Professor Merritt Fox Presents on Supreme Court’s Halliburton II Securities Class Action Decision

New York, October 14, 2014—At a recent workshop of the Program in the Law and Economics of Capital Markets, Columbia Law School Professor Merritt Fox made a presentation concerning the U.S. Supreme Court’s recent decision in the Halliburton II case relating to the fraud-on-the-market presumption of reliance in Rule 10b-5 private damages securities suits. 

Professor Merritt Fox
The presumption, which is available in any case involving a material public misstatement of an issuer whose shares trade in an efficient market, eliminates the need for plaintiffs to make particularized claims of reliance for each plaintiff. The presumption is essential for any such suit to proceed on a class basis.  In Halliburton II, the court held that defendants must be afforded an opportunity at an early stage in the litigation—at the time of class certification—to defeat the presumption through evidence that the alleged misrepresentation did not actually affect the market price of the stock. The court left unclear, however, what the standard is for determining whether the evidence presented by a defendant as to a misstatement having no impact on price is sufficient to rebut the presumption.  
Whether gaining the right to rebut the presumption at this early stage of litigation is of genuine value to defendants depends very much on the answer to this question. Much is at stake because, if an action cannot proceed on a class basis, it is unlikely to be continued. Fox discussed what he sees as the two most plausible approaches the courts might take in setting this standard.  One approach would be for the courts 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 must 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. Fox explored as well some of the considerations that should be relevant to courts in their choice between the two approaches.
Fox, the Michael E. Patterson Professor of Law and NASDAQ Professor for Law and Economics of Capital Markets, is an expert in corporate and securities law, law and economics, and international finance. He presented his research at a Sept. 11 workshop for the fellows of the Columbia Law School/Columbia Business School Program in the Law and Economics of Capital Markets. Fox’s paper, “Halliburton II: It all Depends on What Defendants Need to Show to Establish No Impact on Price,” is forthcoming in The Business Lawyer.