Halliburton Co. v. Erica P. John Fund, Inc.

Supreme Court of the United States · 2014 · Corporations

CorporationsSecurities fraudClass certificationRule 10b-5RelianceFraud-on-the-marketSection 10(b)Rule 10b-5

Facts

EPJ Fund brought a putative securities-fraud class action against Halliburton and an executive under Section 10(b) and Rule 10b-5. The Fund alleged that between June 3, 1999, and December 7, 2001, Halliburton made public misrepresentations about asbestos liability, expected revenue from certain construction contracts, and benefits of a merger in order to inflate its stock price, and that later corrective disclosures caused the stock price to fall. Halliburton argued at class certification that evidence it had used to contest loss causation also showed the alleged misrepresentations had no price impact. The lower courts refused to consider that evidence for rebuttal of Basic at class certification.

Issue

Whether the Court should overrule or modify Basic's presumption of reliance in private securities-fraud actions. If not, whether defendants must be allowed at class certification to rebut the presumption with evidence that the alleged misrepresentation did not affect the stock price.

Rule

Basic's rebuttable fraud-on-the-market presumption of reliance remains in place. A plaintiff may invoke the presumption by showing that the alleged misrepresentation was public, material, made in an efficient market, and that the plaintiff traded between the time of the misrepresentation and the truth's revelation; however, defendants must be given an opportunity before class certification to rebut the presumption with evidence that the alleged misrepresentation had no price impact.

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One of 10 multiple-choice questions for this case. Pick an answer to see why.

Investors sued Lakeview Robotics, Inc. in federal court in Chicago, alleging that a public statement about a new battery system inflated the company’s share price. At class certification, the investors showed the statement was public, the shares traded on an efficient market, and the proposed class bought shares before later disclosures. Lakeview offered an event study concluding the statement did not move the stock price at all.

How should the court treat Lakeview’s event-study evidence at class certification?

Explanation. The majority retained the Basic presumption but held that defendants must be allowed at class certification to rebut it with direct evidence that the alleged misrepresentation had no price impact. Price impact bears directly on whether reliance can be shown classwide for Rule 23(b)(3) predominance. (Derived from Halliburton Co. v. Erica P. John Fund, Inc. (n.d.).)