Erica P. John Fund, Inc. v. Halliburton Co.
131 S. Ct. 2179
| SCOTUS | 2011Background
- EPJ Fund sues Halliburton for alleged §10(b) and Rule 10b–5 misrepresentations to inflate stock price and later corrective disclosures lowering it.
- District Court held class action could proceed under Rule 23(b)(3) but for Fifth Circuit loss causation precedent; denied class certification.
- Court of Appeals affirmed denial, requiring loss causation to trigger Basic’s fraud-on-the-market presumption at class certification.
- Supreme Court granted certiorari to resolve split among circuits on whether loss causation is required for class certification.
- Holding: loss causation is not required to obtain class certification; court vacates the Fifth Circuit and remands for proceedings consistent with this ruling.
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Whether loss causation is required for class certification | EPJ Fund contends loss causation is not needed to invoke Basic presumption | Halliburton argues loss causation must be shown to trigger presumption at certification | Not required to certify class |
| Whether Basic's fraud-on-the-market presumption can be invoked without loss causation at certification | EPJ Fund should be able to rely on presumption without proving loss causation | Halliburton maintains loss causation is a precondition for the presumption | Presumption can be invoked without loss causation proof at certification |
| What the Court considers the proper relationship between reliance and the presumption at class certification | Reliance can be established on market factors via fraud-on-the-market | Reliance must be shown through individualized circumstances or loss causation constraints | Fraud-on-the-market theory supports class-wide reliance without prior loss causation proof |
Key Cases Cited
- Basic Inc. v. Levinson, 485 U.S. 224 (1988) (fraud-on-the-market presumption and reliance framework)
- Dura Pharmaceuticals, Inc. v. Broudo, 544 U.S. 336 (2005) (distinguishes transaction causation from loss causation)
- Stoneridge Investment Partners, LLC v. Scientific-Atlanta, Inc., 552 U.S. 148 (2008) (reliance element defined as transaction causation; supports fraud theory)
- Oscar Private Equity Investments v. Allegiance Telecom, Inc., 487 F.3d 261 (CA5 2007) (loss causation and class certification considerations in Fifth Circuit)
- In re Salomon Analyst Metromedia Litigation, 544 F.3d 474 (CA2 2008) (not requiring loss causation at class certification for presumption)
- Schleicher v. Wendt, 618 F.3d 679 (CA7 2010) (same position on loss causation at certification)