Supreme Court Decides Halliburton Co. v. Erica P. John Fund, Inc.

On June 23, the Supreme Court in Halliburton Co. v. Erica P. John Fund, Inc. held that a securities class action defendant may introduce evidence at the class certification stage to rebut the presumption that an alleged misrepresentation impacted a company’s share price. In so holding, the Court declined to overturn its decision in Basic Inc. v. Levinson, 485 U.S. 224 (1988). In Basic, the Court ruled that investors who purchase or sell stock at the market price are presumed to have relied on a company’s misrepresentation, with the understanding that the stock price reflects all public, material information. To rebut this presumption, a defendant could show that the alleged misrepresentation did not actually affect the stock ‘s price. The Court granted certiorari from a US Court of Appeals for the Fifth Circuit decision holding that the defendant could not, at the class certification stage, introduce evidence that an alleged misrepresentation did not impact the company’s share price. The Court declined to overturn its decision in Basic, but held that defendants should be able to rebut the presumption at the class certification stage that an alleged misrepresentation did affect the stock price by introducing evidence of lack of price impact. Because defendants were already permitted to introduce price impact evidence at the merits stage, the Court ruled that defendants should not be precluded from introducing such evidence earlier in the litigation.