Term: 2010
Docket: 09-1403
Erica P. John Fund, Inc., Fka Archdiocese Of Milwaukee Supporting Fund, Inc., Petitioner v. Halliburton Co., Et Al.
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09-1403 ERICA P. JOHN FUND, INC. V. HALLIBURTON CO. DECISION BELOW: 597 F.3d 330 CERT. GRANTED 1/7/2011 QUESTION PRESENTED: 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 v. Levinson, 485 U.S. 224 (1988), that plaintiffs in securities fraud actions must satisfy not only the requirements set forth in Basic to 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. Carlisle & 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. LOWER COURT CASE NUMBER: 08-11195
The U.S. Supreme Court case Erica P. John Fund, Inc., FKA Archdiocese of Milwaukee Supporting Fund, Inc., v. Halliburton Co., et al., 2010 revolved around the issue of securities fraud and class action certification requirements under federal law. The petitioner, a mutual fund that invested in Halliburton's stocks, alleged that the company made false statements designed to inflate its stock price - an act considered as securities fraud under federal law. However, lower courts denied class-action status because the petitioner failed to prove "loss causation" i.e., that Halliburton's actions directly caused their financial loss at the initial stage itself which was contrary to precedent set by Basic Inc v Levinson (1988). Upon reaching Supreme Court it ruled unanimously in favor of Erica P John Fund stating that proof of loss causation is not required for class action certification but can be dealt with later during trial proceedings thus reversing decision from lower court.
In the dissenting opinion for Erica P. John Fund, Inc., v. Halliburton Co., Justice Roberts, joined by Justices Scalia and Thomas, argued that the majority's decision to allow class certification without proof of loss causation was a departure from precedent and would lead to an increase in frivolous securities lawsuits. They contended that plaintiffs should be required to prove not only that they relied on a misrepresentation when purchasing stock but also that this misrepresentation caused their economic loss. The dissenters believed this requirement is necessary because it ensures defendants are held liable only for losses they actually cause rather than being subjected to potentially massive liability for all downturns in their stock price regardless of the reason.
