The U.S. Supreme Court decision on the securities class action against Halliburton might be a few weeks old, but it's still pretty fresh on the news circuit. That's likely because it involves a famous company, notorious for its ties with former U.S. Vice-President Dick Cheney.
The dark side of this case came at the Fifth Circuit level, when the Court of Appeals upheld a ruling from the district court, saying that the plaintiffs had not satisfied the requirements to bring a securities class action against Halliburton, under Federal Rule of Civil Procedure Rule 23.
Under Fifth Circuit Court of Appeals precedent, plaintiffs in a securities class action were required to prove "loss causation." Loss causation, according to the Fifth Circuit, was the element that required the plaintiff to show that the defendant's deceptive conduct caused the plaintiff-investor's claimed economic loss.
The lawsuit was brought on behalf of all investors who had purchased Halliburton common stock between June 3, 1999 and December 7, 2001. According to the U.S. Supreme Court opinion, as delivered by Chief Justice John Roberts, the lead plaintiff, Erica P. John Fund, Inc., claimed that Halliburton made several misrepresentations for the purpose of inflating its stock price, in violation of Rule 10b-5. These misstatements involved the scope of Halliburton’s potential liability in asbestos litigation, its expected revenue from certain construction contracts and the benefits of its merger with another company.
Investors lost money when Halliburton made various corrective disclosures and the stock price dropped.
The U.S. Supreme Court examined the earlier court’s ruling, particularly in light of the elements needed to pursue a securities fraud claim. The Court held that whole securities fraud plaintiffs needed to prove several elements in order to invoke the rebuttable presumption of reliance on the alleged misrepresentations, the Basic Inc v. Levinson case dictated that loss causation was not a precondition to invoking the rebuttable presumption.
Rather, the Court looked at transaction causation, in relying on the Dura Pharmaceuticals v. Broudo case, citing that when considering whether a plaintiff has relied on a misrepresentation, the Court has typically focused on facts surrounding the investor’s decision to engage in the transaction.
The Supreme Court’s decision in this case is certainly a breath of fresh air, particularly for anyone who was concerned that SCOTUS had pro-corporate leanings. Of course, for Dick Cheney’s friends, the SCOTUS ruling certainly has its dark side.
- Erica P. John Fund, Inc. v. Halliburton (FindLaw Cases)
- Basic v. Levinson (FindLaw Cases)
- Summary of Erica P. John Fund, Inc. v. Halliburton (FindLaw Case Summaries)