Feeds:
Posts
Comments

Posts Tagged ‘presumption’

The U.S. Supreme Court issued its decision earlier today in Halliburton Co. v. Erica P. John Fund, Inc., No. 13-317 (Halliburton II), its most highly-anticipated class-action-related decision of the October 2013 term.  Those who were hoping for a sea-change in securities class action jurisprudence were left disappointed, as the Court, in an opinion authored by Chief Justice Roberts, declined to overrule its 25-year-old decision in Basic Inc. v. Levinson, 485 U.S. 224 (1988).  Rather than abolish the framework established in Basic, which provides a means for securities fraud plaintiffs to satisfy the elements of class certification through a class-wide presumption of reliance on material misrepresentations, the Court instead held that a defendant can rebut the presumption by demonstrating, at the class certification stage, that the alleged misrepresentations did not actually have any impact on the stock price.  In doing so, the Court reversed the Fifth Circuit Court of Appeals’ decision barring the defendant from offering evidence of non-impact on stock price at the class certification stage.

The Court distinguished its earlier decision in the same case, Erica P. John Fund, Inc. v. Halliburton Co., 563 U.S. ___ (2011) (Halliburton I), in which it held that a plaintiff should not be required to prove materiality of the alleged misrepresentation at the class certification stage.  The distinction between the issue of materiality of a misrepresentation (a merits issue not appropriate for the class certification phase according to Halliburton I), and the issue of whether a misrepresentation actually had a common price impact on the stock (a proper class certification question according to Halliburton II) is the key to making sense of the Court’s decision today.  As Justice Roberts stated:

[P]rice impact differs from materiality in a crucial respect. Given that the other Basic prerequisites must still be proved at the class certification stage, the common issue of materiality can be left to the merits stage without risking the certification of classes in which individual issues will end up overwhelming common ones. And because materiality is a discrete issue that can be resolved in isolation from the other prerequisites, it can be wholly confined to the merits stage.

Price impact is different. The fact that a misrepresentation “was reflected in the market price at the time of [the]transaction”—that it had price impact—is “Basic’s fundamental premise.” Halliburton I, 563 U. S., at ___ (slip op., at 7). It thus has everything to do with the issue of predominance at the class certification stage. That is why, if reliance is to be shown through the Basic presumption,the publicity and market efficiency prerequisites must be proved before class certification. Without proof of those prerequisites, the fraud-on-the-market theory underlying the presumption completely collapses, rendering class certification inappropriate.

Halliburton II, slip op., at 21-22.  In other words, a merits question that is indisputedly common to the class should not be considered prior to class certification, but a merits question that also bears on whether the issues to be resolved at trial are truly common or individualized in the first place must be considered as part of the class certification decision.

Read Full Post »

The Supreme Court granted certiorari earlier this week in Halliburton Co. v. Erica P. John Fund, 13-317, a second trip to the high Court for the same case.  At issue is whether the Court should overrule holding of Basic Inc. v. Levinson, which recognized the “fraud-on-the-market” theory of class wide reliance in securities fraud cases.  The Court foreshadowed its willingness to consider this issue last term when it decided Amgen Inc. v. Connecticut Retirement Plans and Trust Funds, 132 S. Ct. 2742 (2012).  Both Amgen and the Court’s earlier decision in  Erica P. John Fund v. Halliburton Co., 131 S. Ct. 2179 (2011) were victories for plaintiffs, with the Court holding in both cases that plaintiffs were not required to prove questions on the merits as a prerequisite to class certification.  However, in Amgen, Justice Alito’s concurrence as well as dissenting opinions by Justices Scalia and Thomas (joined by Justice Kennedy) all raised questions about the continued viability of the Basic decision.

At the risk of oversimplification, the “fraud-on-the market” theory is that a material misrepresentation made in connection with the sale of a publicly traded security can have an effect on the entire market, so that investors may be harmed (or benefitted) by the misrepresentation even if they did not directly rely on it, because enough investors in the market did rely on it to the point where the price was affected.  A decision by the Court that this presumption is no longer viable could seriously limit or eliminate securities fraud class actions, because without the “fraud-on-the-market” presumption, a required element of a securities fraud claim, reliance, becomes an individualized question of fact.  As a result, Halliburton becomes the first case on the Court’s 2013-14 docket that has a potential for a truly significant impact on class actions.

Read Full Post »