This year will be remembered as the year of the Super Bowl of securities litigation, Halliburton Co. v. Erica P. John Fund, Inc. (“Halliburton II”), 134 S. Ct. 2398 (2014), the case that finally gave the Supreme Court the opportunity to overrule the fraud-on-the-market presumption of reliance, established in 1988 in Basic v.
First Take on Halliburton II: The Price-Impact Rule May Not Have Much Practical Impact
Yesterday’s Supreme Court decision in Halliburton Co. v. Erica P. John Fund, Inc. (Halliburton II) may well have the lowest impact-to-fanfare ratio of any Supreme Court securities decision. Despite the social-media-fueled frenzy within the securities bar leading up to the decision, the Court’s decision will effect little change in class certification law and practice…
Is the Demise of the Fraud-on-the-Market Doctrine Near? Be Careful What You Wish For
At long last, the United States Supreme Court is going to address the viability and/or prerequisites of the fraud-on-the-market presumption of reliance established by the Court in 1988 in Basic v. Levinson. Securities litigators, on both sides of the aisle, are understandably anxious, because our entire industry is about to change – either a…
Sixth Circuit Takes Wrong Turn in Cases Challenging Opinions: A Statement of Opinion is not False if it is Genuinely Believed
When is an opinion a false or misleading statement? If a company official says “I think the deal is fair,” is it a false statement just because the deal is objectively unfair? Or only if the official also did not subjectively believe the deal was fair when he voiced that opinion?
With the Sixth Circuit’s…
Second Take on Amgen: Defense Arguments Largely Intact, Even in Overruled Circuits
In our post in the immediate wake of the Supreme Court’s decision in Amgen Inc. v. Connecticut Retirement Plans, we concluded that rather than being a new threat to the defense of securities class actions, Amgen basically endorsed the status quo: In holding that plaintiffs do not need to establish that allegedly false statements…
“Materiality” of Class Certification Procedure in Securities Class Actions at Issue in Amgen
The Supreme Court’s decision in the Amgen securities case will have a profound impact on the future of securities class action litigation. If the Court affirms the Ninth Circuit’s decision, it will eliminate an important event: a determination of whether the alleged false or misleading statements materially impacted the price of the company’s stock sufficient to invoke the “fraud-on-the-market” presumption of reliance. That would mean, absent settlement, that the vast majority of all securities class actions that survive a motion to dismiss will remain alive until at least summary judgment, even those that are doomed to fail because the challenged statements were not, in fact, material. If the Court reverses the Ninth Circuit, many future securities class actions will involve a meaningful class certification process. That would yield several important strategic and economic consequences. Argument is scheduled for November 5, 2012.
Before getting to my prediction and a discussion of the consequences of the Court’s ruling, following is a brief overview of the law and practice surrounding the issue the Court will decide.
Reliance is an essential element of a Section 10(b) claim. Absent some way to harmonize individual issues of reliance, however, class treatment of a securities class action is not possible; individual issues would overwhelm common ones, precluding certification under Federal Rule of Civil Procedure 23(b)(3). In Basic v. Levinson, the Supreme Court provided a solution: a rebuttable presumption of reliance based on the “fraud-on-the-market” theory, which provides that a security traded on an efficient market reflects all public material information. Purchasers (or sellers) rely on the integrity of the market price, and thus on a material misrepresentation. Decisions following Basic have established three conditions to its application: market efficiency, a public misrepresentation, and a purchase (or sale) between the misrepresentation and the disclosure of the “truth.” At issue in Amgen is whether the materiality of an alleged misrepresentation is also a condition to the presumption’s application.
Over the years, defendants have argued that, absent a showing by plaintiffs that the challenged statements were material, or upon a showing by defendants that they were not, the presumption is not applicable or has been rebutted. And, in a twist on such arguments, defendants sometimes argued that the absence of loss causation rebutted the presumption. This argument was accepted by the Fifth Circuit in Oscar Private Equity Investments v. Allegiance Telecom, Inc. But Oscar rested on shaky analytic grounds, and indeed the Supreme Court in Halliburton unanimously rejected loss causation as a condition of the presumption of reliance.…
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