Today, in CalPERS v. ANZ Securities, Inc. (pdf), the Supreme Court recognized a crucial limitation on the doctrine that allows a class action to toll the deadline for absent class members to bring their own separate individual suits. We’ve been following this issue in the CalPERS appeal for some time. (See our previous reports on this appeal.)

In a 5-4 decision authored by Justice Kennedy, the Court held that the American Pipe tolling doctrine does not apply to statutes of repose. As a result, the three-year statute of repose in the Securities Act of 1933 barred a suit that CalPERS had filed against the underwriters for certain Lehman Brothers debt securities more than three years after the securities were issued, but while a timely class action bringing similar claims was pending.Continue Reading Supreme Court Refuses To Allow Class Action To Extend Deadline For Filing Suit

Yesterday afternoon, the Supreme Court heard oral argument (pdf) in CalPERS v. ANZ Securities, a case that asks whether a plaintiff asserting violations of Section 11 of the Securities Act of 1933 can file suit after the three-year outer limit for such suits has passed, if a class action encompassing the plaintiff’s claims was timely filed and remained pending. The answer to that important question, which has divided the federal courts of appeals, will tell defendants facing suit over the issuance of securities whether the Securities Act’s three-year repose period is a real protection against belated lawsuits or simply a limited protection that dissolves once a timely class action is filed. Yesterday’s argument suggested the Court, too, may be divided about how to resolve this debate.
Continue Reading Can Opt-Out Plaintiffs File Suit After Expiration of a Statute of Repose? Supreme Court Hears Oral Argument in CalPERS v. ANZ Securities

In NECA-IBEW v. Goldman Sachs, the Second Circuit arguably opened up a new door in class action litigation when it held that investors in one securities offering had standing to represent a putative class of investors in other offerings, as long as the fraud claims on both securities gave rise to “the same set of concerns.” (Our past coverage of that decision is here.) The Second Circuit’s recent decision in Policemen’s Annuity and Benefit Fund v. The Bank of New York Mellon, argued by our colleague Charles Rothfeld, clarifies and narrows that ruling, especially as to
Continue Reading Second Circuit Narrows Class Standing Doctrine

In ERISA stock-drop class actions, plaintiffs routinely allege that their employers breached a duty of prudence by permitting employees to invest their retirement assets in their company’s stock.  Until today, defendants typically defended against such claims by invoking a judicially crafted presumption that offering company stock was prudent.  Today, in Fifth Third Bancorp v. Dudenhoeffer, No. 12-751 (pdf), the Supreme Court rejected that presumption.

But all hope is not lost for stock-drop defendants.  Much of the work previously done by the presumption of prudence will now be done by the substantive requirements of the duty of prudence.  The Court
Continue Reading ERISA Stock-Drop Class Actions: As One Door Opens for Plaintiffs, Another Closes

Yesterday’s Supreme Court ruling in the Halliburton case leaves the securities class action system pretty much unchanged. And that isn’t because the Supreme Court examined the system and concluded it is working well and makes sense.  Instead,  the Court simply didn’t address those questions.

That’s very good news for the lawyers who make their living representing plaintiffs and defendants in these cases.  The gravy train will continue:  $1.1 billion in fees and expenses awarded to plaintiffs’ counsel in 2013, with hourly rates up to $1370.  Defense counsel likely took home a multiple of that amount, given that securities class actions
Continue Reading Why The Supreme Court’s Decision in Halliburton Is Bad News For Investors And The Public

The securities class action industry was launched a quarter-century ago when the Supreme Court recognized the so-called “fraud-on-the-market” presumption of reliance in most putative securities class actions.  The result has been that—despite Congressional efforts at securities litigation reform—most securities class actions that survive the pleadings stage are likely to achieve class certification, forcing defendants to settle.  In the meantime, as explained in prior blog posts, the best economic thinking has shifted, calling the empirical assumptions underlying the fraud-on-the-market presumption into question.

In Halliburton Co. v. Erica P. John Fund, Inc. (pdf), decided today, the Supreme Court declined to abandon that presumption, instead largely maintaining the status quo.  The Court did clarify one key aspect of how class certification works in the securities context, holding that defendants are now entitled to attempt to rebut the presumption by introducing evidence at the class certification stage that there was no “price impact”—i.e., that misrepresentation alleged in a particular lawsuit did not affect the stock’s price.  This adjustment will make it possible for defendants to challenge class certification in a number of securities class actions, but is unlikely to alter the landscape of securities litigation significantly—a result that is troubling from a policy perspective because (for reasons we have previously stated) securities class actions generally benefit the lawyers who bring and defend them rather than the investors.

We provide more details about the decision below.
Continue Reading Supreme Court Refuses To Overturn Fraud-On-The-Market Presumption, But Adjusts Presumption To Allow Evidence of Absence Of “Price Impact” At Class Certification Stage

A recent decision denying certification of a securities-fraud class action underscores that plaintiffs must prove with evidence that they satisfy the requirements of Federal Rule of Civil Procedure 23, not merely allege that they do so or promise that they can.

The decision in In re Kosmos Energy Limited Securities Litigation arose from a class action filed in the Northern District of Texas by plaintiffs challenging certain statements made in connection with the defendant’s initial public offering (“IPO”). The court denied the plaintiff’s motion to certify a putative class of stock purchasers.

In its opinion, the court provided a
Continue Reading Class-Action Plaintiffs Must Offer Evidence Showing That They Meet Class-Certification Requirements

Last year, we reported on the Second Circuit’s ruling in Police & Fire Retirement System of City of Detroit v. IndyMac MBS, Inc. (pdf), 721 F.3d 95 (2d Cir. 2013), that the filing of a class action does not toll the statute of repose in the Securities Act of 1933 for would-be class members who later seek to intervene or file their own suits. On Monday, the Supreme Court announced that it has chosen to review the Second Circuit’s ruling. Now, the Supreme Court has an opportunity to establish a uniform national rule that the tolling principles applicable to statutes
Continue Reading Supreme Court Will Decide Whether Filing A Class Action Tolls Statute of Repose Under Federal Securities Laws

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.)

Not necessarily.

“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
Continue Reading Reading the Halliburton Argument’s Tea Leaves

The Supreme Court will grapple with private securities class actions when it hears oral argument tomorrow in Halliburton v. Erica P. John Fund, Inc. The principal question in the case is the continuing validity of the fraud-on-the-market doctrine, endorsed by the Court twenty-five years ago in Basic Inc. v. Levinson, which relieves plaintiffs asserting claims under Section 10(b) of the Securities Exchange Act of the obligation to prove actual reliance, and permits the reliance element of a securities fraud claim to be satisfied presumptively by proof that the securities at issue traded on an efficient market.

A significant part of the debate in the Halliburton briefs addresses new scholarship contradicting the views of economists who developed the hypothesis underlying fraud-on-the-market. That is precisely what Justice White predicted in his Basic dissent: “[W]hile the economists’ theories which underpin the fraud-on-the-market presumption may have the appeal of mathematical exactitude and scientific certainty, they are—in the end—nothing more than theories which may or may not prove accurate upon further consideration. . . . I doubt we are in much of a position to assess which theories aptly describe the functioning of the securities industry.”

But the defenders of fraud-on-the-market, perhaps recognizing the doctrine’s tenuous status based on the economic learning over the past quarter-century, focus considerable attention on three arguments unrelated to the doctrine’s merits:

  • Principles of stare decisis prevent the Court from overturning Basic;
  • Congress ratified Basic’s endorsement of fraud-on-the-market when it enacted the Private Securities Litigation Reform Act; and
  • Securities class actions benefit investors and, because they would be harder to bring if Basic were overturned, the Court should leave fraud-on-the-market in place.

To spare readers (and myself) an exegesis into economic analysis, this post focuses on these contentions, explaining why a fair appraisal of these arguments in fact demonstrates that the Court is obligated to assess Basic on the merits, and overrule the decision if the fraud-on-the-market presumption can no longer be justified.Continue Reading Does Precedent or Congressional Action Prevent the Supreme Court from Reconsidering the Fraud-on-the Market Doctrine in Halliburton?