{ "id": "R43686", "type": "CRS Report", "typeId": "REPORTS", "number": "R43686", "active": true, "source": "EveryCRSReport.com, University of North Texas Libraries Government Documents Department", "versions": [ { "source": "EveryCRSReport.com", "id": 447313, "date": "2015-11-12", "retrieved": "2016-04-06T17:57:46.861513", "title": "Securities Fraud Class Action Certification: Halliburton Co. v. Erica P. John Fund, Inc.", "summary": "On June 23, 2014, the U.S. Supreme Court decided a much-anticipated case in the area of federal securities law: Halliburton Co. v. Erica P. John Fund, Inc. The history of the case spans more than a decade, through three rounds in federal district court and two rounds in the court of appeals and the Supreme Court. All of the cases so far have dealt with the issue of class certification for securities fraud plaintiffs. The merits of the case have not yet been considered.\nClass certification is important in the area of securities law because the merits of the case cannot be considered until after the class of plaintiffs has been certified. A class of many plaintiffs suing a company for fraud that has allegedly resulted in investment losses may be a formidable plaintiff, and a significant amount of money may be involved. So much money may be involved in these lawsuits that proponents and opponents have been very vocal. Proponents of such suits believe that certification requirements should be kept to a minimum to protect investors and the marketplace. Opponents of minimum certification requirements have argued that class action suits are often frivolous and are brought to pressure companies to settle rather than incur large litigation costs. They also argue that plaintiffs\u2019 attorneys, who may receive large legal fees, are the only ones who benefit from class actions.\nThe Halliburton cases illustrate the importance of class certification. There have been two rounds of decisions in the Federal District Court for the Northern District of Texas, the U.S. Court of Appeals for the Fifth Circuit, and the U.S. Supreme Court.\nThe Erica P. John Fund accused Halliburton of violating federal securities fraud statutes by making material misstatements with respect to its liabilities, revenues, and cost savings. In the first round of cases, the Federal District Court for the Northern District of Texas declined to certify the class on the basis that the plaintiffs had not proved reliance on material misstatements made by Halliburton. The U.S. Court of Appeals for the Fifth Circuit refused to certify the class on the basis that the class had not shown loss causation at the class certification stage. The Supreme Court reversed, holding that the proving of loss causation at the class certification stage is not required. The Court refused to address any other questions which Halliburton might have, such as the presumption of reliance under the \u201cfraud-on-the-market theory\u201d (a theory recognized in the Supreme Court case Basic v. Levinson\u2014that, in an efficient, well-developed securities market, all material information is available to the public and this information is reflected in the stock price, resulting in presumptive reliance by plaintiffs on the material misstatements).\nIn the second round, the district court certified the class, believing that the class certification requirements of Rule 23 of the Federal Rules of Civil Procedure had been met. The Fifth Circuit affirmed certification and concluded that Halliburton could not introduce evidence that its alleged misrepresentations had no impact on the stock price. The Supreme Court held that price impact evidence could be introduced at the class certification stage to rebut the presumption that the shareholders had relied on the alleged misstatements. However, the Court refused to overrule Basic v. Levinson\u2019s presumption of reliance provided by the fraud-on-the-market theory.\nHalliburton II was clearly not the end of the Erica P. John Fund v. Halliburton saga. A third round in federal district court fleshed out some of the particulars of the Supreme Court\u2019s Halliburton II decision. It approved the use of event studies by both parties to attempt to determine whether alleged misstatements caused a drop in share price. However, even this case is not the end of the class certification challenges because the Fifth Circuit has granted Halliburton leave to appeal. If the class is finally certified, the courts may then face the merits of the case.", "type": "CRS Report", "typeId": "REPORTS", "active": true, "formats": [ { "format": "HTML", "encoding": "utf-8", "url": "http://www.crs.gov/Reports/R43686", "sha1": "15d925c00d751bcfaa60f8082024da1505534fd4", "filename": "files/20151112_R43686_15d925c00d751bcfaa60f8082024da1505534fd4.html", "images": null }, { "format": "PDF", "encoding": null, "url": "http://www.crs.gov/Reports/pdf/R43686", "sha1": "f8f86a87acff604d666561aa71ed79925c1ad7bc", "filename": "files/20151112_R43686_f8f86a87acff604d666561aa71ed79925c1ad7bc.pdf", "images": null } ], "topics": [ { "source": "IBCList", "id": 562, "name": "Securities Regulation" } ] }, { "source": "University of North Texas Libraries Government Documents Department", "sourceLink": "https://digital.library.unt.edu/ark:/67531/metadc462069/", "id": "R43686_2014Aug15", "date": "2014-08-15", "retrieved": "2014-12-05T09:57:41", "title": "Securities Fraud Class Action Certification: Halliburton Co. v. Erica P. John Fund, Inc.", "summary": "This report discusses requirements for securities fraud class action certification. The report also specifically examines each of the decisions made in the Halliburton cases, which proceeded through two complete rounds in federal district court, court of appeals, and the Supreme Court.", "type": "CRS Report", "typeId": "REPORT", "active": false, "formats": [ { "format": "PDF", "filename": "files/20140815_R43686_bd7e328979da5e05f8c46950365b5cf1961825c2.pdf" }, { "format": "HTML", "filename": "files/20140815_R43686_bd7e328979da5e05f8c46950365b5cf1961825c2.html" } ], "topics": [ { "source": "LIV", "id": "Securities fraud", "name": "Securities fraud" }, { "source": "LIV", "id": "Class actions", "name": "Class actions" }, { "source": "LIV", "id": "Finance", "name": "Finance" }, { "source": "LIV", "id": "Supreme Court", "name": "Supreme Court" }, { "source": "LIV", "id": "Law", "name": "Law" } ] } ], "topics": [] }