In Erica P. John Fund, Inc. v. Halliburton Co.,1
the U.S. Supreme Court reversed a Fifth Circuit decision that required a
putative class of investors to prove loss causation in order to attain class
certification. The Court rejected defendant Halliburton's argument that the
Fifth Circuit's application of loss causation was in reality an analysis of
whether the claimed misrepresentations impacted the price of Halliburton stock,
saying that the Court assumed that the Fifth Circuit meant "loss
causation" when it used the term "loss causation." The case was
remanded to the Fifth Circuit for further proceedings consistent with the
Supreme Court opinion, thus apparently allowing Halliburton to argue on remand
that a showing of a lack of price impact rebutted the presumption of reliance
on a misrepresentation, which is at the core of securities class certification.
The Court expressly stated that "we need not, and do not, address any
other question about Basic [the case that created the presumption of reliance2],
its presumption, or how and when it may be rebutted."3
Whether before the Fifth Circuit on remand or in some
other case, the stage may be set for securities defendants to present evidence
at the class certification stage that the claimed misrepresentation had no
price impact. Defendants may then argue that such evidence effectively rebuts
the presumption of reliance which assumes that the claimed misrepresentation
had a price impact. (Indeed, this was the position taken by Duane Morris in its
amicus brief for the American Institute of CPAs (AICPA) that it filed in the
Supreme Court.) By not addressing fundamental questions now, the Halliburton
decision may guarantee a rematch on a more focused record in the near future.
If the price impact argument were ultimately successful,
it would become much more difficult to achieve class certification in many a
securities action. In any case where a class is not certified, the claimed
damages will likely be minimal and the settlement value small. The ultimate
outcome of the question, which will likely be revisited by the Court in the
near-term, would thus have a major effect on the viability of many putative
securities class actions.
For Further Information
If you have any questions about the information addressed
in this Alert, please contact Anthony J.
L. Byer, Susan
Schwochau, any member
of the Securities
Litigation Practice Group or the attorney in the firm with whom you are
regularly in contact.
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not offered, or should be construed, as legal advice. For more information,
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