Erica P. John Fund, Inc. v. Halliburton Co.
In 2002, the Erica P. John Fund, Inc., an investor in Halliburton Co., brought a putative securities fraud class action in Texas. The complaint alleged that Halliburton deliberately falsified its financial results and tried to inflate stock prices by underestimating the company’s liability in an asbestos lawsuit, overprojecting the cost savings resulting from a merger, and overstating revenue from construction contracts. When Halliburton corrected these misstatements, its stock price dropped. After the district court denied Halliburton’s motion to dismiss, the lead plaintiff filed a motion to certify the class based on the fraud-on-the-market presumption, under which a class of investors can create a rebuttable presumption, for the purpose of class certification, that they relied on a company’s false or misleading statements—without having to show individual reliance by each class member. But in the Fifth Circuit, before investors can proceed as a class, they have to prove, by a preponderance of the evidence, that the misstatement actually caused their loss. In every other circuit, investors’ reliance is presumed at the certification stage; loss causation doesn’t have to be proven until summary judgment or trial.
Public Justice’s amicus brief in the U.S. Supreme Court argues that the Fifth Circuit’s rule improperly bars the courthouse doors for investors. Not only is the Fifth Circuit’s rule inconsistent with Supreme Court precedent, but it contravenes the federal securities laws themselves. Those laws, which incorporate an understanding that the market prices of securities reflect and react to publicly available information about those securities and their issuers, were designed so that private lawsuits could help regulate corporate actors.
The brief was written by Charles Pearsall Goodwin of Berger & Montague, P.C. in Philadelphia, with assistance from Yael R. May of Berger & Montague, Lisa M. Mezzetti and S. Douglas Bunch of Cohen Milstein Sellers & Toll PLLC in Washington, D.C., and Public Justice’s Brayton-Thornton Attorney Melanie Hirsch, Senior Attorney Paul Bland, and Executive Director Arthur Bryant.