Halliburton II, Class Actions, Securities


The U.S. Supreme Court's decision in Halliburton Co. v. Erica P. John Fund, Inc., 573 U.S. 258 (2014) (Halliburton II) appeared to give corporate defendants a new tool to defeat class certification in the context of securities fraud class action litigation: rebutting the requisite presumption of reliance by showing a lack of "price impact"-a term that Halliburton II used to describe whether the price of an allegedly affected company's stock went up or down. However, based on an empirical study of pre- versus post-Halliburton II class certification decisions, it appears that the outcomes of class certification decisions have become even more hostile to defendants, as class certification is now being granted with greater frequency post­Halliburton II. This Article attempts to answer why this is occurring and suggests that two key drivers are responsible. First, although corporate defendants have advanced Halliburton Il's lack-of-price-impact argument, they have done so at their own peril because the post-Halliburton II courts tend to narrowly construe whether there is a lack of price impact. In particular, the post-Halliburton II courts have required defendants to show a lack of price impact at the time that the truth-or corrective information entered the market (the "back-end"), not at the time the misrepresentation (the "front-end") was made. This standard has been fatal to the majority of arguments based on the lack-of-price-impact because plaintiffs plead back-end dates where there was demonstrable price movement. Moreover, courts do not allow defendants to show that the price movement on the selected date was caused by benign factors, nor do they accept alternative back-end dates more favorable to defendants. Second, when defendants attempt to make a price impact-based argument, the majority of the post-Halliburton II courts have placed the burden of persuasion-not the lower burden of production-on defendants. The burden of persuasion is a heavy burden that corporate defendants have overwhelmingly not been able to satisfy. These two factors were not decided by Halliburton II, and the post-Halliburton II courts have subsequently construed these issues to the detriment of corporate defendants. Given the current lay of the land, it is uncertain what can be done to address the foregoing issues. This Article suggests that until the Supreme Court addresses these issues, the post-Halliburton II courts ought to address the imbalance by permitting defendants to show lack of both front- and back-end price impact. The Article also proposes that the post-Halliburton II courts should place the onus on plaintiffs to plead that front-end lack of price impact is an unreliable metric in opposition to defendants' rebuttal argument.



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