Chicago, IL (Law Firm Newswire) April 4, 2011 - Defense Bar Supports Fifth Circuit’s Standards for Class Certification in Securities-Fraud Cases.
DRI – The Voice of the Defense Bar filed an amicus curiae brief in the United States Supreme Court in the case of Erica P. John Fund, Inc. f/k/a Archdiocese of Milwaukee Supporting Fund, Inc. v. Halliburton Co., 597 F.3d 330 (5th Cir. 2010). In the brief DRI supports a decision in the Fifth Circuit that denied class certification because there was no evidence that the alleged misstatements had any impact on the defendant company’s stock price.
DRI’s brief asks the Court to affirm the Fifth Circuit’s rule and to reject the plaintiffs’ proposal. Class certification is a key decisional moment in securities-fraud suits because it can create enormous pressure on defendants to settle regardless of the merits. The Fifth Circuit requires securities-fraud plaintiffs to prove that the alleged misrepresentations actually affected the company’s stock price before a class can be certified. Evidence of actual market impact is a key element of the “fraud-on-the-market” theory, which can support a presumption that all class members relied on the alleged misrepresentations when buying or selling the stock. Without this presumption individual issues of reliance would predominate and class certification would be improper.
The plaintiffs in the case petitioned the Supreme Court seeking to have the Fifth Circuit’s rule struck down, and the Supreme Court granted certiorari. The plaintiffs contend that the presumption of reliance can be based solely on evidence of general market efficiency, without proof that the alleged fraud actually moved the company’s stock price. Plaintiffs also argue that defendants should have to wait until trial to try to prove that the alleged misstatements did not affect the stock price. The plaintiffs’ proposed rule would require courts to certify class actions even in the face of undisputed evidence that the alleged misrepresentation had no effect on the stock price.
“Frivolous securities-fraud class actions are a constant threat to publicly traded companies,” stated Richard B. Phillips, Jr., a member of DRI and an author of the brief, “we feel that this is an important case for corporations and individuals who face securities-fraud suits. The case also has implications for class action law generally because it addresses standards of proof at the class certification stage.”
DRI’s brief, available here in its entirety (PDF), was authored by Timothy R. McCormick, G. Luke Ashley, and Richard B. Phillips, Jr. of Thompson & Knight LLP in Dallas. The case will be argued on April 25, 2011, and a decision is expected before the Court adjourns for the summer.
About DRI – The Voice of the Defense Bar
DRI – The Voice of the Defense Bar is an international organization of defense attorneys and corporate counsel that is recognized as a thought leader and an advocate for the defense bar at the national and state level, as well as in Europe. With more than 22,000 members, DRI provides members and their clients with access to world-class education, legal resources and numerous marketing and networking opportunities that facilitate career and law firm growth. For more information log on to www.dri.org.
Richard Phillips, Jr., one of the authors of the brief is available for interviews by contacting Vicki Bendure at 540-687-3360 or vicki[a]bendurepr.com.
Vicki Bendure, APR
DRI - The Voice of the Defense Bar
55 W. Monroe, Suite 2000
Chicago, IL 60603