The Supreme Court heard arguments yesterday in connection with a suit by a former Merrill Lynch broker against the nation’s largest brokerage firm, and the early reaction to the hearing is that this time Goliath won.

That, at least, was the view of observers involved in the case. Richard Bernstein, an attorney for the Securities Industry Association, appeared bullish based on the briefing he received from colleagues who were aligned with the defense and had attended the hearing. “The counsel for the plaintiff got much harder questions than counsel for Merrill,” Bernstein said.

William Federman, who represented the plaintiff when the case was being heard in lower courts, gave a more conservative view of his side’s chances. “At this point, we are guardedly optimistic,” he said.

The case began three years ago when Shadi Dabit, who had worked in a Merrill Lynch Oklahoma office, filed a suit in U.S. district court claiming that he lost money and clients because the firm’s research department misrepresented stocks he would have sold had he known their true value.

Dabit lost in district court, but won on appeal. Merrill countered with its own appeal, leading to the hearing at the Supreme Court yesterday.

The argument before the high court involves wording in the Securities Litigation Uniform Standards Act of 1998 (SLUSA). It states class-action suits alleging fraud “in connection with the purchase or sale” of stocks should be handled by the federal courts. The plaintiff, a former Merrill Lynch broker, claims the law does not address his case since he simply held a stock based on fraudulent information as opposed to selling or buying it. The defense argues allowing such a hairsplitting technicality would open the door for a flood of suits.

Bernstein says the court questioned whether Congress, when establishing the SLUSA, would actually differentiate between shareholders and purchases or sellers of stocks. Stewart Weltman, counsel for AARP and the National Association of Securities and Commercial Attorneys—both sided with the plaintiff—said, “[The justices] were more active with the plaintiff. They seemed more interested and posed more questions toward them.”

A loss for Merrill Lynch would send the suit back to a state court, which has less rigorous procedures in place when dealing with securities fraud. A decision is expected by June.