The transcript of this morning’s oral argument in Hailliburton is now online. It was a hot bench with eight out of the nine justices participating. Professor Black has already weighed in with her reactions. Here are a few quick thoughts based on the oral argument, some of which echo hers:
1. The Fifth Circuit had no friends. Halliburton’s attorneys seem to be changing their litigation strategy midstream and cutting themselves loose from portions of the 5th Circuit opinion for their client. Perhaps that was the only sound strategy, but for the Court to rule for Halliburton they would have to reconstruct the 5th Circuit opinion from the remnants that have not been cut loose.
It seems that Halliburton is now conceding that loss causation is not part of class certification, but that the company successfully rebutted the presumption that a market was efficient. That might be some creative recharacterization of how Halliburton litigated the case.
Justice Sotomayor picked up on this, “So you’re not defending the rationale of the Fifth Circuit now? You’re sort of backing yourself into the reliance element?”
Halliburton’s counsel responded that the issue they are arguing “is not loss causation; it’s price impact.”
I’m not sure there is much difference in that distinction. Justice Kagan appears to have thought the same. She asked:
One possible argument you could be making is that the plaintiffs have to show a price impact. Another possible argument you could be making is that you have to have the opportunity to rebut the plaintiff’s use of the Basic presumption by yourself showing that there was no price impact.
Halliburton’s counsel asserted they were arguing the latter. But Justice Ginsburg said that the 5th Circuit opinion appears to put the burden of proving price impact on the plaintiff. At this point, counsel hung the 5th Circuit out to dry and conceded that that lower court opinion was contrary to Basic.
2. What does “rebuttable presumption” mean? What does it mean for a presumption to be rebuttable? According to Halliburton’s counsel, it don’t take much. Under questioning from Justice Kagan, Halliburton’s counsel asserted that all defendants have to do is put an expert witness on the stand.
I agree with Professor Black (and Justice Kagan), that that doesn’t seem to be treating the Basic presumption as more than a paperweight. Nevertheless, it is more than the 5th Circuit seems to require. After re-reading both the 5th Circuit opinions in Halliburton and the earlier case of Oscar on which it is based, a mere assertion that something else caused the price change might rebut Basic’s presumption.
In describing the rebuttable presumption, the Basic Court wrote:
Any showing that severs the link between the alleged misrepresentation and either the price received (or paid) by the plaintiff, or his decision to trade at a fair market price, will be sufficient to rebut the presumption of reliance.
Halliburton and the Fifth Circuit emphasize the “any showing” but not the “severs the link.”
What does it take for a presumption of reliance to be rebuttable? Surprisingly, the lawyers today did not focus much on the examples that Basic itself gave. For example, market makers who heard a false statement may not have believed it. Alternatively, Judge Frank Easterbrook, in his opinion in Schleicher criticizing the Fifth Circuit in Oscar, touted the truth-on-the-market defense. According to this theory, if a company made a false statement but sophisticated investors learned the truth before investors suffered a loss, there is no reliance. Judge Easterbrook argues that an efficient market may also cut against plaintiffs.
When can defendants rebut the presumption? David Boies, arguing for petitioner, argued it should occur after a class has been certified at the merits stage. When pressed by Justice Alito for support, he asserted that the type of situations that would rebut the presumption would be common to an entire group of investors. Barbara: do you think the Court has to address the question of when the presumption can be rebutted?
3. This is about Rule 23(b). As much as I love securities law, this case is really about civil procedure and reading the text of the Federal Rules of Civil Procedure.
Justices Breyer and Scalia focused much of their questions on one of the core issues of the case, namely whether the Rule 23(b) standard for certifying a class has been met. My guess is that, unlike the Fifth Circuit, the Court will focus the bulk of its reasoning on whether the predominance standard of Rule 23. If the absence of an element would mean common issues do not predominate, plaintiffs must prove it to certify a class. Conversely, if an element is common to all investors of a putative class, it ought to be decided at the merits stage.
I agree with Professor Black that the justices will not look to revisit Basic and will seek a narrow holding. My bet would be that this will push the judges to a rather straightforward holding that issues of loss causation would be common to an entire class, and thus loss causation (or “price impact” by any other name) is not an appropriate condition to certifying a class under Rule 23(b).
Did Halliburton’s counsel make a strategic blunder when he argued the following:
Rule 23 makes clear that the district court has ample discretion at the class certification stage to allow discovery into the merits to the extent that they are relevant to the class certification issue.
That line invited a teasing rebuke by Justice Scalia that Halliburton was inviting the Court to move costly discovery up to the class certification stage. Jokes aside, I have got to believe many of the justices – including some of the more “conservative” members of the Court-- are not going to favor arguments for more discretion in trial courts in conducting class certification inquiries. Don’t the Federal Rules mean something?
In the interest of full disclosure, again, Professor Black and i joined 16 other law professors in an amicus brief arguing that the Fifth Circuit should be reversed.
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