In Waggoner v. Barclays PLC, No. 16-1912 (2d Cir. Nov. 6, 2017), the United States Court of Appeals for the Second Circuit, in a Rule 10b-5 securities fraud action, affirmed the district court’s order granting class certification and, in the process, made a number of significant rulings including concluding that direct evidence of price impact is not always necessary to demonstrate market efficiency and confirming that defendants seeking to rebut the fraud-on-the-market presumption must do so by a preponderance of evidence. The decision will potentially make it easier for securities fraud plaintiffs seeking class certification to demonstrate market efficiency, including, for example, when the securities at issue are not traded on national exchanges.
Continue Reading Second Circuit Affirms Class Certification Holding that Direct Evidence of Price Impact is Not Always Necessary to Demonstrate Market Efficiency
California Supreme Court Approves Attorney Fee Awards Calculated Based Upon Percentage of Class Action Common Fund
In Laffitte v. Robert Half International Inc., No. S222996 (Aug. 11, 2016), the California Supreme Court held, in an employment class action lawsuit, that when attorney fees are awarded to class counsel from a common fund, that the award is not per se unreasonable because it is calculated as a percentage of the common fund, as opposed to pursuant to a lodestar calculation.
Continue Reading California Supreme Court Approves Attorney Fee Awards Calculated Based Upon Percentage of Class Action Common Fund
Eighth Circuit Reverses District Court for Ignoring Price-Impact Evidence That Rebutted the Fraud-on-the-Market Presumption and Defeated Class Certification
In IBEW Local 98 Pension Fund v. Best Buy Co., Inc., No. 14-3178 (8th Cir. Apr. 12, 2016), the United States Court of Appeals for the Eighth Circuit held, in a Rule 10b-5 securities fraud action, that the district court incorrectly analyzed the price-impact evidence submitted by defendants to rebut the fraud-on-the-market presumption of reliance that plaintiffs had invoked to satisfy Rule 23(b)(3)’s predominance requirement. Two years ago, the U.S. Supreme Court, in Haliburton Co. v. Erica P. John Fund, Inc., 134 S.Ct. 2398, 2414-16 (2014) (Halliburton II), recognized a defendant’s right to rebut the presumption using price-impact evidence at the class-certification stage. Based on Haliburton II, the majority panel determined that defendants had submitted “overwhelming” evidence that the alleged misstatement caused no stock price inflation. The panel rejected plaintiffs’ theory that the misstatement could nevertheless have “maintained” the stock’s already-inflated price at the allegedly inflated level. The decision importantly limits the fraud-on-the-market presumption to cases in which the alleged misstatement is the independent cause of new or additional stock price inflation.
Continue Reading Eighth Circuit Reverses District Court for Ignoring Price-Impact Evidence That Rebutted the Fraud-on-the-Market Presumption and Defeated Class Certification
Second Circuit Reverses Class Certification Order, Holding That a Clearing Broker’s Alleged Knowledge of Fraud Against Shareholders, Absence Direct Involvement, Is Insufficient to Create a Duty of Disclosure
In Levitt v. J.P. Morgan Securities, Inc., No. 10-4596, 2013 WL 1007678 (2d Cir. Mar. 15, 2013), the United States Court of Appeals for the Second Circuit reversed a district court order certifying a class of shareholder fraud plaintiffs in a lawsuit against J.P. Morgan Securities, Inc. and J.P. Morgan Clearing Corporation (“J.P. Morgan”). The decision reaffirms that a clearing broker generally owes no fiduciary duty to the owners of securities that pass through its hands. According to the Second Circuit, absent evidence that the clearing broker instigated or directed the alleged fraud by the securities issuer through high involvement, a plaintiff cannot establish a class-wide presumption of investor reliance sufficient to satisfy the predominance requirement of Rule 23(b)(3) of the Federal Rules of Civil Procedure.
Continue Reading Second Circuit Reverses Class Certification Order, Holding That a Clearing Broker’s Alleged Knowledge of Fraud Against Shareholders, Absence Direct Involvement, Is Insufficient to Create a Duty of Disclosure
Third Circuit Follows The Second Circuit Permitting Defendants To Rebut The Fraud-On-The-Market Presumption At The Class Certification Stage
In In re DVI Inc. Securities Litigation, Nos. 08-8033 & 08-8045, 2011 WL 1125926 (3d Cir. Mar. 29, 2011), the United States Court of Appeals for the Third Circuit affirmed an order granting in part a motion under Rule 23 of the Federal Rules of Civil Procedure to certify a class in a securities fraud action. In this decision, the Court made important determinations regarding the application of the fraud-on-market presumption of investor reliance and the role of loss causation at the class certification stage, holding that, in the Third Circuit, a plaintiff need not establish loss causation as a prerequisite to invoking the fraud-on-the-market presumption, but also holding that, once established, the presumption may be rebutted by showing that the misleading statements or corrective disclosures at issue did not affect the market price of the security. This decision is significant because it aligns the Third Circuit with the Second Circuit in allowing a defendant the opportunity to rebut the fraud-on-the-market presumption at the class certification stage.
Continue Reading Third Circuit Follows The Second Circuit Permitting Defendants To Rebut The Fraud-On-The-Market Presumption At The Class Certification Stage
Ninth Circuit Clarifies Rule 23 Class Certification Standard
In Dukes v. Wal-Mart Stores, Inc., Nos. 04-16688, 04-16720, 2010 WL 1644259 (9th Cir. Apr. 26, 2010), the United States Court of Appeals for the Ninth Circuit, sitting en banc, affirmed in part and reversed in part an order certifying what is likely the largest class of employment claims in the history of the United States. The decision is highly significant for class action practitioners in all areas of the law because it clarifies the standard in the Ninth Circuit for determining whether a party has met its burden under Rule 23 of the Federal Rules of Civil Procedure to certify a class.
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Delaware Chancery Court Dismisses Plaintiffs’ Counsel In Merger Class Action, Challenging Credibility Of All Counsel In Connection With Proposed Settlement
In In re Revlon, Inc. Stockholder Litigation, Consol. C.A. No. 4578-VCL, 2010 WL 985732 (Del. Ch. Mar. 16, 2010), the Delaware Chancery Court dismissed a group of law firms that had been appointed to act as co-lead and liaison plaintiffs’ counsel for a putative class of stockholders in an action challenging a corporate merger, and appointed new co-lead counsel with instructions to investigate the conduct of former counsel and the fairness of a proposed settlement negotiated by former counsel. This scathing decision from Vice Chancellor Laster highlights the critical importance for all attorneys of maintaining credibility and “reputational capital” with the Court when, among other things, seeking approval of a settlement of a class or derivative action.
Continue Reading Delaware Chancery Court Dismisses Plaintiffs’ Counsel In Merger Class Action, Challenging Credibility Of All Counsel In Connection With Proposed Settlement
Federal Circuits Grapple With Standard of Proof and the “Fraud-On-The-Market” Presumption At Class Certification Stage
In recent years, a split among the circuits has developed in federal securities class actions with regard to the procedure and standard of proof required to certify a class. At the class certification stage of the proceedings, district courts are instructed to conduct a “rigorous analysis” of the various requirements set forth in Federal Rule of Civil Procedure 23, while at the same time refrain from deciding issues that go to the substantive merits of the case. This tension, coupled with ambiguity in Circuit-level authority, has created uncertainty among many district courts. Most recently, the United States Court of Appeals for the Sixth Circuit granted interlocutory review in In re Abercrombie Fitch & Co., No. 09-0310 (6th Cir. Aug. 24, 2009), to consider this precise issue. The court, in its order granting review, noted that although the Sixth Circuit had yet to address the issue, its sister circuits, including the First, Second, Fourth and Fifth Circuits, have articulated various different standards to be applied.
Continue Reading Federal Circuits Grapple With Standard of Proof and the “Fraud-On-The-Market” Presumption At Class Certification Stage