Does today’s oral argument before the Supreme Court in the Halliburton case provide any clues regarding the Court’s likely decision? (For background regarding the case, see yesterday’s post.)
“Court-watchers” are often quick to predict a case’s outcome based on the argument—and are very often wrong. Remember the health care law that was certain to be declared unconstitutional, except it actually was upheld? (I’ve had a similar experience. After my argument on behalf of the petitioner in AT&T Mobility v. Concepcion, a number of press reports confidently predicted that Justice Scalia was going to vote “against the business community”; he wrote the Court’s opinion upholding the enforceability of AT&T’s arbitration clause.)
Today, as is often the case, the Justices’ questions explored a variety of issues, but most Members of the Court did not show their hands.
To be sure, the questions asked by Justices Ginsburg, Breyer, Sotomayor, and Kagan seemed to indicate strong support for the plaintiff’s position. But that is no surprise based on those Justices’ views regarding legal issues in the class certification arena (including Wal-Mart Stores v. Dukes, Comcast Corp. v. Behrend, and other cases).
But the questions and comments by Chief Justice Roberts and Justices Scalia, Kennedy, and Alito are much harder to pigeonhole.
Those Justices focused almost exclusively on the second question presented by the certiorari petition: whether the decision in Basic v. Levinson should be modified if the Court does not overrule it. (The principal modification proposed by Halliburton—and echoed in the “law professors’ amicus brief” that received much attention during the argument—is that plaintiffs should be required to prove at the class certification stage not only that the securities in question traded on an efficient market but also that the alleged misrepresentations in fact distorted the securities’ market price.)
That discussion could mean that these Justices have little interest in overruling Basic—the view expressed in a number of early press reports.
But it also could mean that the Justices had no unanswered questions about that part of the case. After all, large sections of the parties’ briefs, along with many of the amicus filings, set forth the pros and cons of the fraud-on-the-market doctrine, battled over the applicable stare decisis principles, and disputed whether passage of the Private Securities Litigation Reform Act locked Basic in place. And the consequences of a decision to overrule Basic are clear: the pre-Basic reliance standard would apply.
A number of issues regarding the proposed modification of Basic are much less clear. First, its practical effect—in terms of what that approach would require plaintiffs to establish and whether it would screen out illegitimate class actions— is uncertain. Many of the questions focused on that issue.
Second, whether requiring proof of an actual price impact at the class certification stage is consistent with the Court’s decisions rejecting arguments that other issues in securities class actions must be determined at the class certification stage because they are prerequisites for application of the fraud-on-the-market doctrine. Those decisions include the Court’s earlier ruling in this case (addressing loss causation) and in Amgen v. Connecticut Retirement Plans and Trust Funds (addressing materiality). Many of the questions today asked whether a price-impact requirement could be distinguished from these other prerequisites—if it cannot, this option might be rejected on the ground that it is inconsistent with the Court’s recent precedents.
So it is equally likely—perhaps even more likely—that the questioning focused on this area because the possibility of modifying Basic generated more uncertainties that required clarification before the Justices could decide how to resolve the case—not because they already have decided that overruling Basic is off the table.
It also is worth emphasizing two points that do seem clear from the argument. At least four Members of the Court (the Chief Justice and Justices Scalia, Kennedy, and Alito) have real concerns about the current state of securities class action litigation, including the fact that class actions that are certified almost always settle—and virtually never are decided on the merits—as well as the burdens that such litigation imposes on investors. (Justice Thomas’s past opinions suggest that he shares those concerns.)
And there seemed to be little acceptance by these Justices of the plaintiff’s argument that the PSLRA placed reconsideration of Basic off-limits to the Court. Justice Alito quoted Section 203 of the Act (not cited in the parties’ briefs), which states, “[n]othing in this Act or the amendments made by this Act shall be deemed to create or ratify any implied private right of action.” Justice Scalia said: “As I understand the history of these things, there was one side that wanted to overrule Basic and the other side that wanted to endorse Basic, and they did neither one. They simply enacted a law that assumed that the courts were going to continue Basic. I don’t see that is – is necessarily a ratification of it. It’s just an acknowledgement of reality.”
Later in the argument, Justice Scalia hypothesized that the PSLRA might have no impact if Basic were overruled, but Halliburton’s counsel corrected that erroneous impression: “The PSLRA includes securities class actions under both the [Securities Act of 1933 and the Securities Exchange Act of 1934]. It’s not just limited to 10(b)(5). So to Justice Scalia’s point, there is actually not a single provision of the PSLRA that would be rendered inoperable.”
With these Members of the Court concerned about the problems entailed by securities class actions and apparently concluding that Congress has not codified Basic, reports of Basic’s survival may be premature. We will have to wait until June to see which path the Court chooses.