On July 25, 2015, the Northern District of Texas, in Erica P. John Fund, Inc. v. Halliburton Co., No. 3:02-cv-1152-M, 2015 WL 4522863 (July 25, 2015 N.D. Tex), issued its decision on class certification on remand from the Supreme Court following the Supreme Court's 2014 opinion, which clarified that price impact evidence may be introduced at the certification stage in a Section 10(b) class action. The court certified a class of investors, but only as to one of the six purported corrective disclosures alleged by plaintiffs. The decision illustrates how certification may play out in Section 10(b) cases in the wake of the high court's decision, as defendants attempt to defeat class certification through expert evidence on price impact.
The Halliburton case has been before the Supreme Court twice, first in 2011, when the Court determined that plaintiffs were not required to prove loss causation in order to certify a class, and more recently in 2014. In Halliburton II, the Supreme Court held that defendants are entitled to attempt to defeat class certification in a Section 10(b) action by rebutting any presumption of class-wide reliance on defendants’ alleged misstatements or omissions by demonstrating that they had no impact on the stock price.
On remand, the district court found that defendants successfully demonstrated a lack of price impact for five of the six alleged corrective disclosures. Northern District of Texas District Judge Barbara Lynn began by addressing two "threshold" legal issues. First, the court held that defendants had the burden on the question of price impact. Second, the court found that "class certification is not the proper procedural stage . . . to determine, as a matter of law, whether the relevant disclosures were corrective."
The court then carefully considered the event studies submitted by the parties’ experts and determined which party’s study was "more probative of price impact." Notably, the court found that using a two-day window to measure price impact, as opposed to a one-day window, was inappropriate because an efficient market could be expected to absorb news into the price "in a matter of minutes." As a result, the Court rejected both plaintiffs' argument that the price was impacted when it fell the day after a disclosure and defendants' argument, with respect to a different disclosure, that a price rebound on day two indicated a lack of price impact.