Monday, January 10, 2011
(1) Whether the Fifth Circuit correctly held, in direct conflict with the Second Circuit and district courts in seven other circuits and in conflict with the principles of Basic Inc. v. Levinson, 485 U.S. 224 (1988), that plaintiffs in securities fraud actions must satisfy not only the requirements set forth in Basicto trigger a rebuttable presumption of fraud on the market, but must also establish loss causation at class certification by a preponderance of admissible evidence without merits discovery.
(2) Whether the Fifth Circuit improperly considered the merits of the underlying litigation, in violation of both Eisen v. Carlise & Jacquelin, 417 U.S. 156 (1974), and Federal Rule of Civil Procedure 23, when it held that a plaintiff must establish loss causation to invoke the fraud-on-the-market presumption even though reliance and loss causation are separate and distinct elements of security fraud actions and even though proof of loss causation is common to all class members.
Links to the lower court opinion and the cert. stage briefs can be found at SCOTUSblog’s casefile.
The extent to which a court must consider the merits of class claims at the certification stage is an area of considerable uncertainty, and it is a significant issue in Wal-Mart v. Dukes (now pending before the Supreme Court). Although the merits-at-certification issue is not mentioned explicitly in Wal-Mart’s questions presented, it figures prominently in the en banc Ninth Circuit’s discussion of Rule 23(a)’s commonality requirement in that case (see 603 F.3d 571, 580-598), and the Supreme Court directed the parties to brief whether the Wal-Mart class action satisfies Rule 23(a).