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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?

In what circumstances should you be permitted to invest your retirement savings in your own employer’s stock? We have blogged before about an ERISA class action pending at the Supreme Court regarding when plan fiduciaries must prevent participants from investing in employer stock. After the Solicitor General filed an amicus brief (pdf) asking the Court to broaden its inquiry, the case was poised to challenge a bedrock of ERISA stock-drop actions—a presumption that fiduciaries act prudently when investing in employer stock.

On Friday, the Supreme Court granted certiorari in the case, Fifth Third Bancorp v. Dudenhoeffer, No. 12-751, but…
Continue Reading Supreme Court Picks Up ERISA Stock-Drop Case: What’s Next?

Earlier today, the U.S. Supreme Court granted review in Halliburton Co. v . Erica P. John Fund, No. 13-317, to address an important question affecting securities class actions: whether the “fraud-on-the market” presumption created by the Court in Basic, Inc. v. Levinson remains viable in light of new developments—both in economic thinking and in the marketplace—over the 25 years since Basic was decided.

Where did the fraud on the market presumption come from? Here are the basics (pun intended). The vast majority of securities fraud class actions are brought under a private right of action that was not created…
Continue Reading Supreme Court Will Address “Fraud-On-The-Market” Presumption in Securities Class Actions

This past March, the Supreme Court asked the Solicitor General to weigh in as to whether two rather technical questions about ERISA stock-drop actions are worthy of the Court’s attention. See Fifth Third Bancorp v. Dudenhoeffer, No. 12-751. The Solicitor General filed his brief (pdf) yesterday. Sidestepping the technical questions, he asked the Court to intervene on a different (and highly significant) question: whether ERISA plan fiduciaries are entitled to a presumption that they have acted prudently in permitting plan participants to invest in their own company’s common stock.

With the Solicitor General’s recommendation, the Supreme Court is highly…
Continue Reading Solicitor General to Supreme Court: Please Set The Rules For ERISA Stock-Drop Class Actions

Under the American Pipe rule, in federal court the filing of a class action tolls the statute of limitations for would-be class members. Otherwise, the Supreme Court reasoned in American Pipe, putative class members would have to intervene or file their own individual actions during the pendency of the class action in case class certification is denied to avoid having their claims become time-barred.

But does the American Pipe rule also apply to statutes of repose, which create an absolute right to be free from liability after a certain time frame? District courts had reached conflicting decisions on…
Continue Reading Class Action Filing Doesn’t Toll Statute of Repose for Securities Claims, Says Second Circuit

We’ve blogged before about whether parens patriae lawsuits filed by state attorneys’ general to recover money on behalf of state citizens can be removed under the Class Action Fairness Act (CAFA). (CAFA authorizes defendants to remove certain “mass actions” involving “monetary relief claims of 100 or more persons” from state court to federal court. 28 U.S.C. § 1332(d)(11)(B)(i). Today, the Supreme Court granted certiorari in Mississippi ex rel. Hood v. AU Optronics Corp., No. 12-1036, to resolve a circuit split on this issue.

The case arises from a lawsuit that the Mississippi attorney general filed in state court…
Continue Reading Supreme Court To Decide Whether Parens Patriae Suits Can Be Removed Under Class Action Fairness Act

Carlton Fields recently published a survey (pdf) of 368 general counsel and other in-house counsel at major companies across more than 25 industries regarding the class actions they faced in 2012 and their expectations for 2013. A number of the findings were quite interesting:

  • In-house counsel reported that their companies spent $2.1 billion on class actions in 2012, a slight decline from 2011. Per-company spending, however, varied widely, with some companies spending $100 million a year and some as little as $180,000. The per-company average was $3.19 million.
  • In 2012, the typical class action cost $671,100 annually, a

…
Continue Reading In-House Counsel Predictions of Class Action Trends

With all of the attention on last week’s Amgen decision, another interesting decision addressing the fraud-on-the-market presumption of reliance in securities fraud actions may have escaped notice. In GAMCO Investors, Inc. v. Vivendi, S.A. (S.D.N.Y. Feb. 28, 2013), Judge Scheindlin found that the defendant had rebutted the presumption of reliance as to a group of related investment advisers and mutual funds by showing that the plaintiffs’ investment decisions did not rely on the prices of the defendant’s securities as an accurate assessment of the value of those securities. As one of the few decisions to address this issue following a bench trial, GAMCO provides a valuable example of how the presumption of reliance can be rebutted. The decision also illustrates why individualized questions as to reliance should make class certification impossible in some fraud-on-the-market class actions.
Continue Reading Securities Fraud Defendant Rebuts Fraud-on-the-Market Presumption of Reliance

Today, in Amgen Inc. v. Connecticut Retirement Plans and Trust Funds, No. 11-1085, the Supreme Court held that proof of materiality is not a prerequisite for class certification in a securities fraud class action under Section 10(b), even though materiality is a predicate of the fraud-on-the-market presumption of reliance.  The opinion for the majority of the Court was authored by Justice Ginsburg.  Justices Scalia, Thomas, and Kennedy dissented.  Justice Alito wrote a concurring opinion indicating that, in an appropriate case, he (like the three dissenting justices) would be open to reconsidering the fraud-on-the-market presumption.  For more, see our report …
Continue Reading Supreme Court Holds that Securities Fraud Plaintiffs Need Not Show Materiality at Class Certification