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By Jill S. Abrams
In December, we addressed the Ninth Circuit's recent decision in Connecticut Retirment Plans and Trust Funds v. Amgen, Inc., No. 0956965, 2011 U.S. App. LEXIS 22540 (9th Cir. Nov. 8, 2011) [an enhanced version of this opinion is available to lexis.com subscribers] regarding the fraud-on-the-market presumption, and the split in the circuit courts about how it is established and rebutted. But we didn't discuss whether the U.S. Supreme Court will address it.
The fraud-on-the-market presumption was the subject of the Supreme Court's decision in Basic v. Levinson, 485 U.S. 224(1988), and has served as the means by which class action plaintiffs in cases involving publicly-traded securities can establish reliance, without having to do so individually. Some would argue that the Supreme Court did not sufficiently explain how the presumption is to be established or rebutted. Others would say that the Supreme Court was clear enough for the fraud-on-the-market presumption to have become ingrained in securities class action jurisprudence for over 30 years.
In Erica P. John Fund, Inc. v. Halliburton Co., 131 S.Ct. 2179 (2011) [enhanced version], the Supreme Court could have offered fraud-on-the-market guidance when it decided that a class action plaintiff need not prove loss causation at the class certification stage. But instead, the Court said that it would not "address any other question[other than the specific issue before it] about Basic, its presumption, or how and when it may be rebutted". Halliburton was decided just a few months after the Third Circuit opined, in In re DVI Sec. Litig., 639 F.3d 623 (3d. Cir. 2011) [enhanced version], that a defendant can rebut the fraud-on-the-market presumption with evidence that the alleged misrepresentations did not affect the price of the stock. The Halliburton court was undoubtedly aware that other circuits disagreed with the view expressed in DVI.
Class certification has become an increasingly sprawling battleground in securities class actions, and the price impact issue continues to consume enormous amounts of court and litigant resources. The lurking questions are whether there is a plaintiff or defendant who wants to take this issue to the Supreme Court, given that the stakes are very high; and whether the Supreme Court will grant certiorari if the issue is squarely presented.
We will continue to monitor this issue.
Abbey Spanier Rodd & Abrams, LLP, located in New York City, is a well-recognized national class action and complex litigation law firm.
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