Defendants Look for Broader Interpretation of 'Halliburton II'

This month marks the two-year anniversary of the U.S. Supreme Court’s seminal securities class action decision, Halliburton v. Erica P. John Fund (Halliburton II), 134 S. Ct. 2398 (2014), which allows defendants to rebut—at the class certification stage—the fraud-on-the-market presumption of reliance permitted under Basic v. Levinson, 485 U.S. 224 (1988). According to Halliburton II, defendants may rebut the Basic presumption by showing that their alleged misrepresentations had no impact on the defendant company’s stock price. Notably, the court held that defendants may show lack of price impact with appropriate evidence that either “the asserted misrepresentation (or its correction) did not affect the market price of the defendant’s stock.” Reiterating its decision in Basic, the court explained that “‘any showing that severs the link between the alleged misrepresentation and … the price received (or paid) by the plaintiff … will be sufficient to rebut the presumption of reliance.’”

Despite the significance of Halliburton II, a majority of district courts have ­applied a narrow interpretation of its holding, rendering toothless defendants’ right to rebut the Basic presumption. Some defendants, including Halliburton Co. itself (on remand from Halliburton II), have sought interlocutory appeal of adverse district court rulings under Federal Rule of Civil Procedure 23(f). In April of this year, the first circuit court to interpret Halliburton II—the U.S. Court of Appeals for the Eighth Circuit—reversed a district court’s class certification order in the ­securities action against Best Buy Co. Inc. The Eighth Circuit held that Best Buy sufficiently rebutted the Basic presumption with evidence that its stock price did not rise after the alleged misrepresentations at issue, showing the absence of a “front-end” price impact, and, therefore, the defendants did not need to also demonstrate a lack of “back-end” price impact (i.e., that there was no statistically significant stock price decline following the alleged corrective disclosure), as in IBEW Local 98 Pension Fund v. Best Buy, No. 14-3178, 2016 U.S. App. LEXIS 6616, at *20 (8th Cir. April 12, 2016).