Erica P. John Fund, Inc. v. Halliburton Co.

Last updated

Erica P. John Fund, Inc. v. Halliburton Co.
Seal of the United States Supreme Court.svg
Supreme Court of the United States
Argued April 25, 2011
Decided June 6, 2011
Full case nameErica P. John Fund, Inc., fka Archdiocese of Milwaukee Supporting Fund, Inc., Petitioner v. Halliburton Co., et al.
Docket no. 09-1403
Citations563 U.S. 804 ( more )
131 S. Ct. 2179; 180 L. Ed. 2d 24
Argument Oral argument
Opinion announcement Opinion announcement
Holding
Securities fraud plaintiffs need not prove loss causation in order to obtain class certification.
Court membership
Chief Justice
John Roberts
Associate Justices
Antonin Scalia  · Anthony Kennedy
Clarence Thomas  · Ruth Bader Ginsburg
Stephen Breyer  · Samuel Alito
Sonia Sotomayor  · Elena Kagan
Case opinion
MajorityRoberts, joined by unanimous

Erica P. John Fund, Inc. v. Halliburton Co., 563 U.S. 804 (2011), was a United States Supreme Court case in which the Court held that "securities fraud plaintiffs need not prove loss causation in order to obtain class certification." [1] Their decision cleared the way for class action to proceed against Halliburton over its alleged misrepresentation of facts material to the value of its stock price. [2]

Contents

Aftermath

On remand, the United States District Court for the Northern District of Texas held that Halliburton had discharged its burden of proof that alleged corrective disclosures had not resulted in any price impact for five, but not a sixth, corrective disclosure. Accordingly, a class action has been certified for the last instance. [3]

The Court now allows defendants "to present evidence before a class is certified showing that the alleged fraud had no effect on the price" movements." [4] Securities class action litigation will face additional hurdles and may be curbed, but not eliminated as result. [5] with further restriction of law being dependent on the United States Congress.

A further attempt by Halliburton to defeat class action was taken at the Court of Appeal in April 2013, and once again defeated. [6] Undeterred Halliburton again petitioned the Supreme Court to reconsider this position. At stake was "one of the fundamental tenets of securities fraud litigation: a doctrine known as fraud on the market." [7] If this theory were unavailable, issues of individual shareholders' reliance would overshadow the common issues, and the class would not be eligible for certification under Rule 23 of the Federal Rules of Civil Procedure. [8]

On June 23, 2014, the Supreme Court affirmed the reasoning of Basic Inc. v. Levinson , [9] saying that it was not espousing any particular theory of markets, only the presumption that false statements can affect the price:

The academic debates discussed by Halliburton have not refuted the modest premise underlying the presumption of reliance. Even the foremost critics of the efficient-capital-markets hypothesis acknowledge that public information generally affects stock prices. [10] Halliburton also conceded as much in its reply brief and at oral argument. [11] Debates about the precise degree to which stock prices accurately reflect public information are thus largely beside the point. "That the . . . price [of a stock] may be inaccurate does not detract from the fact that false statements affect it, and cause loss," which is "all that Basic requires." [12] Even though the efficient capital markets hypothesis may have "garnered substantial criticism since Basic," [13] Halliburton has not identified the kind of fundamental shift in economic theory that could justify overruling a precedent on the ground that it misunderstood, or has since been overtaken by, economic realities. [14]

Halliburton, in the subsequent case Halliburton, Co. v. Erika P. John or Halliburton ll, later tried to argue that a defendant in a securities fraud class action could introduce evidence of a lack of price impact at the class certification stage to show the absence of predominance. [15]

Further reading

See also

Related Research Articles

A class action lawsuit, also known as a class suit,class-action, representative action, or representative action, is a type of lawsuit where one of the parties is a group of people who are represented collectively by a member or members of that group. The class action originated in the United States and is still predominantly an American phenomenon, but Canada, as well as several European countries with civil law, have made changes in recent years to allow consumer organizations to bring claims on behalf of consumers.

<span class="mw-page-title-main">Insider trading</span> Public company stock or securities trading using nonpublic information

Insider trading is the trading of a public company's stock or other securities based on material, nonpublic information about the company. In various countries, some kinds of trading based on insider information are illegal. This is because it is seen as unfair to other investors who do not have access to the information, as the investor with insider information could potentially make larger profits than a typical investor could make. The rules governing insider trading are complex and vary significantly from country to country. The extent of enforcement also varies from one country to another. The definition of insider in one jurisdiction can be broad and may cover not only insiders themselves but also any persons related to them, such as brokers, associates, and even family members. A person who becomes aware of non-public information and trades on that basis may be guilty of a crime.

The 2003 mutual fund scandal was the result of the discovery of illegal late trading and market timing practices on the part of certain hedge fund and mutual fund companies.

The Private Securities Litigation Reform Act of 1995, Pub. L.Tooltip Public Law  104–67 (text)(PDF), 109 Stat. 737 ("PSLRA") implemented several substantive changes in the United States that have affected certain cases brought under the federal securities laws, including changes related to pleading, discovery, liability, class representation, and awards fees and expenses.

SEC Rule 10b-5, codified at 17 CFR 240.10b-5, is one of the most important rules targeting securities fraud promulgated by the U.S. Securities and Exchange Commission, pursuant to its authority granted under § 10(b) of the Securities Exchange Act of 1934. The rule prohibits any act or omission resulting in fraud or deceit in connection with the purchase or sale of any security. The issue of insider trading is given further definition in SEC Rule 10b5-1.

<span class="mw-page-title-main">United States securities regulation</span> Law and regulations that relate to Securities

Securities regulation in the United States is the field of U.S. law that covers transactions and other dealings with securities. The term is usually understood to include both federal and state-level regulation by governmental regulatory agencies, but sometimes may also encompass listing requirements of exchanges like the New York Stock Exchange and rules of self-regulatory organizations like the Financial Industry Regulatory Authority (FINRA).

Life Partners, Inc. is a life settlement provider headquartered in Waco, Texas. LPI's parent company, Life Partners Holdings, Inc., delisted from the NASDAQ, currently trades on the OTCPK under the ticker LPHI.Q. This follows the company seeking Chapter 11 bankruptcy protection, resulting from a total of $46.9 million in penalties levied against the company and two of its officers.

Merrill Lynch, Pierce, Fenner & Smith, Inc. v. Dabit, 547 U.S. 71 (2006), was a case decided by the Supreme Court of the United States involving the extent to which state law securities fraud class action claims were preempted by the Securities Litigation Uniform Standards Act of 1998 (SLUSA). The Court unanimously ruled that SLUSA barred state law "holder" claims, which are based on losses caused when a shareholder retains stock due to fraud instead of selling it, even though federal securities laws only provided a private cause of action to those suffering losses caused by the purchase or sale of stock. The Court's decision resolved a split among the circuits and closed a significant loophole in the coverage of SLUSA, which it based on the broad language used in the Act and the policies behind it.

The Securities Litigation Uniform Standards Act of 1998 (SLUSA), Pub. L.Tooltip Public Law  105–353 (text)(PDF), 112 Stat. 3227, is a federal legislative act in the United States regarding private class action lawsuits for securities fraud. SLUSA amended portions of the Securities Act of 1933 and the Securities Exchange Act of 1934 to preempt certain class actions that alleged fraud under state law "in connection with the purchase or sale" of securities. Such lawsuits cannot be filed in state or federal court.

Milberg Coleman Bryson Phillips Grossman, PLLC is a US plaintiffs' law firm, established in 1965 and based in New York City. It has mounted many class action cases on behalf of investors, and has been recognized as among the leading firms in its field by the National Law Journal, RiskMetrics Group, Securities Class Action Services, and Law360.

TSC Industries, Inc. v. Northway, Inc., 426 U.S. 438 (1976), was a case in which the Supreme Court of the United States articulated the requirement of materiality in securities fraud cases.

The De Rance Foundation was the world's largest Catholic charity until its dissolution in 1992. It was named for Armand Jean le Bouthillier de Rancé, the 17th-century abbot of the monastery at La Trappe, France.

<i>University of Pennsylvania Journal of Business Law</i>

The University of Pennsylvania Journal of Business Law is a scholarly journal focusing on issues of business law, corporate governance, securities regulation, capital markets regulation, the law of mergers and acquisitions, and employment law. The Journal is published four times annually by an organization of second and third year law students at the University of Pennsylvania Law School. The journal is one of six major scholarly journals at the University of Pennsylvania Law School and one of the top five most cited business law journals in the United States.

<span class="mw-page-title-main">United States corporate law</span> Overview of United States corporate law

United States corporate law regulates the governance, finance and power of corporations in US law. Every state and territory has its own basic corporate code, while federal law creates minimum standards for trade in company shares and governance rights, found mostly in the Securities Act of 1933 and the Securities and Exchange Act of 1934, as amended by laws like the Sarbanes–Oxley Act of 2002 and the Dodd–Frank Wall Street Reform and Consumer Protection Act. The US Constitution was interpreted by the US Supreme Court to allow corporations to incorporate in the state of their choice, regardless of where their headquarters are. Over the 20th century, most major corporations incorporated under the Delaware General Corporation Law, which offered lower corporate taxes, fewer shareholder rights against directors, and developed a specialized court and legal profession. Nevada has attempted to do the same. Twenty-four states follow the Model Business Corporation Act, while New York and California are important due to their size.

Basic Inc. v. Levinson, 485 U.S. 224 (1988), was a case in which the Supreme Court of the United States articulated the "fraud-on-the-market theory" as giving rise to a rebuttable presumption of reliance in securities fraud cases.

Murray Frank LLP is a law firm based in New York City that specializes in class action litigation, particularly in cases involving federal securities law, federal antitrust law, ERISA, and state consumer protection law.

Matrixx Initiatives, Inc. v. Siracusano, 563 U.S. 27 (2011), is a decision by the Supreme Court of the United States regarding whether a plaintiff can state a claim for securities fraud under §10(b) of the Securities Exchange Act of 1934, as amended, 15 U.S.C. §78j(b), and Securities and Exchange Commission Rule 10b-5, 17 CFR §240.10b-5 (2010), based on a pharmaceutical company's failure to disclose reports of adverse events associated with a product if the reports do not find statistically significant evidence that the adverse effects may be caused by the use of the product. In a 9–0 opinion delivered by Justice Sonia Sotomayor, the Court affirmed the Court of Appeals for the Ninth Circuit's ruling that the respondents, plaintiffs in a securities fraud class action against Matrixx Initiatives, Inc., and three Matrixx executives, had stated a claim under §10(b) and Rule 10b-5.

The fraud-on-the-market theory is the idea that stock prices are a function of all material information about the company and its business. It applies to securities markets, where it can be assumed that all material information is available to investors. The theory states that under these conditions, there is a causal link between any misstatement and any stock purchaser, because the misstatements defraud the entire market and thus affect the price of the stock. Therefore, a material misstatement's effect on an individual purchaser is no less significant than the effect on the entire market.

A securities class action (SCA), or securities fraud class action, is a lawsuit filed by investors who bought or sold a company's publicly traded securities within a specific period of time and suffered economic injury as a result of violations of the securities laws.

Halliburton Co. v. Erica P. John Fund, Inc., 573 U.S. 258 (2014), is a United States Supreme Court case regarding class action certification for a securities fraud claim. Under the fraud-on-the-market theory, the Court had to inquire as to if markets are economically efficient. The Court presumed they are.

References

  1. ↑ "Erica P. John Fund, Inc. v. Halliburton Co., No. 3:02-CV-1152-M | Casetext Search + Citator". casetext.com. Retrieved February 22, 2024.
  2. ↑ James Wilson (June 20, 2011). "Supreme Court's Decision in Erica P. John Fund v. Halliburton". LexisNexis.
  3. ↑ Skelly, George J.; Walz, Eric J. (August 13, 2015). "Erica P. John Fund v. Halliburton — the uncertain role of corrective disclosures at the class certification stage of securities fraud cases" (PDF). Nixon Peabody., discussing The Erica P. John Fund, Inc. v. Halliburton Company and David J. Lessar, No. 3:02-cv-1152-M (N.D. Tex.July 25, 2015).
  4. ↑ Fisher, Daniel (June 23, 2014). "Supreme Court Leaves Fraud On Market Intact, Makes Life A Bit Harder For Securities Plaintiffs". Forbes .
  5. ↑ Barrett, Paul M. (June 23, 2014). "Supreme Court Curbs, but Doesn't Kill, the Shareholder Class Action". Business Week . Archived from the original on June 23, 2014.
  6. ↑ Mark Friel (May 14, 2013). "Fifth Circuit Rejects Halliburton's Attempt to Defeat Class Certification With Price Impact Evidence". Stoll Berne.
  7. ↑ Solomon, Steven Davidoff (October 15, 2013). "A Push to End Securities Fraud Lawsuits Gains Momentum". The New York Times .
  8. ↑ Webber, David H. (2015). "Shareholder Litigation Without Class Actions". Arizona Law Review. 57 (1): 203. Retrieved November 18, 2019.
  9. ↑ No. 13-317 , 573 U.S. ___(2014)
  10. ↑ See, e.g., Shiller, Robert J. (October 27, 2013). "We'll Share the Honors, and Agree to Disagree". The New York Times . p. BU6. ("Of course, prices reflect available information").
  11. ↑ See Reply Brief 13 ("market prices generally respond to new, material information"); Tr. of Oral Arg. 7.
  12. ↑ Schleicher v. Wendt, 618F.3d679, 685(7th Cir.2010)., per Easterbrook, C. J.
  13. ↑ post, at 6 (THOMAS, J., concurring in judgment)
  14. ↑ Contrast State Oil Co. v. Khan , 522 U.S. 3 (1997), unanimously overruling Albrecht v. Herald Co. , 390 U.S. 145 (1968)
  15. ↑ Dickey, Jonathan (August 7, 2015). "Court Rules on Halliburton II". The Harvard Law School Forum on Corporate Governance. Retrieved February 23, 2024.


This page is based on this Wikipedia article
Text is available under the CC BY-SA 4.0 license; additional terms may apply.
Images, videos and audio are available under their respective licenses.