High Court Hears Oral Argument in Securities Class Action

WASHINGTON, D.C. - (Mealey's) An investor that alleged that Halliburton Co. and certain of its officers violated federal securities law by making false and misleading statements about its asbestos litigation liability told the U.S. Supreme Court today that the Fifth Circuit U.S. Court of Appeals erred by denying class certification based on its conclusion that the investor did not prove loss causation (Erica John Fund, et al. v. Halliburton Co., et al., No. 09-1403, U.S. Sup.; See January 2011, Page 26) (lexis.com subscribers may access Supreme Court briefs for this case) .

David Boies of Boies, Schiller & Flexner in Armonk, N.Y., representing investor Erica P. John Fund Inc., argued that loss causation should be decided at the trial or summary judgment stages, not at the certification stage.

In response to Justice Elena Kagan's question as to why the issue of whether there was an efficient market can be disputed at the certification stage but the question of price impact cannot, Boies said that "the issue of efficient market goes to the presumption of reliance, and if the court holds at the certification stage that there is no efficient market, then the basis for presuming class-wide reliance is impacted.  And so you can have a situation in which the common issues do not predominate over the individualized issues.  That cannot happen with respect to loss causation because, as Respondent concedes here, loss causation is a common issue."

Boies said that loss causation should not be decided at the class certification stage because "the test under [Federal Rule of Civil Procedure] 23 is whether individual issues or common issues are going to predominate."

Assistant to the Solicitor General Nicole A. Saharsky of the U.S. Department of Justice in Washington, arguing as amicus curiae in support of the investor, argued that requiring proof of loss causation at class certification puts "an affirmative burden on plaintiffs that they have to meet in every single case, even if the defendants do not come to court with any evidence.  And that is a very heavy burden."  Saharsky also argued that requiring proof of loss causation at the class certification stage "confuse[s] the distinct elements of reliance and loss causation."

Representing Halliburton, David Sterling of Baker Botts in Houston argued that "absent the class-wide presumption of fraud on the market . . ., individual issues of reliance predominate."

Justices Kagan and Ruth Bader Ginsburg commented that if the court adopted Halliburton's position, a win on certification was the same as a win on the merits.  Sterling responded that the investor must still prove "[f]alsity, scienter, actual proof of loss causation, and damages."

[Editor's Note:  Full coverage will be in the May issue.  In the meantime, the transcript is available at www.mealeysonline.com or by calling the Customer Support Department at 1-800-833-9844.  Document #57-110509-003T.  For all of your legal news needs, please visit www.lexisnexis.com/mealeys.]

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