On April 12, 2016, the U.S. Court of Appeals for the Eighth Circuit issued a significant decision denying class certification in a federal securities fraud action, holding that the defendants had rebutted the fraud-on-the-market presumption of class-wide reliance. IBEW Local 98 Pension Fund, et al. v. Best Buy Co., Inc., is the first federal appellate court decision denying class certification in a federal securities case under the Supreme Court’s Halliburton II decision and provides useful guidance for defendants seeking to defeat class certification in federal securities class actions by rebutting the fraud-on-the-market presumption.

1. BACKGROUND: RELIANCE, FRAUD-ON-THE-MARKET, AND “PRICE IMPACT” -

Investors pursuing claims for securities fraud under Section 10(b) of the Securities Exchange Act of 1934 and SEC Rule 10b-5 must prove that they relied on an alleged misrepresentation in connection with the purchase or sale of a security. In theory, the requirement to prove that each individual investor actually relied on an allegedly fraudulent statement about a company when deciding whether to invest in the company’s securities would present individual questions potentially precluding certification of any Section 10(b) claims as class actions. Under decades-old Supreme Court precedent, however, if a company’s stock traded in an efficient market, shareholder plaintiffs are entitled to a presumption of reliance, on the theory that investors rely on the integrity of a stock’s market price and, in an efficient market, any public misstatement about the company is reflected in the market price, resulting in a “fraud on the market.”