Ark. Teacher Ret. Sys. v. Goldman Sachs Grp., Inc.
955 F.3d 254
| 2d Cir. | 2020Background
- Shareholders sued Goldman Sachs under §10(b)/Rule 10b-5, alleging public statements about conflict-management and integrity were false because Goldman had undisclosed conflicts (notably the Abacus CDO) and that corrective disclosures caused stock-price declines.
- The district court initially certified a Rule 23(b)(3) class; this Court vacated and remanded in ATRS I for failure to apply the preponderance standard to Goldman’s attempt to rebut the Basic reliance presumption.
- On remand the district court held an evidentiary hearing: plaintiffs’ expert Dr. Finnerty testified that corrective disclosures produced statistically significant price declines; Goldman offered experts Drs. Gompers and Choi who relied on 36 prior news reports and event-study analyses to show no price impact from the alleged misstatements.
- The district court credited Finnerty, found the Abacus complaint and other corrective disclosures revealed new “hard evidence” not present in the prior reports, and held Goldman failed to rebut the Basic presumption by a preponderance.
- The Second Circuit affirms, holding the district court applied the correct legal standards, appropriately weighed competing expert evidence, and properly refused Goldman’s invited narrowing of the inflation-maintenance doctrine.
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Scope of inflation-maintenance theory | Inflation-maintenance covers statements that preserve an already-inflated price; general vs. specific language is not dispositive | Theory should be limited: only specific, performance-related or unduly optimistic statements can maintain fraud-induced inflation; general statements should be excluded | Court rejects narrowing; inflation-maintenance applies broadly and need not be limited to ‘‘specific’’ statements |
| Whether inflation must be "fraud-induced" | Need only show price was inflated and the corrective disclosure reduced price; inflation need not be shown to originate from prior fraud by defendant | Inflation must be "fraud-induced" (i.e., caused by defendant’s earlier fraud) for maintenance theory to apply | Court holds inflation need not be shown to have been initially caused by the defendant (Vivendi control); a drop on corrective-disclosure dates supports inference of prior inflation |
| Adequacy of Goldman’s rebuttal evidence (36 news reports and event studies) | Prior media and event-study evidence do not establish that corrective disclosures lacked price impact; Abacus and agency filings revealed new, credible "hard evidence" | Nonreaction to 36 prior reports and Dr. Choi’s event study show market was indifferent to conflict allegations and that enforcement news (not revelations of conflicts) caused drops | Court finds district reasonably discounted Gompers/Choi (methodological and sampling flaws) and credited plaintiffs’ expert; Goldman failed to rebut Basic by preponderance |
| Abuse of discretion in certifying class under Rule 23(b)(3) | Common questions predominate; Basic presumption invoked and unrebutted so class certification appropriate | District misapplied law and misweighed evidence, so certification was an abuse of discretion | Court affirms: no abuse of discretion in certification after remand and evidentiary hearing |
Key Cases Cited
- Basic Inc. v. Levinson, 485 U.S. 224 (presumption of classwide reliance when misstatements are public, market is efficient, and purchases occur before corrective disclosure)
- Halliburton Co. v. Erica P. John Fund, Inc., 573 U.S. 258 (defendants may rebut Basic at class-certification by showing lack of price impact)
- In re Vivendi, S.A. Sec. Litig., 838 F.3d 223 (2d Cir.) (inflation-maintenance doctrine; no legal distinction between inflation introduction and maintenance)
- Waggoner v. Barclays PLC, 875 F.3d 79 (2d Cir.) (defendant must rebut Basic by a preponderance of the evidence)
- Amgen Inc. v. Connecticut Ret. Plans & Tr. Funds, 568 U.S. 455 (courts should not resolve merits questions like materiality at class-certification except to the extent relevant)
- Arkansas Teachers Ret. Sys. v. Goldman Sachs Grp., Inc., 879 F.3d 474 (2d Cir.) (prior panel opinion vacating certification and remanding to apply preponderance standard)