Reproduced with permission from Securities Regulation & Law Report, 46 SRLR 1883, 09/29/2014. Copyright
2014 by The Bureau of National Affairs, Inc. (800-372-1033) http://www.bna.com
Basic Instinct: The Supreme Court Confronts the Fraud-on-the-Market Theory
BY AARON M. STREETT AND SHANE PENNINGTON
On June 23, 2014, the Supreme Court decided Halliburton
Co. v. Erica P. John Fund, Inc., 573 U.S.
___ (2014) (slip op.) (Halliburton II). The securities
law bar had been on pins and needles since oral argument
because the case put Basic v. Levinson—the canonical
precedent that made most securities class actions
possible—squarely in the Court’s crosshairs.
Given that four Justices had recently expressed their
willingness to reconsider Basic’s fraud-on-the-market
presumption of reliance,1 securities jurisprudence appeared
to be one vote away from a sea change.
Securities plaintiffs and the lawyers who represent
them let out a collective sigh of relief when Chief Justice
Roberts announced that the Court’s majority had
spared Basic. But in the second half of its opinion, the
Court announced a significant restriction on securities
plaintiffs’ ability to invoke the presumption in the class
action context. Specifically, the Court held 9-0 that defendants
can nip securities fraud class actions in the
bud by rebutting the presumption of reliance at the
class-certification stage with evidence that the alleged
misrepresentations had no impact on the stock’s price.
The question moving forward is precisely how the
Court’s Solomonic Halliburton II decision will affect securities
fraud class actions. This essay provides the
background necessary to grasp the key takeaways from
the Halliburton II case and then predicts what practitioners,
plaintiffs, and defendants can expect going forward.
1 Amgen Inc. v. Connecticut Retirement Plans and Trust
Funds, 133 S. Ct. 1184, 1204 (2013) (Alito, J., concurring); id.
at 1208 n.4 (Thomas, J., dissenting).
Aaron M. Streett is Chairman of Baker Botts
L.L.P.’s Supreme Court and Constitutional
Law practice. He practices primarily in federal
appellate courts and the U.S. Supreme
Court. He has twice been named to the
National Law Journal’s Appellate Hot List.
Mr. Streett argued the Halliburton case when
it was before the U.S. Supreme Court the
second time. He clerked for Judge David B.
Sentelle of the U.S. Court of Appeals for the
D.C. Circuit and Chief Justice William H. Rehnquist
of the U.S. Supreme Court.
Shane Pennington assisted Mr. Streett in preparing
this essay and also worked on the
briefs in the Halliburton case when it was
before the Supreme Court the second time. He
is an Associate in Baker Botts’ Houston
office. Mr. Pennington clerked for Judge
Royce C. Lamberth of the United States District
Court for the District of Columbia, Judge
Jennifer Walker Elrod of the Fifth Circuit, and
Judge David B. Sentelle of the D.C. Circuit.
COPYRIGHT 2014 BY THE BUREAU OF NATIONAL AFFAIRS, INC. ISSN 0037-0665
& Law Report™
‘Basic’ and the Fraud-on-the-Market Presumption. Section
10(b) of the Securities Exchange Act of 1934 and
the Securities Exchange Commission’s Rule 10b-5 prohibit
making any material misstatement or omission in
connection with the purchase or sale of any security.2
Section 10(b) does not create a private cause of action,
but the Court has recognized an implied private cause
of action to enforce the provision and its implementing
regulation.3 To recover damages under section 10(b)
and Rule 10b-5, a plaintiff must demonstrate ‘‘ ‘(1) a
material misrepresentation or omission by the defendant;
(2) scienter; (3) a connection between the misrepresentation
or omission and the purchase or sale of a
security; (4) reliance upon the misrepresentation or
omission; (5) economic loss; and (6) loss causation.’ ’’4
The Basic and Halliburton II line of cases focuses on
the reliance element. Reliance ‘‘ ‘ensures that there is a
proper connection between a defendant’s misrepresentation
and a plaintiff’s injury.’ ’’5 ‘‘The traditional (and
most direct) way a plaintiff can demonstrate reliance is
by showing that he was aware of a company’s statement
and engaged in a relevant transaction—e.g., purchasing
common stock—based on that specific misrepresentation.’’
6 In Basic, though, the Court held that securities
plaintiffs can, in certain circumstances, satisfy
the reliance element of a Rule 10b-5 action by invoking
a rebuttable presumption of reliance. The Court premised
that presumption on the ‘‘fraud-on-the-market
theory,’’ which posits that ‘‘the market price of shares
traded on well-developed markets reflects all publicly
available information, and, hence, any material misrepresentations.’’
To invoke the presumption of reliance under Basic, a
plaintiff must demonstrate that (1) the misrepresentation
was public; (2) it was material; (3) the market the
security traded in was efficient; and (4) the plaintiff
traded the security between the time of the misrepresentation
and the time the truth was revealed.8 But Basic
also emphasized that the presumption of reliance
was rebuttable by ‘‘[a]ny showing that severs the link
between the alleged misrepresentation and either the
price received (or paid) by the plaintiff, or his decision
to trade at a fair market price.’’9 If the defendant successfully
rebuts the presumption of reliance, then the
plaintiff must prove that he directly relied on the defendant’s
misrepresentations when buying of selling the
Basic’s fraud-on-the-market presumption is particularly
critical to securities fraud class action plaintiffs. To
get a class certified under Federal Rule of Civil Procedure
23(b)(3), the putative class must demonstrate that
‘‘the questions of law or fact common to class members
predominate over any questions affecting only individual
members.’’ If the class is able to invoke the
fraud-on-the-market presumption at the classcertification
stage, then reliance will be presumed classwide.
But if the class fails to prove up the elements of
the presumption or if the defendant successfully rebuts
them, investors have to prove reliance on an individual
basis, and individual issues will predominate over common
ones. Basic itself recognized that without the presumption
of reliance, securities fraud plaintiffs could
rarely satisfy Rule 23(b)(3)’s predominance requirement,
making the fraud-on-the-market presumption the
lifeblood of modern securities fraud class actions.10
‘Halliburton I’ and ‘Amgen.’ In Halliburton I, the Court
held that securities plaintiffs need not prove, at the
class-certification stage, that the alleged misstatement
caused investor losses, or ‘‘loss causation’’; the Court
vacated the court of appeals’ contrary holding and invited
the lower court on remand to consider other arguments
against class certification.11 Then in Amgen, the
Court held that the materiality of the alleged
misstatement—whether a reasonable investor would
have considered the misstatement to have significantly
altered the total mix of available information—need not
be established at the class-certification stage.12 In separate
opinions, however, four Justices expressed interest
in reconsidering Basic in light of a wave of recent scholarship
calling the fraud-on-the-market theory into question.
13 These decisions set the stage for Halliburton II.
On remand to the district court from Halliburton I,
Halliburton argued that class certification was inappropriate
because the evidence it had earlier introduced to
disprove loss causation also demonstrated that none of
its alleged misrepresentations actually affected its stock
price. By demonstrating the absence of any ‘‘price impact,’’
Halliburton argued it had rebutted Basic’s presumption
that the members of the putative class had relied
on its alleged misrepresentations simply by buying
or selling its stock at the market price. And without the
benefit of the Basic presumption, investors would need
to prove reliance on an individual basis, meaning individual
issues would predominate over common ones.
The district court declined to consider Halliburton’s argument
and certified the class under Rule 23(b)(3).
The Fifth Circuit affirmed.14 It acknowledged that
‘‘Halliburton’s price impact evidence could be used at
the trial on the merits to refute the presumption of reliance,’’
15 but held that Halliburton could not use such
evidence for that purpose at the class-certification
stage.16 The Supreme Court granted certiorari again,
this time to resolve a conflict among the circuits over
whether securities fraud defendants may attempt to rebut
the Basic presumption at the class certification
stage with evidence of a lack of price impact. The Court
also accepted Halliburton’s invitation to reexamine Basic
2 Securities and Exchange Act of 1934, 48 Stat. 891, 15
U.S.C. § 78j(b), and Securities and Exchange Commission Rule
10b-5, 17 C.F.R. § 240.10b-5 (2013).
3 Blue Chip Stamps v. Manor Drug Stores, 421 U.S. 723,
4 Amgen Inc. v. Connecticut Retirement Plans and Trust
Funds, 133 S. Ct. 1184, 1192 (2013) (quoting Matrixx Initiatives,
Inc. v. Siracusano, 131 S. Ct. 1309, 1317-18 (2011)).
5 Amgen, 133 S. Ct. at 1192 (quoting Erica P. John Fund,
Inc. v. Halliburton Co., 131 S. Ct. 2179, 2183 (2011) (Halliburton
7 Basic, 485 U.S. at 246.
8 Basic, 485 U.S. at 248 n.27.
9 Id. at 248.
10 485 U.S. at 230, 242; Halliburton I, 131 S. Ct. at 2185.
11 131 S. Ct. at 2187.
12 133 S. Ct. at 1198-1200.
13 Id. at 1204 (Alito, J., concurring); id. at 1208 n.4 (Thomas,
14 718 F.3d 423 (5th Cir. 2013).
15 Id. at 433.
16 Id. at 435.
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‘Halliburton II.’ Chief Justice Roberts, writing for the
Court’s majority, rejected Halliburton’s sharp attacks
on Basic, explaining that Basic declined to adopt any
particular theory of market efficiency but instead
merely ‘‘recognized that market efficiency is a matter of
degree’’ and thus ‘‘a matter of proof.’’17 The Court did
not deny that large classes of investors do not rely on
the integrity of the market price when purchasing stock
and in fact trade based on their belief that the market
price does not reflect the stock’s intrinsic value. But for
the majority it was sufficient that ‘‘most investors’’ can
be presumed to rely on the integrity of the market
Halliburton had also argued that Basic’s presumption
was out of line with the Court’s more recent decisions
narrowly construing the Section 10b-5 cause of action.
The majority explained that the presumption does not
eviscerate the reliance element of the 10b-5 cause of action
as Halliburton had argued. Instead, it merely provides
an alternative method of satisfying that element.19
The majority also found the presumption consistent
with the Court’s recent class certification decisions, including
Wal-Mart Stores, Inc. v. Dukes, 131 S. Ct. 2541
(2011), and Comcast v. Behrend, 133 S. Ct. 1426 (2013),
which established that a plaintiff must prove, not
merely plead, the Rule 23(b) class certification requirements.
The majority explained that like all class plaintiffs,
to secure class certification, securities fraud plaintiffs
must carry their ‘‘burden of proving’’ the prerequisites
of publicity, materiality, market efficiency, and
The Court explained that stare decisis has ‘‘special
force’’ ‘‘in respect to statutory interpretation’’ because
‘‘Congress remains free to alter what we have done.’’21
According to the majority, that principle applied to Basic’s
presumption even though ‘‘the presumption is a judicially
created doctrine designed to implement a judicially
created cause of action.’’22 The Court explained
that for stare decisis purposes, it would treat the presumption
as if it were a statutory interpretation because
‘‘it provides a way of satisfying the reliance element of
the Rule 10b-5 cause of action.’’23 Given the possibility
that ‘‘Congress may overturn or modify any aspect of
our interpretations of the reliance requirement, including
the Basic presumption itself,’’ the Court saw ‘‘no
reason to exempt the Basic presumption from ordinary
principles of stare decisis.’’24
Three Justices—Justices Scalia, Alito, and Thomas—
strongly disagreed with the Court’s decision to keep Basic
alive. In their view, logic and ‘‘economic realities’’
required overruling Basic.25 In light of the academic attack
on the fraud-on-the-market’s underlying premises,
it had become clear to them that Basic was wrongly decided
and inconsistent with the Court’s recent class certification
jurisprudence.26 They explained that many of
the assumptions underlying the Basic presumption—
like the hypotheses that well-developed markets are efficient
and investors buy stock on the belief that its
price accurately reflects its value—are often demonstrably
false.27 Furthermore, Basic’s presumption allows
securities plaintiffs to bypass the need to establish
class-certification requirements with ‘‘evidentiary
proof’’ as required by Wal-Mart and Comcast.28 Thus,
Justices Thomas, Scalia, and Alito would have declined
to give stare decisis effect to Basic.
The concurring Justices were not persuaded by the
majority’s argument that Basic should get the special
stare decisis force given to statutory interpretation.
They explained that ‘‘Basic . . . has nothing to do with
statutory interpretation. The case concerned a judgemade
evidentiary presumption for a judge-made element
of the implied 10b-5 cause of action.’’29 In their
view, ‘‘when we err in areas of judge-made law [like Basic],
we ought to presume that Congress expects us to
correct our own mistakes.’’30 Indeed, for the concurring
Justices, ‘‘[t]hat duty is especially clear in the Rule
10b-5 context, where we have said that ‘[t]he federal
courts have accepted and exercised principal responsibility
for the continuing elaboration of the scope of the
10b-5 right and the definition of the duties it imposes.’
’’31 Thus, the concurring Justices would have
treated ‘‘Basic’s presumption of reliance [as] . . . our
mistake to correct.’’32
In contrast to the 6-3 split on whether to overrule Basic,
all nine Justices agreed with Halliburton on its fallback
position regarding whether and how courts can
consider evidence of price impact at the classcertification
stage. Price impact measures ‘‘ ‘whether
the alleged misrepresentations affected the market
price in the first place.’ ’’33 In its fallback argument,
Halliburton contended first that the Court should require
securities fraud class plaintiffs to prove price impact
at the class-certification stage and, second, that
short of that, the Court should allow defendants to rebut
the presumption at the class-certification stage with
evidence of no price impact. The Court rejected the first
argument that the plaintiff should have to prove price
impact to invoke the presumption.34 The Court acknowledged
that the presumption collapses without
price impact.35 Yet it held that plaintiffs need not demonstrate
the existence of price impact to invoke the presumption.
36 The Court reasoned that requiring plaintiffs
to demonstrate price impact at the classcertification
stage would be tantamount to eliminating
parts of Basic’s presumption, because it would eliminate
the ‘‘constituent presumption’’ that a misrepresentation
affects the stock price where the misrepresentation
is public and material and where the stock trades
in an efficient or well-developed market.37
17 Halliburton II, slip op. at 19.
18 Id. at 11-12.
19 Id. at 13-14.
20 Halliburton II, slip op. at 14.
21 Id. at 12 (internal quotation marks omitted).
23 Id. (citation omitted).
24 Id. at 13.
25 Id. at 2 (Thomas, J., concurring in judgment).
26 Id. at 5.
27 Id. at 9-11.
28 Id. at 11.
29 Id. at 15.
30 Id. at 16.
31 Id. (quoting Musick, Peeler & Garrett v. Employers Ins. of
Wausau, 508 U.S. 286, 292 (1993)).
33 Id. at 17 (majority) (quoting Halliburton I, 131 S. Ct. at
34 Id. at 16-18.
35 Id. at 17 (citing Amgen, 133 S. Ct. at 1199).
36 Id. at 17-18.
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But the Court unanimously embraced Halliburton’s
argument that defendants must be ‘‘allowed to defeat
the [Basic] presumption at the class certification stage
through evidence that the misrepresentation did not in
fact affect the stock price.’’38 The Court emphasized
that the same ‘‘event studies’’ that parties often use to
debate market efficiency at the class-certification stage
also happen to bear upon the existence or lack of price
impact. Thus, defendants resisting class certification
should be allowed to use the same evidence to show
that, for each alleged misstatement, there was no price
impact. The Court explained that a contrary rule would
have ‘‘bizarre results’’:
Suppose a defendant at the certification stage submits an
event study looking at the impact on the price of its stock
from six discrete events, in an effort to refute the plaintiffs’
claim of general market efficiency. All agree the defendant
may do this. Suppose one of the six events is the specific
misrepresentation asserted by the plaintiffs. All agree that
this too is perfectly acceptable. Now suppose the district
court determines that, despite the defendant’s study, the
plaintiff has carried its burden to prove market efficiency,
but that the evidence shows no price impact with respect to
the specific misrepresentation challenged in the suit. The
evidence at the certification stage thus shows an efficient
market, on which the alleged misrepresentation had no
price impact. And yet under [plaintiffs’] view, the plaintiffs’
action should be certified and proceed as a class action
(with all that entails), even though the fraud-on-the-market
theory does not apply and common reliance thus cannot be
‘‘Price impact is thus an essential precondition for
any Rule 10b-5 class action,’’ the Court concluded.40
The Fifth Circuit had relied on Amgen to conclude
that Halliburton could not introduce evidence of lack of
price impact to defeat class certification. In Amgen, the
Court had held that plaintiffs need not establish—and
defendants may not rebut—materiality at the class certification
stage to invoke the presumption.41 The Court
reasoned that a failure of proof on materiality would
necessarily defeat every plaintiff’s claim on the merits,
leaving no individualized questions to resolve.42 The
Court explained that materiality was thus different than
publicity and market efficiency, neither of which is necessary
to prove a Rule 10b-5 claim on the merits.43
In Halliburton II, the Court explained that ‘‘price impact
differs from materiality in a crucial respect.’’44 Because
the other Basic prerequisites must be proven at
the class-certification stage, ‘‘the common issue of materiality
can be left to the merits stage without risking
the certification of classes in which individual issues
will end up overwhelming common ones.’’45 But price
impact is ‘‘ ‘Basic’s fundamental premise’ ’’ and thus
‘‘has everything to do with the issue of predominance at
the class certification stage.’’46 Moreover, market efficiency
and publicity are ‘‘nothing more than prerequisites
for an indirect showing of price impact.’’47 In other
words, proof of market efficiency and publicity is really
just indirect proof of price impact. The Court held that
there is ‘‘no reason to artificially limit the inquiry at the
certification stage to indirect evidence of price impact.’’
48 Halliburton II thus clarified that Basic ‘‘does
not require courts to ignore a defendant’s direct, more
salient evidence showing that the alleged misrepresentation
did not actually affect the stock’s market price
and, consequently, that the Basic presumption does not
What to Expect Moving Forward. What changes in securities
fraud class action litigation should we expect in
the wake of Halliburton II? It would be wrong to assume
that because Basic survived there is ‘‘nothing to
see here.’’ Halliburton II transformed price impact from
Basic’s fundamental but ironically untouchable premise
into a central front in the class-certification war. The
defendant may now introduce event studies or other direct
evidence undermining the existence of price impact
at the class-certification stage. Until Halliburton II,
the Basic presumption was essentially irrebuttable in
practice. That made securities fraud class actions the
exception to the Wal-Mart and Comcast rule that applied
in all other class actions, which required plaintiffs
to prove that they had met Rule 23’s requirements before
a court would certify a class. After Halliburton II,
securities fraud class actions are no longer the exception
to that Rule: Plaintiffs must now establish price impact
either directly or indirectly. The remaining question
is how will price impact rebuttal at the certification
stage play out in the lower courts going forward.
Halliburton II gave the green light to certificationstage
event studies undermining the existence of price
impact for each ‘‘discrete event,’’ or, in other words, for
each alleged misrepresentation.50 If price impact is absent
as to that individual event, then the presumption
lacks an essential predicate, and the plaintiffs must
prove actual reliance. When that happens, individual issues
will predominate over common ones, thwarting
class certification as to that misrepresentation. This is a
significant departure from the way most plaintiffs currently
invoke the presumption at the class certification
stage. They generally present an expert report attesting
to the overall efficiency of the market during the proposed
class period, and little else. Halliburton II says
that even if the market was generally efficient, the absence
of price impact for any of the challenged misrepresentations
will strip the plaintiffs of the presumption
of reliance and thus the common question predominance
necessary to satisfy Rule 23(b)(3) for the misrepresentations
that had no price impact.
The Court’s endorsement of event studies means that
the certification stage of future securities fraud class actions
will likely become a battle of the experts. Dukes
and Comcast already require plaintiffs to prove the prerequisites
to certification and district courts to make
findings on those issues by a preponderance of the evidence.
The Court has explained that ‘‘the ‘class determination
generally involves considerations that are enmeshed
in the factual and legal issues comprising the
38 Slip op. at 18.
39 Id. at 19-20.
40 Id. at 21.
41 133 S. Ct. at 1198-1200.
42 Id. at 1199.
44 Slip op. at 21.
45 Id. at 21-22.
46 Id. at 22 (quoting Halliburton I, 131 S. Ct. at 2186).
49 Id. at 21.
50 Id. at 19.
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plaintiff’s cause of action.’ ’’51 Halliburton II clarifies
that the same principle applies with equal force in securities
fraud class actions.
We are not totally at sea in predicting how lower
courts will apply Halliburton II because the Second and
Third Circuits have allowed evidence of price impact at
class certification to defeat the fraud-on-the-market
presumption and thus foreclose class treatment.52
Cases from those circuits have demonstrated that district
courts can handle the sort of certification-stage
battle that Halliburton II presages. For example, since
In re Salomon, district courts in the Second Circuit have
examined expert testimony, event studies, and market
reports in determining whether plaintiffs have shown
that an alleged misrepresentation impacted a security’s
price. Sometimes defendants won.53 In some cases, the
district court found class certification proper for some
misrepresentations, but not others.54 Halliburton II ensures
that defendants will have a fair chance at the
class-certification stage, for if the Court had ruled out
certification-stage price impact rebuttal, all of these
classes would been certified.
In some percentage of Rule 10b-5 class actions, there
will be no question that the stock’s price went up at the
time of the alleged misrepresentations or went down after
corrective disclosures. Although debates over how
soon the stock price must move after the alleged misrepresentation
or corrective disclosure are likely to
sharpen after Halliburton II, cases in this category are
not likely to change drastically because of Halliburton
II. But two other common types of putative securities
fraud classes will be more vulnerable to certificationstage
attack going forward.
First, evidence that the price decline following an alleged
corrective disclosure was not statistically significant
will rebut the presumption of reliance:
[T]o the extent a [d]efendant can show that there was no
price decrease in [the] stock on the date a misrepresentation
was disclosed, . . . [this is] strong evidence that there
was no price change on the date of the misrepresentation,
thus rebutting the fraud-on-the-market presumption.55
That means that defendants will be able to jeopardize
class certification by bringing forward event studies
demonstrating that the stock price did not significantly
move following an alleged corrective disclosure.
Second, even when a statistically significant price decline
follows a disclosure, evidence that the disclosure
was not, in fact, ‘‘corrective’’ of the alleged misrepresentation
will also rebut the presumption of reliance. If
the court ‘‘determine[s] that there was no corrective
disclosure’’ as alleged by the plaintiff, the disclosure
‘‘cannot serve as the basis for certifying the class.’’56
Without a correction to a prior misleading statement,
there is no basis to infer that the original, allegedly false
statement caused an inflation in the price in the first
Another important question moving forward is what
sort of showing a defendant must make under Halliburton
II to rebut the presumption at the class certification
stage. The Court did not address that question explicitly
in Halliburton II, but the answer can be found in Federal
Rule of Evidence 301 and the Court’s cases applying
other rebuttable presumptions. Rule 301 applies to
all rebuttable presumptions unless Congress or the
Rules of Evidence provide otherwise.57 Basic itself cited
Rule 301 in creating the presumption, calling it a procedural
‘‘device for allocating the burdens of proof between
parties.’’58 Under Rule 301, ‘‘the party against
whom a presumption is directed has the burden of producing
evidence to rebut the presumption,’’ but a presumption
‘‘does not shift the burden of persuasion,
which remains on the party who had it originally.’’
In other contexts where the Court has created a rebuttable
presumption, the party benefitting from the
presumption has always borne the ultimate burden of
persuasion. The Supreme Court has explained each of
the procedural steps governing the order of proof
where a Rule 301 presumption applies.59 First, to invoke
the presumption, either a plaintiff’s evidence must
establish for the trier of fact the prima facie case by a
preponderance of the evidence, or a judge must determine
that any rational person would have to find the existence
of facts constituting the prima facie case.60 Second,
once created, the ‘‘presumption places upon the
defendant the . . . burden of producing’’ evidence that,
if believed by the trier of fact, would support a finding
that the presumed fact does not exist.61 Third, if ‘‘the
defendant has succeeded in carrying its burden of production,’’
the presumption ‘‘is no longer relevant.’’62 At
that time, the plaintiff must persuade the trier of fact of
the ultimate fact by a preponderance of the evidence
without the benefit of the presumption.’’63
It is not difficult to apply these teachings to Basic’s
presumption of reliance. A plaintiff must first establish
the Basic prerequisites of market efficiency, publicity,
and timing to invoke the presumption.64 This ‘‘indirect’’
evidence of price impact constitutes the plaintiff’s
‘‘prima facie’’ proof under Rule 301. A defendant may
then rebut the presumption of reliance by producing
evidence that could support a finding that the alleged
misrepresentation did not impact the market price. If
the defendant satisfies this relatively light burden of
51 Comcast, 133 S. Ct. at 1432 (quoting Dukes, 131 S. Ct. at
52 See, e.g., In re DVI Sec. Litig., 639 F.3d 623 (3d Cir.
2011); In re Salomon Analyst Metromedia Litig., 544 F.3d 474
(2d Cir. 2008).
53 See, e.g., Berks Cnty. Emp. Ret. Fund V. First Am. Corp.,
734 F. Supp. 2d 533, 541 (S.D.N.Y. 2010) (denying class certification);
In re Credit Suisse First Boston Corp. (Lantronix,
Inc.) Analyst Sec. Litig., 250 F.R.D. 137, 143 (S.D.N.Y. 2008)
(denying certification). Other times, plaintiffs won. See, e.g., In
re Sadia, S.A. Sec. Litig., 269 F.R.D. 298, 310-15 (S.D.N.Y.
2010) (granting certification); In re Monster Worldwide, Inc.
Sec. Litig., 251 F.R.D. 132, 138-39 (S.D.N.Y. 2008) (granting
54 See, e.g., In re Am. Int’l Group Sec. Litig., 265 F.R.D. 157
(S.D.N.Y. 2010) (reducing the size of the class after considering
both plaintiff’s and defendant’s price-impact evidence with
respect to each alleged misrepresentation).
55 In re Am. Int’l Sec. Litig., 265 F.R.D. at 181-82, 189.
56 In re Moody’s Corp. Sec. Litig., 274 F.R.D. 480, 493
57 See Fed. R. Evid. 301 (‘‘In a civil case, unless a federal
statute or these rules provide otherwise, the party against
whom a presumption is directed has the burden of producing
evidence to rebut the presumption’’).
58 485 U.S. at 245.
59 St. Mary’s Honor Ctr. v. Hicks, 509 U.S. 502, 511 (1993).
60 Id. at 509-10 & n.3.
61 Id. at 506-07.
62 Id. at 510.
63 Id. at 511.
64 Halliburton II, slip op. at 6-7 (citations omitted).
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production, the presumption is ‘‘no longer relevant.’’65
Instead, the plaintiff would then be required to prove by
a preponderance of the evidence that the alleged fraud
had been transmitted through the market price.66
The critical point is that defendants merely have the
burden of producing evidence to rebut the presumption.
67 Once the presumption is rebutted with evidence
sufficient to support a finding that the alleged misrepresentation
did not impact the market price, it is the
plaintiff’s burden to demonstrate price impact by a preponderance
of the evidence. As the Supreme Court put
it, ‘‘[p]rice impact is . . . an essential precondition for
any Rule 10b-5 class action.’’68 Because plaintiffs bear
the burden of satisfying Rule 23, and price impact is the
fundamental premise of Rule 23 predominance, it follows
that plaintiffs bear the ultimate burden to establish
price impact once the defendant puts it in issue. Thus,
the right of price-impact rebuttal promises to be a powerful
tool for defendants seeking to resist class certification,
especially in cases where the connection between
the alleged misrepresentation and price movement
Conclusion. The Halliburton II majority’s decision to
save Basic made the case less dramatic than it could
have been, but the Court’s decision to allow defendants
to rebut the presumption of reliance with evidence of no
price impact at the class-certification stage marks a significant
shift in the way securities fraud classcertification
litigation will play out. Defendants now
have a new and powerful weapon to stop crippling class
actions in their tracks when plaintiffs cannot prove that
the misrepresentations they allege affected the market
price of the stock.
65 St. Mary’s Honor Ctr., 509 U.S. at 510.
66 See In re Salomon Analyst Metromedia Litg., 544 F.3d
474, 486 (2d Cir. 2008) (‘‘If defendants attempt to make a rebuttal,
. . . the district judge must receive enough evidence . . .
to be satisfied that each Rule 23 requirement has been met.’’).
67 Halliburton II, slip op. at 22-23.
68 Id. at 21.
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