Monday, April 25, 2011
Here are my initial thoughts after reading the transcript of today's oral argument in Erica P. John Fund v. Halliburton Co.:
The most important message: Nobody, not even defendant's counsel, supports the Fifth Circuit's position that requires plaintiffs to prove loss causation at the class certification stage.
The plaintiffs' and government's oral arguments, and their colloquys with the Justices, were rather bland. Petitioner-Plaintiff's argument was relatively straight forward: loss causation is a common issue and not appropriate at the class certification. The Justices asked a number of questions but, with the possible exception of Justices Scalia and Alito, no one seemed inclined to revisit the Basic presumption or reach other policy issues.
The Justices asked the fewest questions of the attorney for the government, who argued as amicus curiae supporting Petitioner. Whether this reflects a deference for the government's position (who agreed with plaintiff) or whether the Justices were simply taking a breather, of course, can't be known.
The transcript became a more interesting read with the defendants' oral argument and the Halliburton attorney's herculean effort to revise the Fifth Circuit's holding so that it is really all about the Basic presumption of reliance. As articulated by Halliburton's attorney, the Fifth Circuit wasn't focusing on loss causation at all, but price impact. Since the Basic presumption is rebuttable, any showing that severs the link between the misrepresentation and stock price defeats the presumption. After being pressed by Justice Kagan, he also allowed that (contrary to the 5th Circuit, which put the initial burden of production on plaintiff) Basic puts the initial burden on the defendant to show absence of price impact; once that is met, the burden is on the plaintiff to show by a preponderance of the evidence that the market price was distorted. This is, he asserts, all part of the Basic reliance presumption and is so much less onerous than establishing loss causation.
Justices Ginsburg and Kagan separately made the observation that it seemed that defendant's argument essentially requires the plaintiffs to prove their case on the merits at the class certification stage. No, not at all, asserted defendant's attorney. Justice Kagan: "in your world the Basic presumption is not worth much."
Justice Scalia dropped a hint of where he might be going. He asked the plaintiff's attorney why not just agree that loss causation is not required at the class certification stage and remand to the Fifth Circuit to adopt the theory that defendants say they've already adopted. That would be a pyrrhic victory for plaintiffs, he observes. Plaintiff's attorney argued that would be a really bad result since loss causation and reliance are two distinct elements, but it's not clear he got that argument across.
My impression, which of course could prove to be totally wrong, is that, consistent with other recent securities opinions, the Justices are not looking to revisit Basic or address larger policy questions. They don't want to adopt the most extreme Circuit position (remember they didn't adopt the 8th Circuit reasoning in Stoneridge that would have eliminated "scheme liability"), but there's no indication that they want to relax the requirements for class certification.
I look forward to reading others' initial reactions.