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

134 S.Ct. 2398 (2014)


Fund (P) is the lead plaintiff in a putative class action against D and one of its executives for violations of section 10(b) and Rule 10b-5. D made a series of misrepresentations regarding its potential liability in asbestos litigation, its expected revenue from certain construction contracts, and the anticipated benefits of its merger with another company-all in an attempt to inflate the price of its stock. When D made the corrective disclosures, the company’s stock price dropped and caused Ps to lose money. P moved to certify a class comprising all investors who purchased D common stock during the class period. Securities fraud plaintiffs are required to prove “loss causation”-a causal connection between the defendants’ alleged misrepresentations and the plaintiffs’ economic losses-in order to invoke Basic’s presumption of reliance and obtain class certification. P had not demonstrated such a connection for any of D’s alleged misrepresentations. The Court refused to certify the proposed class. The Fifth Circuit affirmed the denial of class certification on the same ground. The Supreme Court vacated the judgment, finding nothing in “Basic' to justify the requirement that securities fraud plaintiffs prove loss causation at the class certification stage in order to invoke Basic’s presumption of reliance. On remand, D argued that class certification was inappropriate because the evidence it had earlier introduced to disprove loss causation also showed that none of its alleged misrepresentations had actually affected its stock price. D contends that the lack of “price impact,” rebuts Basic’s presumption that the members of the proposed class had relied on its alleged misrepresentations simply by buying or selling its stock at the market price. The District Court declined the argument, holding that the Basic presumption applied and certifying the class under Rule 23(b)(3). The Fifth Circuit affirmed. The Supreme Court granted certiorari.