Waggoner v. Barclays PLC
875 F.3d 79
| 2d Cir. | 2017Background
- Barclays PLC and Barclays Capital Inc. operated an NYSE-listed American Depositary Share (ADS) and ran a dark-pool trading venue called LX; Plaintiffs (three ADS purchasers) allege false statements and omissions about LX and its "Liquidity Profiling" protections against predatory high-frequency trading.
- After the New York Attorney General sued Barclays (June 25, 2014) alleging misleading statements about LX, Barclays’ ADS fell sharply and Plaintiffs filed a putative class action under § 10(b) and Rule 10b‑5 (class period: Aug. 2, 2011–June 25, 2014).
- Plaintiffs sought class certification relying on the Basic (fraud‑on‑the‑market) presumption of reliance, supported by an expert showing the ADS traded in an efficient market (Cammer and Krogman factors and an event study); alternatively they invoked the Affiliated Ute omission presumption.
- District court certified the class, applying Affiliated Ute and, alternatively, Basic; it found strong indirect indicia of market efficiency (high trading volume, heavy analyst coverage) and held defendants failed to rebut Basic.
- Defendants appealed, arguing (1) Affiliated Ute was wrongly applied, (2) court erred by not requiring Cammer 5 direct price‑impact evidence, (3) defendants only had a burden of production (not persuasion) to rebut Basic, and (4) Plaintiffs’ damages model failed Comcast.
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Applicability of Affiliated Ute presumption | Affiliated Ute applies because omissions about LX (e.g., limited application of Liquidity Profiling, overrides favoring HFTs) made proof of individual reliance impracticable | Affiliated Ute inapplicable because the complaint mainly alleges affirmative misstatements and omissions only exacerbate those misstatements | Reversed: Affiliated Ute does not apply — claims are primarily misrepresentation‑based, not primarily omissions |
| Need for Cammer 5 (direct price‑impact) to show market efficiency | Basic presumption met; event study and strong indirect factors show efficiency; direct price‑impact evidence not essential here | Court should require direct Cammer 5 evidence (event study showing price response) before invoking Basic | Affirmed: Cammer 5 not always required; district court permissibly relied on strong indirect Cammer/Krogman factors without resolving Cammer 5 |
| Burden to rebut Basic presumption | Plaintiffs: defendants must disprove price impact, i.e., rebut by preponderance | Defendants: only burden of production under Fed. R. Evid. 301; they need merely produce evidence of lack of price impact | Held: defendants must rebut Basic by a preponderance of the evidence (burden of persuasion), and they failed to do so here |
| Classwide damages under Comcast | Damages model (event‑study measuring decline after AG lawsuit and allocating to individual trades) matches plaintiffs’ price‑maintenance theory and is classwide | Model fails to isolate damages from regulatory concerns/fines and to account for inflation variation over time; Comcast requires disaggregation | Affirmed: damages model sufficiently tied to plaintiffs’ theory and Comcast does not require exact precision at certification stage |
Key Cases Cited
- Affiliated Ute Citizens of Utah v. United States, 406 U.S. 128 (U.S. 1972) (omission‑based presumption of reliance where reliance is otherwise impracticable)
- Basic Inc. v. Levinson, 485 U.S. 224 (U.S. 1988) (adopts fraud‑on‑the‑market presumption of reliance for efficient markets)
- Erica P. John Fund, Inc. v. Halliburton Co., 573 U.S. 258 (U.S. 2014) (Halliburton II) (reaffirms Basic and explains defendants may rebut presumption by showing no price impact)
- Comcast Corp. v. Behrend, 569 U.S. 27 (U.S. 2013) (class damages model must measure damages attributable to the theory of liability)
- Teamsters Local 445 Freight Div. Pension Fund v. Bombardier Inc., 546 F.3d 196 (2d Cir. 2008) (discusses relative importance of Cammer factors and event studies)
- In re Petrobras Sec., 862 F.3d 250 (2d Cir. 2017) (declines to adopt a rigid market‑efficiency test; endorses holistic analysis of Cammer/Krogman factors)
- In re Vivendi, 838 F.3d 223 (2d Cir. 2016) (recognizes price‑maintenance theory where statements maintain, rather than add to, inflation)