Halliburton II: It All Depends on What Defendants Need to Show to Establish No Impact on Price

• Published in: The Business Lawyer Vol. 70; no. 2; pp. 437 - 464
• Main Author: Fox, Merritt B.
• Format: Journal Article Trade Publication Article
• Language: English
• Published: Chicago Business Law Section of the American Bar Association 22.03.2015; American Bar Association
• Subjects: Causality; Certification; Class action lawsuits; Commercial law; Efficient markets; Evaluation; Evidence; Evidence, Statistical; Fraud; Laws, regulations and rules; Massey Prize for Research in Law, Innovation, and Capital Markets Symposium—Foreword; Oilfield equipment & services; Prices; Securities fraud; State court decisions; Supreme Court decisions; United States > US
• ISSN: 0007-6899; 2164-1838

Rule 10b-5 private damages actions cannot proceed on a class basis unless the plaintiffs are entitled to the fraud-on-the-market presumption of reliance. In Halliburton II, the Supreme Court provides defendants with an opportunity, before class certification, to rebut the fraud-on-the-market presumption through evidence that the misstatement had no effect on the issuer's share price. It left unspecified, however, the standard by which the sufficiency of this evidence should be judged. This Article explores the two most plausible approaches to setting this standard. One approach would be to impose the same statistical burden on defendants seeking to show there was no price effect as is currently imposed on plaintiffs to show that there was a price effect when the plaintiffs later need to demonstrate loss causation. The other approach would be to decide that defendants can rebut the presumption of reliance simply by persuading the court that the plaintiffs will not be able meet their statistical burden. If the courts choose the first approach, Halliburton II is unlikely to have much effect on the cases that are brought or on their resolution by settlement or adjudication. If they choose the second approach, the decision's effect will be more substantial The Article concludes with a brief discussion of some of the considerations that should be relevant to courts in their choice between the two approaches.