Arkansas Teachers Retirement System v. Goldman Sachs Group, Inc.
879 F.3d 474
| 2d Cir. | 2018Background
- Plaintiffs purchased Goldman Sachs common stock between Feb. 5, 2007 and June 10, 2010 and sued under §10(b)/Rule 10b-5, alleging public statements about Goldman’s conflict-of-interest controls were false because Goldman structured or participated in CDOs (notably Abacus) that benefited certain clients at investors’ expense.
- Plaintiffs alleged three corrective disclosures in April–June 2010 (SEC suit and press reports) caused statistically significant drops in Goldman’s stock price and thus revealed the falsity of prior statements.
- Plaintiffs moved for class certification under Fed. R. Civ. P. 23(b)(3) and invoked the fraud-on-the-market presumption of reliance from Basic Inc. v. Levinson.
- Defendants opposed certification, offering event-study evidence (34 pre-2010 news events and other dates) showing no price impact from reports about Goldman’s conflicts, arguing that evidence rebuts the Basic presumption.
- The district court certified the class, finding defendants did not rebut the presumption; this Court vacated and remanded because it was unclear whether the district court applied the correct burden for rebuttal.
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| What burden must defendants meet to rebut the Basic fraud-on-the-market presumption at class certification? | Basic presumption applies; plaintiffs satisfied prerequisites so defendants must merely produce evidence to challenge linkage. | Defendants must be allowed to produce evidence rebutting the presumption; under Rule 301 they need only produce evidence to shift burden back to plaintiffs. | Defendants bear the burden of persuasion to rebut Basic and must do so by a preponderance of the evidence (following Barclays). |
| Whether the district court properly refused to consider defendants’ event-study evidence showing numerous press reports produced no price impact. | Plaintiffs argued such evidence constituted an improper “truth-on-the-market” or materiality challenge not appropriate at class stage. | Defendants argued the event studies directly bear on price impact and thus rebut the presumption. | The court held the district court erred in refusing to consider the event-study evidence; price-impact evidence is cognizable at class certification. |
| Whether the district court required an impermissibly high showing (conclusive proof of no price impact). | Plaintiffs defended the district court’s statements as appropriate. | Defendants argued the court required more than preponderance (i.e., conclusive proof). | Because the district court’s language suggested it may have required conclusive proof, the court vacated and remanded to apply the correct preponderance standard. |
| Remedy on improper certification given the uncertainty about the standard applied | Plaintiffs sought affirmance of class certification. | Defendants sought vacatur and reconsideration under the correct standard. | Court VACATED the certification order and REMANDED for reconsideration under the preponderance standard and to consider defendants’ price-impact evidence. |
Key Cases Cited
- Basic Inc. v. Levinson, 485 U.S. 224 (1988) (endorses fraud-on-the-market theory and a rebuttable presumption of reliance)
- Halliburton Co. v. Erica P. John Fund, Inc., 563 U.S. 804 (2011) (discusses reliance, price impact, and limits of direct reliance proof)
- Halliburton Co. v. Erica P. John Fund, Inc., 134 S. Ct. 2398 (2014) (Halliburton II) (confirms defendants may rebut Basic by showing no price impact)
- Waggoner v. Barclays PLC, 875 F.3d 79 (2d Cir. 2017) (defendants must rebut Basic by a preponderance of the evidence)
- Amgen Inc. v. Connecticut Retirement Plans & Trust Funds, 568 U.S. 455 (2013) (materiality is common to class and not dispositive of predominance at certification)