In June 2014, the Supreme Court issued its decision in Halliburton Co. v. Erica P. John Fund Inc. (“Halliburton II”), a putative class action in which Halliburton investors alleged that the company made misrepresentations designed to inflate its stock price, in violation of section 10(b) of the Securities Exchange Act of 1934 and Securities and Exchange Commission Rule 10b-5. 134 S. Ct. 2398 (2014). Of particular importance were two major holdings. First, the Court extended its holding in Basic Inc. v. Levinson, 485 U.S. 224 (1988) to allow putative securities fraud class members to prove the causation/reliance element of a securities fraud claim at the class certification stage “by invoking a presumption that the price of stock traded in an efficient market reflects all public, material information—including material misrepresentations.” Id. at 2414. Second, the Court held that securities class action defendants must be given the opportunity to rebut this presumption of reliance at the class certification stage by showing that their alleged misstatements didn’t actually impact the price of their stock. Id.
A year later, the ramifications of the Halliburton II decision are still developing. To date, no class action defendant in any published decision has successfully defeated class certification by rebutting the presumption of reliance under the Halliburton II framework. In fact, the cases that have interpreted Halliburton II over the past year have largely confirmed Justice Thomas’ comment in the Halliburton II dissent that “in practice, the so-called ‘rebuttable presumption’ is largely irrebuttable.” Id. at 2424. Continue Reading