In earlier editions of the Jere Beasley Report, we discussed the much touted securities case, Halliburton Co. v. Erica P. John Fund Inc. The case questioned whether a plaintiff could rely on the fraud-on-the-market presumption at class certification or whether defendant could present evidence that there was no price impact stemming from the defendants actions at the class certification stage. Ultimately, the Supreme Court determined that the presumption remains, but that a defendant can present evidence to rebut that presumption at class certification. Halliburton was remanded where class certification was reassessed and the defendants allowed to rebut market impact.
United States District Judge Barbara Lynn granted class certification, but only with respect to the company’s alleged corrective disclosure of December 7, 2001. As to the other five alleged corrective disclosures, certification was denied. As the new rule played out, the plaintiff was still entitled to the presumption of fraud-on-the-market, meaning Halliburton had the burden to prove that the announcements did not affect the company’s stock price. Judge Lynn found that Halliburton had not satisfied that burden for the December 7 disclosure. That ruling came about the same time that a Baltimore jury found that a Halliburton subsidiary, Dresser, would have to pay $30 million following a trial in an asbestos lawsuit. The company’s shares plunged about 40 percent soon after. Judge Lynn wrote in her order:
Although the court finds that at least some of Halliburton’s stock price decline on that date is likely attributable to uncertainty in the asbestos environment that also impacted other companies with asbestos exposure, Halliburton has not determined that uncertainty caused the entirety of Halliburton’s substantial price decline.
Instead, the court found that the December 7 disclosure “likely reflected the market’s view of Halliburton’s prior representations regarding its asbestos liability and increased uncertainty in the asbestos environment.” Despite determining that Halliburton met its burden regarding the five other disclosures, the court also ruled against the company’s attempts to place the burdens of showing actual impact on plaintiffs if the defendant shows evidence to rebut the fraud-on-the-market presumptions.
In other words, the Supreme Court’s decision in Halliburton was strictly interpreted and adhered to by Judge Lynn. The plaintiff still retains the benefit of a price impact presumption and the defendants, though allowed to present evidence of no impact this early, bear the heavy burden of overcoming that presumption; presentation of evidence, by itself, is not enough to shift the burden of proof to the plaintiff.
Judge Lynn also found that certain considerations, such as whether an alleged misrepresentation was in fact a misrepresentation, were not ripe at the class certification stage saying:
To hold otherwise would require the court to pass judgment on the merits of the allegations after the dismissal stage and before summary judgement – in effect, giving a third bite at the apple to Halliburton.
I suspect that the issues discussed above will continue to be debated in the courts. I don’t believe that corporate defendants and their lawyers will give up very easily.
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