What Next?

Based on the Supreme Court’s recent decisions, a plaintiff is not required to prove the existence of loss causation (Halliburton) or materiality (Amgen) to certify an investor class. In the Halliburton case, however, the defendants pursued a related issue on remand. Halliburton argued that it should be allowed to rebut the fraud-on-the-market presumption of reliance by establishing that the alleged misrepresentations did not have a stock price impact. The district court found that price impact evidence did not bear on the critical inquiry of whether common issues predominated under FRCP 23(b)(3) and certified the class. Halliburton appealed.

In Erica P. John Fund, Inc. v. Halliburton Company, 2013 WL 1809760 (5th Cir. April 30, 2013), the Fifth Circuit found that “Halliburton’s price impact evidence potentially demonstrates that despite the presence of the necessary conditions for market price incorporation of fraudulent information (fraud-on-the-market reliance), no such incorporation occurred in fact.” Although this evidence certainly could be used at trial to refute the presumption of reliance, the court questioned whether it was appropriate to consider it at class certification.

Under Amgen, the court held, price impact evidence should not be considered if it is “common to the class” and if there is no risk “that a later failure of proof on the common question of price impact will result in individual questions predominating.” The court found that both criteria were met and the district court did not err in declining to consider Halliburton’s price impact evidence. First, “price impact is ordinarily established by expert evaluation of a stock’s market price following a specific event and it inherently applies to everyone in the class.” Second, although defeating the presumption of reliance would presumably still leave open the possibility of individual claims, “[i]f Halliburton were to successfully show that the price did not drop when the truth was revealed, then no plaintiff could establish loss causation.” Accordingly, the claims of all individual plaintiffs would fail.

Holding: Affirming grant of class certification.

Addition: As detailed in a February 2010 post, the Halliburton case has a remarkable procedural history that now includes a Supreme Court decision and two Fifth Circuit decisions on class certification. What next?

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