Halliburton Co. v. Erica P. John Fund, Inc.
134 S. Ct. 2259
SCOTUS2014Background
- EPJ Fund filed a putative securities class action under §10(b) and Rule 10b‑5 alleging Halliburton made public, material misrepresentations that inflated its stock price and later caused losses when corrected.
- The District Court initially denied class certification because Fifth Circuit precedent required proof of loss causation to invoke Basic’s presumption of reliance; the Fifth Circuit affirmed.
- This Court in Halliburton I vacated and remanded, holding loss causation need not be proved at certification to invoke Basic’s fraud‑on‑the‑market presumption.
- On remand Halliburton argued its prior evidence disproving loss causation also showed no price impact, thus rebutting Basic’s presumption and defeating predominance under Rule 23(b)(3).
- District court certified the class; the Fifth Circuit refused to allow price‑impact rebuttal at certification. The Supreme Court granted certiorari to decide (1) whether Basic should be overruled/modified and (2) whether defendants may rebut Basic at the class‑certification stage with price‑impact evidence.
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Whether Basic’s fraud‑on‑the‑market presumption should be overruled | Basic remains a workable, precedent‑based presumption that addresses impracticalities of individualized reliance proof | Basic is inconsistent with the Exchange Act and undermined by developments in economic theory and investor behavior; should be overruled | Court declined to overrule Basic (stare decisis); no special justification shown |
| Whether prerequisites for invoking Basic must require direct proof of price impact at certification | Indirect proof (publicity, materiality, market efficiency, timing) suffices to invoke the presumption | Plaintiffs should be required to prove price impact directly rather than rely on proxies | Court declined to require direct proof of price impact at certification; Basic’s indirect prerequisites remain intact |
| Whether defendants may rebut Basic at class certification with evidence showing lack of price impact | Plaintiffs urged courts to exclude price‑impact rebuttal until merits | Defendants argued they must be allowed to introduce direct price‑impact evidence at certification to show the presumption does not apply | Court held defendants may rebut the presumption at the certification stage with direct evidence of lack of price impact |
| Procedural outcome | Class certification should stand without pre‑merits price‑impact inquiry | Remand for consideration of Halliburton’s preserved price‑impact evidence | Judgment vacated and case remanded so defendant may raise price‑impact rebuttal at certification |
Key Cases Cited
- Basic Inc. v. Levinson, 485 U.S. 224 (1988) (established fraud‑on‑the‑market presumption of reliance)
- Central Bank of Denver v. First Interstate Bank of Denver, 511 U.S. 164 (1994) (limits on expanding Rule 10b‑5 liability)
- Stoneridge Investment Partners v. Scientific‑Atlanta, 552 U.S. 148 (2008) (declined to extend Rule 10b‑5 to secondary actors who made no public misstatements)
- Dura Pharmaceuticals, Inc. v. Broudo, 544 U.S. 336 (2005) (loss causation requirement explained)
- John R. Sand & Gravel Co. v. United States, 552 U.S. 130 (2008) (stare decisis special force in statutory interpretation)
- Wal‑Mart Stores, Inc. v. Dukes, 564 U.S. 338 (2011) (class‑certification predominance and Rule 23 standards)
- Comcast Corp. v. Behrend, 569 U.S. 27 (2013) (plaintiff must affirmatively demonstrate Rule 23 predominance)
- Amgen Inc. v. Connecticut Retirement Plans and Trust Funds, 568 U.S. 455 (2013) (materiality and relation to class‑certification inquiry)