There is another important class action case before the U.S. Supreme Court. Arguments were heard last month in a case that could dramatically raise the bar for shareholders who want to file class-action lawsuits against public companies. There are dozens of shareholder class actions arising out of the financial meltdown making their way through the lower courts. The central issue in the case, (Erica P. John v. Halliburton), is how courts should set the threshold for certifying a shareholder class action alleging securities fraud. A group of mutual and pension fund investors sued Halliburton in 2002, alleging that the oilfield services company understated its vulnerability to asbestos-related lawsuits and that it overstated its revenues. Those misstatements, the suit alleged, artificially caused a rise in Halliburton’s stock price.
A federal trial court in Texas dismissed the case, ruling that shareholders hadn’t proven that their losses were tied to a particular statement made by the company or its officers. That decision essentially imposed a new test for Plaintiffs to meet at the class-certification stage. A federal appeals court upheld the ruling. Plaintiffs’ and Defense lawyers agree that a Supreme Court ruling upholding the lower courts could radically change the dynamic of shareholder lawsuits. Having to prove loss causation at that early stage of a case — prior to a motion to dismiss being heard – is virtually impossible in many cases. Plaintiffs have limited power to demand information from the other side.
The petitioner’s case was presented by David Boies, who represented Al Gore before the Supreme Court in the disputed 2000 Presidential election. The U.S. government wrote a brief supporting the petitioners, arguing that the lower courts erred in establishing additional hurdles for Plaintiffs at the class-certification stage. The oral argument on behalf of the company was done by David Sterling of Baker Botts. A number of industry trade groups, including the Securities Industry and Financial Markets Association and U.S. Chamber of Commerce, have filed briefs for the company. A decision in the case is expected by the end of June. It will be interesting to see if “investors” are treated better by this court than ordinary folks.
Source: Insurance Journal
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