Alison Frankel argues the Halliburton ruling could backfire on defendants:
According to David Boies of Boies, Schiller & Flexner who argued the Supreme Court case for investors — and shareholder lawyers Max Berger of Bernstein Litowitz Berger & Grossmannand Lawrence Sucharow of Labaton Sucharow, the Halliburton ruling not only won’t curb securities class action filings but could actually improve plaintiffs’ position after class certification.
Here’s why. The Supreme Court’s decision does not give securities defendants a new right: They’ve always been able to argue at various turning points in these cases that their supposed fraud didn’t affect share prices. The Halliburton opinion just clarifies that defendants can use those arguments to oppose class certification.
Realistically, said plaintiffs’ lawyer Berger, shareholders in almost all cases will be able to offer their own evidence that corporate misstatements led to drops in stock prices. Even if other factors contributed to the stock drop, Berger said, his side will be able to win class certification if alleged fraud had anything to do with the decline. ...
Securities fraud plaintiffs, in other words, are already equipped to counter price impact arguments opposing class certification with evidence from their own economics experts, who will say that share prices fell because of the alleged fraud. (And if investors can’t find experts to support their price impact theories, they should not have brought their cases in the first place.)
It’s true, said plaintiffs’ lawyer Sucharow, that if price impact battles take place at the class certification stage rather than in summary judgment briefing, plaintiffs’ lawyers will have to spend more time and money on experts earlier than they’re used to. But the reward for defeating price impact defenses at the class certification stage, he said, will be a better position in post-certification settlement talks: Defendants won’t be able to argue that shareholders can’t prove price impact.
Joan Heminway points out another way in which the case will affect settlement bargaining:
The longer the case goes on, the more incentive defendants have to settle--oftentimes (in my experience) foregoing the opportunity to defend themselves against specious claims because of the ongoing drain on financial and human resources.
CLS Blog posts a firm memo from Proskauer on the case:
The Halliburton decision likely will increase defendants’ incentive to pull out all stops to litigate price impact at the class-certification stage. Advancing the fight on this issue from the merits stage to an earlier phase of the case could help dispose of meritless claims that might otherwise have survived scrutiny under Basic’s presumptions. The defense bar has maintained – and argued to the Supreme Court – that settlement pressures can increase if a class is certified, so defendants likely will try to wage the price-impact war sooner, rather than later. The class-certification phase could thus become a more expensive, protracted part of the case.
In fact, three members of the six-Justice majority (Justices Ginsburg, Breyer, and Sotomayor) filed a one-paragraph concurrence acknowledging that “[a]dvancing price impact consideration from the merits stage to the class certification stage may broaden the scope of discovery available at class certification.” But they nevertheless concluded that the Court’s decision “should impose no heavy toll on securities-fraud plaintiffs with tenable claims.” Were the three concurring Justices leaving themselves an escape hatch to rethink their position if practice shows that the new discovery burdens are becoming too great?
Steven Davidoff has a very extended treatment with lots of background, concluding:
In the past years, the court has been steadily taking two to three securities law cases a year over the past years.
In the process, the court has erected an elaborate array of rules that mostly govern when class certification can be given. In other words, it has been tinkering with the process of determining when a case can proceed to a final settlement.
But it hasn’t done much. Securities cases continue to be filed, and this decision will not stop that. Indeed, the Supreme Court has cemented the position of the top plaintiffs’ law firms because the rules are so intricate only they and a handful of defense lawyers fully understand them.
This may serve fine for those who want these cases to continue and see such litigation as helping shareholders, but for the opponents, it seems like it is a lot of time spent for very little. It means securities litigation, for better or worse, is here to stay as long as the Supreme Court – which started this business — is deciding the issue. The apocalypse has been postponed.
The Harvard Corporate Governance blog has a client memo from Wilson Sonsini Goodrich & Rosati, which draws this lesson from the case:
Defense hopes that the presumption of reliance would be overruled have been dashed, and the world we live in still includes securities class actions. Nevertheless, the fact that the Supreme Court made clear that defendants can attempt to rebut the presumption of reliance at the class certification stage is a victory for defendants. How significant that victory ultimately will be may depend on the particular facts of each case, as well as how the courts address defense challenges to the applicability of the presumption of reliance. In the typical case—a positive announcement is followed by rise in the stock price, and a bad news announcement is followed by a sharp drop—Halliburton is not likely to change much. In other cases, in which the stock price movement is less clear, the decision may give rise to opportunities to narrow the class period or even defeat class certification entirely.
Charles Korsmo guest blogs at Volokh:
In the vast majority of securities fraud cases, there is a “price impact.” Indeed, the classic “strike suit” scenario is when a company’s stock takes a sharp dive when negative information comes out, and plaintiffs’ attorneys stumble over each other to file claims alleging securities fraud. The dispute is almost never over whether there actually was a stock drop; it is over whether the company fraudulently concealed the negative information. As such, the opportunity to rebut the fraud on the market presumption by showing lack of price impact is likely to be of little avail in most cases.
Thom Lambert asks:
How is a court to know whether the market in which a security is traded is “efficient” (or, given that market efficiency is not a binary matter, “efficient enough”)? Chief Justice Roberts’ majority opinion suggested this is a simple inquiry, but it’s not. Courts typically consider a number of factors to assess market efficiency. According to one famous district court decision (Cammer), the relevant factors are: “(1) the stock’s average weekly trading volume; (2) the number of securities analysts that followed and reported on the stock; (3) the presence of market makers and arbitrageurs; (4) the company’s eligibility to file a Form S-3 Registration Statement; and (5) a cause-and-effect relationship, over time, between unexpected corporate events or financial releases and an immediate response in stock price.” In re Xcelera.com Securities Litig., 430 F.3d 503 (2005). Other courts have supplemented these Cammer factors with a few others: market capitalization, the bid/ask spread, float, and analyses of autocorrelation. No one can say, though, how each factor should be assessed (e.g., How many securities analysts must follow the stock? How much autocorrelation is permissible? How large may the bid-ask spread be?). Nor is there guidance on how to balance factors when some weigh in favor of efficiency and others don’t. It’s a crapshoot.
Thom also explains at some length why it's a mistake to assume that "there is a “market” for a single company’s stock," efficient or not.
Alden Abbott says that in Halliburton "the Supreme Court regrettably declined the chance to stem the abuses of private fraud-based class action securities litigation."
Given the costs and difficulties inherent in rebutting the presumption of reliance at the class action stage, Halliburton at best appears likely to impose only a minor constraint on securities fraud class actions. ...
Congress should eliminate the eligibility of private securities fraud suits for class action certification. Moreover, Congress should require a showing of specific reliance on fraudulent information as a prerequisite to any finding of liability in a private individual action. What’s more, Congress ideally should require that the SEC define with greater specificity what categories of conduct it will deem actionable fraud, based on economic analysis, as a prerequisite for bringing enforcement actions in this area.