Editor's Note: David Sterling is firmwide chair of the Litigation practice at Baker Botts. He is the lead counsel for the defendants in the Halliburton case. David prepared the filings in the Halliburton case that led the Court to hear oral arguments on the issue.
What impact will the Court’s decision today have on the securities class actions going forward?
DS: Today’s opinion provides defendants with an important tool to defeat a 10b-5 class action at a relatively early stage of the litigation. One of the foundational elements of a 10b-5 class action is the connection between the alleged misrepresentations and the price of the stock. In many of these cases, that connection is tenuous. Today’s decision makes clear that defendants must be afforded an opportunity to rebut the presumption of reliance before class certification with evidence of a lack of price impact.
Why do you think it was important to raise this issue and take it all the way to the Supreme Court?
DS: There has been a lot of criticism, academic and otherwise, directed at the Supreme Court’s 1988 opinion in Basic Inc. v. Levinson, and lower courts have interpreted and applied Basic in different and conflicting ways. It was important to have the Supreme Court revisit Basic and clarify that defendants may rebut the classwide presumption of reliance created by Basic with evidence of a lack of price impact at the class certification stage.
How should clients approach securities class action suits moving forward in light of the Court’s decision?
DS: I think defendants have always been cognizant of the significance of price impact in 10b-5 class actions. But before today’s opinion, price impact was widely regarded as an issue that could not be raised until the summary judgment stage of a case, or perhaps not even until trial. Now it is clear that price impact can be used to defeat class certification, which should be decided at a much earlier stage of the litigation.