Justices May Limit Securities Fraud Suits - NYTimes.com

Plaintiffs lawyer David Boies

At oral argument today in Halliburton v. Erica P. John Fund Associate Justice Antonin Scalia characteristically took the most hostile position toward plaintiffs - here investors alleging fraud.  Chief Justice Roberts - whose pro-business orientation is undoubted - nonetheless was looking for a middle way.  Of course in this environment a middle way usually means making things harder for plaintiffs.  He was clearly interested in the friend of the court brief of two law professors - Adam Pritchard and Todd Henderson.  They support " demands that a putative class show the presence of a true fraud on the market."  Of course - but when?

The two profs propose that an "event study" be presented before class certification - to show price impact.  Such a showing would then entitle plaintiffs to a presumption of reliance. Citing Georgetown law professor Donald Langevoort's work, they acknowledge that "while it may be more difficult in such instances to show price distortion as a result of a particular misstatement, this increased difficulty should not prevent the adoption of a market-impact inquiry in class actions."  Roberts liked the idea of raising the bar, and the lawyer for the United States actually suggested it would be good for plaintiffs.  David Boies - plaintiffs' lawyer - emphasized the complexity of "event studies",

I don't know how this works out but it seems to me that the "middle way" would be very expensive. I see no good reason to require such a showing before class certification - because such studies are relevant to loss, not to the appropriateness of a class-wide remedy.  Event studies - complex analyses of the market impact of a reckless misrepresentation and its disclosure - are inevitably the subject of a Daubert attack - asserting the conclusion to be methodologically deficient.  The so-called "middle way" seems to me to be another swing at the pinata and an invitation for judges to engage in the sort of evidentiary weighing that have made Daubert motions dangerous tools when the judge is ideologically unfriendly (as most Republican judges now are).  - GWC

Justices May Limit Securities Fraud Suits - NYTimes.com: 

by Adam Liptak

WASHINGTON — The Supreme Court on Wednesday seemed ready to impose new limits on securities fraud suits that would make it harder for investors to band together to pursue claims that they were misled when they bought or sold securities. But the justices did not seem inclined to issue a ruling that would put an end to most such suits.
The new limits would be in keeping with earlier decisions from the court led by Chief Justice John G. Roberts Jr., which has made it more difficult for workers and consumers to pursue class actions. The decision in the case argued Wednesday, expected by June, seems likely to do something similar in cases brought by investors.
Several justices suggested that this phenomenon could be partly addressed through a proposal in a supporting brief filed by two law professors, which argued that plaintiffs should be required to show at an early stage “whether the alleged fraud affected market price.”
Justice Anthony M. Kennedy seemed particularly taken with the brief, referring to it several times. “I call it the midway position,” he said.
Aaron M. Streett, a lawyer for the Halliburton Company who had argued for broader limits, said he welcomed that approach as a fallback position. But David Boies, a lawyer for the plaintiffs, resisted it.
“That’s very complicated,” Mr. Boies said. “It takes a lot of time. It’s very expensive. It’s a lot of expert testimony.”
The plaintiffs contend that Halliburton made false statements on three topics that were intended to inflate its stock price: its financial exposure to asbestos claims, prospective earnings from its engineering and construction business and expected benefits of a merger.
Mr. Boies said the difficulty of making the showing suggested by Justice Kennedy would vary depending on the statement, because it can be hard to untangle the impact of a misstatement from other factors that affect stock prices.
Perhaps surprisingly, a Justice Department lawyer, arguing in support of the plaintiffs, seemed open to the compromise position when Justice Kennedy asked him for his view “of the consequences if we adopt the law professors’ view?”
“If anything,” the lawyer, Malcolm L. Stewart, said, “that would be a net gain to plaintiffs, because plaintiffs already have to prove price impact at the end of the day.”
As that answer suggested, the likely outcome in the case will be to erect a new but often surmountable hurdle in securities fraud cases. Most observers said such a result would be a minor victory for corporate defendants, allowing them to defeat some securities fraud claims at the outset, but a tolerable burden for class-action plaintiffs’ lawyers.

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