The first Circuit Court of Appeals decision applying the Supreme Court’s landmark 2014 decision in Halliburton Co. v. Erica P. John Fund Inc., 134 S. Ct. 2398 (2014) (“Halliburton II”), favored the defendants, finding as a matter of law that Best Buy Co. and its executives successfully rebutted the presumption of reliance set forth in Basic v. Levinson, 485 U.S. 224 (1988) at the class certification stage through evidence of a lack of price impact from their alleged misstatements. See IBEW Local 98 Pension Fund et al. v. Best Buy Co., Inc. et al., Case No. 14-3178 (8th Cir. Apr. 12, 2016). By reversing the district court and holding that a class could not be certified, the Eighth Circuit showed that Halliburton II provides defendants with a meaningful opportunity to challenge the fraud on the market presumption. The plaintiffs’ bar, however, will be eager to highlight Best Buy’s unique pattern in trying to limit the impact of the decision beyond this case. Whether other federal courts follow the Eighth Circuit’s lead and deny class certification motions based on Halliburton II in greater numbers, and outside the Best Buy fact pattern, remains to be seen.
In what is now the third interlocutory appeal in the course of class certification proceedings spanning more than a decade, the case of Erica P. John Fund, Inc. v. Halliburton Co. will head back to the United States Court of Appeals for the Fifth Circuit, with perhaps another trip to the Supreme Court to follow. The Fifth Circuit’s eventual decision on this latest interlocutory appeal could clarify—at least in the Fifth Circuit—just how far a defendant in a securities class-action can go in presenting indirect evidence of (a lack of) price impact to defeat class certification.
In a lengthy ruling containing a detailed analysis of dueling economic expert reports, a federal court in Texas held on July 25, 2015 that defendant Halliburton Company demonstrated a lack of price impact at the class-certification stage on nearly all of the plaintiffs’ claims, thus rebutting the presumption of reliance. This action has twice been to the Supreme Court, most recently in Halliburton, Co. v. Erica P. John Fund, Inc., 134 S. Ct. 2398 (2014) (“Halliburton II”), which held that the fraud-on-the-market presumption of reliance may be rebutted by showing a lack of price impact from the alleged misrepresentation. The district court’s recent decision is significant because it is one of the first to consider the issue of price impact post-Halliburton II, and because the decision suggests that lower courts may be willing to wade deep into the complications of event studies and economic analysis in order to determine price impact at the class-certification stage.