Halliburton Co. v. Erica P. John Fund, Inc.
134 S. Ct. 2398
| SCOTUS | 2014Background
- EPJ Fund sued Halliburton under §10(b) and Rule 10b‑5, alleging a series of public misrepresentations that inflated Halliburton’s stock price and that corrective disclosures caused investor losses.
- EPJ sought certification of a class of purchasers during the class period; the district court found Rule 23(a) satisfied but denied certification because Fifth Circuit precedent required proof of loss causation to invoke Basic’s presumption of reliance.
- This Court in Halliburton I vacated that requirement, holding loss causation is distinct from reliance and remanded for other preserved arguments.
- On remand Halliburton argued its evidence showed the alleged misstatements had no price impact and therefore rebutted Basic’s presumption; the district court and Fifth Circuit rejected using price‑impact evidence to rebut the presumption at the certification stage.
- The Supreme Court granted review to (1) consider overruling or modifying Basic v. Levinson and (2) decide whether defendants may rebut the Basic presumption with price‑impact evidence at the class‑certification stage.
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Whether Basic’s fraud‑on‑the‑market presumption of reliance should be overruled | Basic remains sound; stare decisis and modest economic premises support continuation | Basic rests on outdated economic assumptions and wrong behavioral premises; should be overruled | Court declines to overrule Basic; requires special justification not shown |
| Whether plaintiffs must prove price impact directly to invoke Basic presumption | Proving Basic’s predicates (publicity, materiality, market efficiency, trading timing) suffices as an indirect proxy for price impact | Plaintiffs should be required to prove actual price impact, not rely on proxies | Court rejects requiring direct proof of price impact to invoke the presumption |
| Whether defendants may rebut Basic presumption at class‑certification stage with evidence of lack of price impact | Defendant can challenge market efficiency indirectly at certification but cannot rebut the presumption directly until the merits | Defendants must be allowed to present direct and indirect price‑impact evidence at certification to defeat the presumption early | Court permits defendants to rebut the presumption at the certification stage by showing lack of price impact (direct or indirect) |
| Effect of allowing price‑impact rebuttal at certification on Rule 23 predominance | Plaintiffs: Basic’s predicates still must be proved before certification and thus predominance can be demonstrated | Defendants: denying early price‑impact rebuttal can force class certification where fraud didn’t affect price, undermining predominance | Court: permitting price‑impact rebuttal at certification aligns Basic with Rule 23 predominance requirements |
Key Cases Cited
- Basic Inc. v. Levinson, 485 U.S. 224 (recognizing fraud‑on‑the‑market presumption of reliance)
- Blue Chip Stamps v. Manor Drug Stores, 421 U.S. 723 (recognizing implied private action under §10(b) and Rule 10b‑5)
- Central Bank of Denver, N.A. v. First Interstate Bank of Denver, N.A., 511 U.S. 164 (refusing to recognize aiding‑and‑abetting liability under Rule 10b‑5)
- Stoneridge Investment Partners, LLC v. Scientific‑Atlanta, Inc., 552 U.S. 148 (limits on expanding Rule 10b‑5 liability to secondary actors)
- Dura Pharmaceuticals, Inc. v. Broudo, 544 U.S. 336 (distinguishing transaction causation and loss causation principles)
- Wal‑Mart Stores, Inc. v. Dukes, 564 U.S. 338 (class‑certification standards requiring demonstrable predominance)
- Comcast Corp. v. Behrend, 569 U.S. 27 (plaintiff must prove Rule 23 requirements by admissible evidence)