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 on-going case
with similar circumstances.

Key Takeaways

 Stare decisis is a legal doctrine that obligates courts to follow

historical cases when making a ruling on a similar case.

 Stare decisis requires that cases follow the precedents of other

similar cases in similar jurisdictions.

 The U.S. Supreme Court is the nation’s highest court, and

therefore Supreme Court precedents are relied on across all
states.

What Makes a Precedent?

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
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 precedent.

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 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
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.

Real World Example

Let’s look at the on-going regulatory fight against insider trading in
the securities industry. Insider trading is the misuse of material
nonpublic information for financial gain. The insider can trade the
information for his 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 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
similar to this nature.

Use of the Stare Decisis

In the 2016 ruling of Salman v. the 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. 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.

Precedent Considerations
In 2014, the Second U.S. 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 Second Circuit's ruling as
precedent, the Ninth U.S. Circuit of Appeals based in San-Francisco
did not abide by the New York Second Circuit’s precedent which it
was not obligated to uphold. The Appeals Court upheld the conviction
ruling on Salman.
However, Salman’s case went on to the U.S. Supreme Court for its
final decision because the top court stated that the Second 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 abided by the Supreme Court’s
precedent, Newman and Chiasson would have probably been
convicted.