Halliburton: US Supreme Court Resolves Circuit Split on Loss Causation


In Erica P. John Fund, Inc. v. Halliburton Co. (No. 09-1403), the U.S. Supreme Court reversed the Fifth Circuit Court of Appeals and held that a securities fraud plaintiff need not establish “loss causation,” i.e., that the defendant’s alleged misrepresentation caused the plaintiff an economic loss, in order to obtain class certification. In so ruling, the Court resolved a split among the Fifth Circuit and the precedents of other Circuits, several of which had already declined to require securities fraud plaintiffs to prove loss causation at the class certification stage. This decision removes a major hurdle for class action plaintiffs in the Fifth Circuit. In Circuits other than the Fifth Circuit, the Halliburton decision should have little impact on securities fraud class action cases.

Perhaps more importantly, however, the Court’s decision in Halliburton left open potential questions presented by the Fifth Circuit’s ruling regarding “price impact,” i.e., whether the defendant’s misrepresentation affected the price of the security purchased by the plaintiff. These questions had previously been decided by the Fifth Circuit and others, and include whether: (i) in reviewing a plaintiff’s request for class certification, district courts should examine evidence of “price impact;” and if so, (ii) the plaintiff has the burden of proving such price impact, a defendant has the burden instead of rebutting a presumption of price impact, or the district court should undertake some other analysis of price impact.

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