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Erica P. John Fund, Inc. v. Halliburton Co.

Supreme Court of the United States

April 25, 2011, Argued; June 6, 2011, Decided

No. 09-1403

Opinion

 [**2183]  [*807]   Chief Justice Roberts delivered the opinion of the Court.

To prevail on the merits in a private securities fraud action, investors must demonstrate that the defendant's deceptive conduct caused their claimed economic loss. This requirement is commonly referred to as “loss causation.” The question presented in this case is whether securities fraud plaintiffs must also prove loss causation in order to obtain class certification. We hold that they need not.

Petitioner Erica P. John Fund, Inc. (EPJ Fund), is the lead plaintiff in a putative securities fraud class action filed against Halliburton Co. and one of its executives (collectively Halliburton). The suit was brought on behalf of all investors who purchased Halliburton common stock between June 3, 1999, and December 7, 2001.

EPJ Fund alleges that Halliburton made various misrepresentations designed to inflate its stock price, in violation of § 10(b) of the Securities Exchange Act of 1934  [****7] and Securities and Exchange Commission Rule 10b-5. See 48 Stat. 891, 15 U.S.C. § 78j(b); 17 CFR § 240.10b-5 (2010). The  [*808]  complaint asserts that Halliburton deliberately made false statements about (1) the scope of its potential liability in asbestos litigation, (2)  [***30]  its expected revenue from certain construction contracts, and (3) the benefits of its merger with another company. EPJ Fund contends that Halliburton later made a number of corrective disclosures that caused its stock price to drop and, consequently, investors to lose money.

After defeating a motion to dismiss, EPJ Fund sought to have its proposed class certified pursuant to Federal Rule of Civil Procedure 23. The parties agreed, and the District Court held, that EPJ Fund satisfied the general requirements for class actions set out in Rule 23(a): The class was sufficiently numerous, there were common questions of law or fact, the claims of the representative parties were typical, and the representative parties would fairly and adequately protect the interests of the class. See App. to Pet. for Cert. 3a.

The District Court also found that the action could proceed as a class action under Rule 23(b)(3), but for one problem: Circuit  [****8] precedent required securities fraud plaintiffs to prove “loss causation” in order to obtain class certification. Id., at 4a, and n. 2 (citing Oscar Private Equity Invs. v. Allegiance Telecom, Inc., 487 F.3d 261, 269 (CA5 2007)). As the District Court explained, loss causation is the “ 'causal connection between the material misrepresentation and the [economic] loss' ” suffered by investors. App. to Pet. for Cert. 5a, and n. 3 (quoting Dura Pharms., Inc. v. Broudo, 544 U.S. 336, 342, 125 S. Ct. 1627, 161 L. Ed. 2d 577 (2005)). After reviewing the alleged misrepresentations and corrective disclosures, the District Court concluded that it could not certify [**2184]  the class in this case because EPJ Fund had “failed to establish loss causation with respect to any” of its claims. App. to Pet. for Cert. 54a. The court made clear, however, that absent “this stringent loss causation requirement,” it would have granted EPJ Fund's certification request. Ibid.

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563 U.S. 804 *; 131 S. Ct. 2179 **; 180 L. Ed. 2d 24 ***; 2011 U.S. LEXIS 4181 ****; 79 U.S.L.W. 4416; Fed. Sec. L. Rep. (CCH) P96,323; 79 Fed. R. Serv. 3d (Callaghan) 945; 22 Fla. L. Weekly Fed. S 1079

ERICA P. JOHN FUND, INC., fka ARCHDIOCESE OF MILWAUKEE SUPPORTING FUND, INC., Petitioner v. HALLIBURTON CO. et al.

Subsequent History: On remand at, Remanded by Archdiocese of Milwaukee Supporting Fund, Inc. v. Halliburton Co., 647 F.3d 533, 2011 U.S. App. LEXIS 14818 (5th Cir. Tex., 2011)

Prior History:  [****1] ON WRIT OF CERTIORARI TO THE UNITED STATES COURT OF APPEALS FOR THE FIFTH CIRCUIT.

Archdiocese of Milwaukee Supporting Fund, Inc. v. Halliburton Co, 597 F.3d 330, 2010 U.S. App. LEXIS 3226 (5th Cir. Tex., 2010)

Disposition: 597 F.3d 330, vacated and remanded.

CORE TERMS

causation, misrepresentation, investor, certification, stock, fraud-on-the-market, invoke, rebuttable

Civil Procedure, Special Proceedings, Class Actions, Certification of Classes, Prerequisites for Class Action, Predominance, Superiority, Securities Law, Implied Private Rights of Action, Elements of Proof, General Overview, Reliance, Securities Exchange Act of 1934 Actions, Class Actions, Evidence, Inferences & Presumptions, Presumptions, Creation, Fraud on the Market, Rebuttal of Presumptions, Causation