Argument Re-Cap: "A Crazy Way to Run a Railroad?"

Abstract

On April 25, the Court heard oral argument in Erica P. John Fund, Inc. v. Halliburton Co. (No. 09-1403), a case involving the denial of class certification of a proposed Rule 10b-5 securities fraud litigation, brought against Halliburton. The case focuses on the appropriate burden of production at class certification in a securities fraud case, for a plaintiff to be entitled to rely on a presumption of a "fraud on the market." The Court's existing precedent creating the "fraud on the market" presumption in Rule 10b-5 securities fraud cases is known as the Basic decision. A plaintiff who properly invokes the so-called Basic presumption thereby satisfies the predominance requirement for certification of a Rule 23(b)(3) damage class action.

The Fifth Circuit denied class certification, reasoning that although the plaintiffs satisfied their burden of establishing an efficient market to invoke the presumption, they did not satisfy their burden of showing loss causation, relying on a Fifth Circuit case (Oscar). The plaintiffs contended, on appeal, that the Fifth Circuit imposed an improper burden on the plaintiff class to prove loss causation at class certification, which they argued is a merits issue to be decided at trial. Halliburton argued that under prevailing Supreme Court authority (the Basic decision), that defendants are entitled to present evidence rebutting the presumption based on price impact, and the Fifth Circuit's decision was consistent with that theory. The Seventh Circuit has repudiated the Fifth Circuit's Oscar approach to class certification, invoking the fraud on the market presumption.

This piece recaps the arguments by opposing counsel to the Supreme Court.