U.S. Supreme Court

Companies fighting investor suits can defeat class action with stock-price evidence, SCOTUS says


The U.S. Supreme Court on Monday made it easier for companies to fight certification of securities-fraud class actions that allege corporate misstatements caused a loss in stock prices.

At issue in the case was a rebuttable presumption that aided plaintiffs. Established in a 1988 Supreme Court decision, the rebuttable presumption assumes that plaintiffs in investor suits relied on public, material misrepresentations that affected stock prices.

Today the court ruled the presumption could be rebutted at the class certification stage with evidence that the misrepresentation did not in fact affect the stock price. Justice John G. Roberts Jr. wrote the opinion (PDF) for the court, which was unanimous in the judgment.

In a concurrence, Justice Clarence Thomas said he would have overruled the 1988 case, Basic Inc. v. Levinson. Thomas was joined by Justices Antonin Scalia and Samuel A. Alito Jr.

University of Michigan law professor Adam Pritchard told the Wall Street Journal Law Blog that the decision is “a pretty big deal, but it doesn’t fundamentally reshape these cases.” He called the ruling “a useful extra tool for defendants.”

Lisa Rickard, president of the U.S. Chamber of Commerce’s Institute for Legal Reform, expressed disappointment that the court did not overrule Basic. The decision is “a small first step in a long journey toward reducing the costs of securities class actions for investors,” she said in a statement.

The case is Halliburton v. Erica P. John Fund. The plaintiffs had alleged that Halliburton misrepresented its liability in asbestos litigation, expected revenue from construction contracts, and the anticipated benefits of a corporate merger.

Halliburton had argued the class action could not be certified because none of the alleged misrepresentations actually affected the stock price.

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