Erica P. John Fund, Inc. v. Halliburton Co.

Erica P. John Fund, Inc. v. Halliburton Co., 563 U.S. 804 (2011), was a United States Supreme Court case in which the Court held that "securities fraud plaintiffs need not prove loss causation in order to obtain class certification." Their decision cleared the way for class action to proceed against Halliburton over its alleged misrepresentation of facts material to the value of its stock price.[1]

Erica P. John Fund, Inc. v. Halliburton Co.
Argued April 25, 2011
Decided June 6, 2011
Full case nameErica P. John Fund, Inc., fka Archdiocese of Milwaukee Supporting Fund, Inc., Petitioner v. Halliburton Co., et al.
Docket no.09-1403
Citations563 U.S. 804 (more)
131 S. Ct. 2179; 180 L. Ed. 2d 24
ArgumentOral argument
Opinion announcementOpinion announcement
Holding
Securities fraud plaintiffs need not prove loss causation in order to obtain class certification.
Court membership
Chief Justice
John Roberts
Associate Justices
Antonin Scalia · Anthony Kennedy
Clarence Thomas · Ruth Bader Ginsburg
Stephen Breyer · Samuel Alito
Sonia Sotomayor · Elena Kagan
Case opinion
MajorityRoberts, joined by unanimous

Aftermath

On remand, the United States District Court for the Northern District of Texas held that Halliburton had discharged its burden of proof that alleged corrective disclosures had not resulted in any price impact for five, but not a sixth, corrective disclosure. Accordingly, a class action has been certified for the last instance.[2]

The Court now allows defendants "to present evidence before a class is certified showing that the alleged fraud had no effect on the price" movements."[3] Securities class action litigation will face additional hurdles and may be curbed, but not eliminated as result.[4] with further restriction of law being dependent on the United States Congress.

A further attempt by Halliburton to defeat class action was taken at the Court of Appeal in April 2013, and once again defeated.[5] Undeterred Halliburton again petitioned the Supreme Court to reconsider this position. At stake was "one of the fundamental tenets of securities fraud litigation: a doctrine known as fraud on the market.”[6] If this theory were unavailable, issues of individual shareholders' reliance would overshadow the common issues, and the class would not be eligible for certification under Rule 23 of the Federal Rules of Civil Procedure.[7]

On June 23, 2014, the Supreme Court affirmed the reasoning of Basic Inc. v. Levinson,[8] saying that it was not espousing any particular theory of markets, only the presumption that false statements can affect the price:

The academic debates discussed by Halliburton have not refuted the modest premise underlying the presumption of reliance. Even the foremost critics of the efficient-capital-markets hypothesis acknowledge that public information generally affects stock prices.[9] Halliburton also conceded as much in its reply brief and at oral argument.[10] Debates about the precise degree to which stock prices accurately reflect public information are thus largely beside the point. "That the . . . price [of a stock] may be inaccurate does not detract from the fact that false statements affect it, and cause loss," which is "all that Basic requires."[11] Even though the efficient capital markets hypothesis may have "garnered substantial criticism since Basic,"[12] Halliburton has not identified the kind of fundamental shift in economic theory that could justify overruling a precedent on the ground that it misunderstood, or has since been overtaken by, economic realities.[13]

Further reading
  • Booth, Richard (June 25, 2014). "Opinion analysis: Son of Halliburton". scotusblog.com.
  • "Erica P. John Fund, Inc. v. Halliburton Co" (PDF). Harvard Law Review. 128 (1): 291–300. 2014.

See also

References
  1. James Wilson (June 20, 2011). "Supreme Court's Decision in Erica P. John Fund v. Halliburton". LexisNexis.
  2. Skelly, George J.; Walz, Eric J. (August 13, 2015). "Erica P. John Fund v. Halliburton — the uncertain role of corrective disclosures at the class certification stage of securities fraud cases" (PDF). Nixon Peabody., discussing The Erica P. John Fund, Inc. v. Halliburton Company and David J. Lessar, No. 3:02-cv-1152-M (N.D. Tex. July 25, 2015).
  3. Fisher, Daniel (June 23, 2014). "Supreme Court Leaves Fraud On Market Intact, Makes Life A Bit Harder For Securities Plaintiffs". Forbes.
  4. Barrett, Paul M. (June 23, 2014). "Supreme Court Curbs, but Doesn't Kill, the Shareholder Class Action". Business Week.
  5. Mark Friel (May 14, 2013). "Fifth Circuit Rejects Halliburton's Attempt to Defeat Class Certification With Price Impact Evidence". Stoll Berne.
  6. Solomon, Steven Davidoff (October 15, 2013). "A Push to End Securities Fraud Lawsuits Gains Momentum". The New York Times.
  7. Webber, David H. (2015). "Shareholder Litigation Without Class Actions". Arizona Law Review. 57 (1): 203. Retrieved 18 November 2019.
  8. No. 13-317, 573 U.S. ___ (2014)
  9. See, e.g., Shiller, Robert J. (October 27, 2013). "We'll Share the Honors, and Agree to Disagree". The New York Times. p. BU6. ("Of course, prices reflect available information").
  10. See Reply Brief 13 ("market prices generally respond to new, material information"); Tr. of Oral Arg. 7.
  11. Schleicher v. Wendt, 618 F.3d 679, 685 (7th Cir. 2010)., per Easterbrook, C. J.
  12. post, at 6 (THOMAS, J., concurring in judgment)
  13. Contrast State Oil Co. v. Khan, 522 U.S. 3 (1997), unanimously overruling Albrecht v. Herald Co., 390 U.S. 145 (1968)
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