated to follow precedents 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 precedent.

In effect, all courts are bound to follow the rulings of the Supreme Court, as the highest court in the country. Therefore, decisions that the highest court makes 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 will become stare decisis on similar court hearings. If a case ruled in a Kansas court, which has abided by a certain precedent for decades, is taken to the U.S. Supreme Court and is then overturned by that court, the Supreme Court’s overrule replaces the former precedent, and Kansas courts would need to adapt to the new rule as precedent.

Overturning a Precedent

In rare cases, the Supreme Court has reversed its own previous rulings—David Schultz, professor of law at the University of Minnesota and professor of political science at Hamline University, reports that between1 789 to 2020, the Court did so 145 times out of “25,544 Supreme Court opinions and judgments after oral arguments.” This amounts to barely one-half of one percent.

The most famous reversal to date, Schultz notes, is 1954’s Brown v. Board of Education.That decision reversed the separate-but-equal doctrine ruling of Plessy v. Ferguson in 1896, which supported segregation.

The most recent and controversial overturning of a precedent occurred on June 24, 2022, when the Court reversed Roe v. Wade, the 1973 ruling that legalized abortion, making the Dobbs v. Jackson Women’s Health Organization the next major case to depart from stare decesis.

Real World Examples

Insider trading in the securities industry is the misuse of material nonpublic information for financial gain. The insider can trade the information for their portfolio or sell the information to an outsider for a cost. The precedent looked to by courts when dealing with insider trading is the 1983 case of Dirks v. SEC. In this case, the U.S. Supreme Court ruled that insiders are guilty if they 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 that are similar in nature.

Using stare decisis

In the 2016 ruling of Salman v. the United States, the Supreme Court used stare decisis to make the ruling. Bassam Salman made an estimated $1.5 million from insider information that he received indirectly from his brother-in-law, Maher Kara, then a Citigroup investment banker. While Salman’s counsel believed that he should be convicted only 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. Based on stare decisis, the confidential information given to Salman was considered a gift—as Dirks v. SEC makes it clear that fiduciary duty is breached when a tipper gives confidential information as a gift. Salman was therefore found guilty of insider trading.

Considering precedent

In 2014, the U.S. Court of Appeals for the Second Circuit in New York overturned the insider trading conviction of two hedge fund managers, Todd Newman and Anthony Chiasson, stating an insider can be convicted only if the misappropriated information produced a real personal benefit. When Bassam Salam appealed his 2013 conviction using the Second Circuit’s ruling as precedent, the U.S. Court of Appeals for the Ninth Circuit based in San Francisco did not abide by the Second Circuit’s precedent, which it was not obligated to uphold. The Appeals Court upheld the conviction ruling on Salman.

As noted above, Salman appealed that decision to the U.S. Supreme Court, stating that the Second Circuit’s ruling was inconsistent with the Supreme Court precedent set about by Dirks v. SEC and the Appeals Court had, therefore, not adhered to the principle of stare decisis. The Supreme Court disagreed and also upheld the conviction. “Salman’s conduct is in the heartland of Dirks’s rule concerning gifts,” Justice Alito wrote.