News and Events
Update: U.S. Supreme Court Rejects Potential Obstacle to Certification of Securities Fraud Class Actions Against Public Companies
Monday, June 06, 2011
By Janissa Strabuk
In a unanimous opinion, the United States Supreme Court today held that securities fraud plaintiffs need not prove loss causation for a misrepresentation case to be certified as a class action. While plaintiffs must "demonstrate that the defendant's deceptive conduct caused their claimed economic loss," to prevail on the merits of their case, they need not prove loss causation at the class certification stage, wrote Chief Justice John Roberts for the court in Erica P. John Fund, Inc. v. Halliburton Co., et al. The Court's ruling resolves a split in the federal Circuit courts and removes what had been a potential obstacle to class certification of certain securities fraud lawsuits against public companies.
The plaintiff, Erica P. John Fund, Inc., sued Halliburton on behalf of a proposed class of investors, alleging that Halliburton violated section 10(b) of the Securities Exchange Act of 1934 and Securities and Exchange Commission Rule 10b-5 by making deliberate false statements about certain potential liabilities in asbestos litigation, expected revenues from construction contracts, and the benefits of a merger with Dresser Industries. The Fund further alleged that after Halliburton issued disclosures correcting the purported false statements, Halliburton's stock price fell causing the investors' losses.
The key question on appeal was whether the Fund met Federal Rule of Civil Procedure 23(b)(3)'s requirements for class certification by demonstrating, among other requirements, that common questions of law and fact predominate over individual issues. Justice Roberts noted that "[w]hether common questions of law and fact predominate in a securities fraud action often turns on the element of reliance." Both the District Court and the Fifth Circuit concluded that the Fund had to prove loss causation to establish that the issue of reliance could be resolved on a class-wide basis. Because the Fund could not prove loss causation, certification was denied. In rejecting that ruling, Roberts wrote that such a requirement was contrary to the high court's prior rulings and that securities fraud plaintiffs need not establish loss causation to obtain class certification.
The case now goes back to the trial court, which, Justice Roberts, noted, said it would certify the class were it not for the "loss causation requirement."
More on Our Attorneys
Other Recent News
TBS attorney, Kim D. Stephens, with co-counsel, won an appeal before the Washington State Court of Appeals in a trust and estate dispute arising out of the estate of noted real estate developer, J. Thomas Bernard.Read More»
Tousley Brain Stephens PLLC attorneys, Chris Brain, Kim Stephens, and Chase Alvord, were recognized recently as three of the 2015 Best Lawyers in America. Lawyers are chosen for inclusion based solely on the vote of their peers.Read More»
TBS Attorneys Carl Carlson and Jason Dennett won an appeal before the Washington State Court of Appeals in a case involving a family trust's $26 million claim for investment losses.Read More»
On July 2, 2014, the United States Court of Appeals for the Seventh Circuit reversed a lower court's refusal to certify a class of homeowners who bought allegedly defective IKO asphalt shingles.Read More»
On July 3, 2014, Tousley Brain Stephens PLLC and Ashburn & Mason P.C. filed a class action complaint in federal court in Alaska against Howmedica Osteonics Corporation, which does business as Stryker Orthopaedics. Plaintiffs filed on behalf of a national class of third-party payors, including health and welfare funds, self-insured employers, and non-profit and for-profit health insurers, against Stryker to recover medical costs paid for the implantation, removal, and replacement of Stryker's recalled, allegedly defective Rejuvenate(r) prosthetic hip.Read More»