Glickenhaus & Company v. Household International, Inc.
2015 U.S. App. LEXIS 8424
7th Cir.2015Background
- This securities-fraud class action against Household International and three executives yielded a $2.46 billion jury verdict for plaintiffs.
- Plaintiffs alleged multiple misrepresentations about predatory lending, delinquency metrics, and earnings from credit-card agreements; expert loss-causation testimony was central.
- Two loss-causation models were presented: a specific-disclosure model and a leakage model; jury adopted the leakage model framework.
- A first actionable misrepresentation occurred March 23, 2001; 14 disclosures occurred overall, with 17 actionable misrepresentations identified by the jury.
- Defendants argued the leakage model failed to account for firm-specific, nonfraud factors affecting Household’s stock price decline during the period.
- Court remanded for new trial on loss causation and Janus-based “maker” liability, while preserving other rulings.
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Loss causation sufficiency under leakage model | leakage model measures truth effect; total inflation supports loss causation | leakage ignores firm-specific factors; may misattribute decline to fraud | New trial warranted; leakage model insufficient without accounting for firm-specific factors |
| Janus maker liability instruction | corporate insiders can be liable; instruction should track Janus | Janus applies narrowly to third parties; insiders may not be makers | Prejudice found for Aldinger (press releases) and Gilmer (media statement); new trial on whether they made statements |
| Scope of new-trial issues and allocation of fault | jsut distribute liability among four defendants based on actions | allocation may differ under corrected liability findings | New trial ordered to reallocate responsibility if needed after fresh verdict on makers |
| Reliance/presumption phase II procedures | Phase II procedures valid; rely on Basic presumption | discovery and questioning improperly limited | Remand for consistency with loss causation and maker issues; Phase II framework preserved pending new trial |
Key Cases Cited
- Halliburton Co. v. Erica P. John Fund, Inc., 134 S. Ct. 2398 (2014) (loss causation standards; market-efficiency presumptions)
- Dura Pharm., Inc. v. Broudo, 544 U.S. 336 (2005) (requires showing decline after truth revealed; counterfactuals in loss causation)
- Basic Inc. v. Levinson, 485 U.S. 224 (1988) (fraud-on-the-market presumption of reliance)
- Janus Cap. Grp., Inc. v. First Derivative Traders, 131 S. Ct. 2296 (2011) (maker of a statement; ultimate authority over content and communication)
- Schleicher v. Wendt, 618 F.3d 679 (7th Cir. 2010) (truth can leak out and affect market price before formal disclosure)
- In re Williams Sec. Litig.—WCG Subclass, 558 F.3d 1130 (10th Cir. 2009) (leakage-type theories; mechanism for corrective disclosure)
- Comcast Corp. v. Behrend, 133 S. Ct. 1426 (2013) (class-wide damages model; need subclass-specific proof)
- FindWhat Investor Grp. v. FindWhat.com, 658 F.3d 1282 (11th Cir. 2011) (loss causation theory admissibility; leakage context)