So what does the U.S. Supreme Court ruling of June 6 vacating the Fifth Circuit’s decision affirming the denial of class certification in Erica P. John Fund, Inc. v. Halliburton Co. tell employers about what the Supreme Court might do when deciding the highly-anticipated Dukes v. Wal-Mart case? Probably, not much.
In previous blog posts, our contributors have noted the significance of two Supreme Court decisions this term that will dramatically affect how employment class actions are prosecuted and defended – AT&T Mobility LLC v. Concepcion (No. 09-893) and Wal-Mart v. Dukes (No. 10-277). Because the Supreme Court has not accepted cases in the class certification arena for so long, the guidance it provides to lower courts in Dukes will be important, even beyond the direct impact it will have on employers’ defenses to workplace class action lawsuits. Further, the ruling in Concepcion has very broad implications for class arbitration waiver provisions in consumer and employment contracts. But if you think that this is the “year of the class action” in the Supreme Court – which it may very well be – and that the unanimity shown by the Supreme Court in Halliburton presages the outcome in Dukes, one should think again.
The reason is that the holding in Halliburton is actually quite narrow. The Petitioner, ERJ, filed a securities fraud class action against Halliburton, alleging that the company deliberately “made various misrepresentations designed to inflate its stock price” in violation of § 10(b) of the Securities Exchange Act of 1934 and Securities and Exchange Commission Rule 10b-5. Id. at 1-2. EPJ alleged that when corrective disclosures were made that caused the price of Halliburton stock to drop, it and a class of investors in that stock lost money. Id. at 2. The District Court denied EPJ’s motion for class certification because it had failed to demonstrate “loss causation,” the causal connection between the alleged material misrepresentation made by a company and the economic loss suffered by its investors. The District Court relied upon controlling Fifth Circuit authority holding that such a showing was necessary in order to obtain class certification.
The Supreme Court granted certiorari to resolve a conflict amongst the circuits on that specific question – “whether securities fraud class action plaintiffs must prove loss causation in order to obtain class certification” – noting that the Fifth Circuit rule was at odds with the Second, Seventh, and Third Circuits which do not require such a showing. Id. at 3. It is true that in analyzing the issue, the Supreme Court did focus on the Rule 23(b)(3) predominance standard which is in play in Dukes. But the Supreme Court carefully focused on the case law it has developed over the years interpreting securities law, going no further than holding that the Fifth Circuit’s rule “is not justified by [that case law] or its logic.” Id. at 6. Justice Roberts, who authored the unanimous opinion, made clear that the Supreme Court’s holding was limited to the “loss causation” question, stating that if Halliburton “has preserved any further arguments against class certification, they may be addressed in the first instance by the Court of Appeals on remand.” Id. at 9.
If one reads the Halliburton ruling and wonders whether it increases the odds of a plaintiff-side victory in Dukes, we suggest that the best approach is simply to wait for the Supreme Court to decide that much more complicated set of questions, which we continue to believe will have far more important effects on employment class actions. Stay tuned!