The Supreme Court appears to be leaning toward setting a higher
bar for groups of investors to pursue claims they were misled.
The United States Supreme Court appears ready to impose new
limits on securities fraud suits that would make it harder for
investors to band together to pursue claims that they were misled
when they bought or sold securities. But the justices do not seem
inclined to issue a ruling that would put an end to most such suits.
The new limits would be in keeping with earlier decisions from
the court led by Chief Justice John G. Roberts Jr., which has made
it more difficult for workers and consumers to pursue class actions.
The decision in the case argued Wednesday, expected by June,
seems likely to do something similar in cases brought by investors.
Companies facing fraud class actions prefer to address as many
issues as they can before judges decide whether to certify a class.
Once a class is certified, they say, the damages sought are often
so enormous that the only rational calculation is to settle even if
the chances of losing at trial are small.
"Once you get the class certified, the case is over," Justice
Antonin Scalia said on Wednesday.
Several justices suggested that this phenomenon could be partly
addressed through a proposal in a supporting brief filed by two law
professors, which argued that plaintiffs should be required to show
at an early stage "whether the alleged fraud affected market price."
Justice Anthony M. Kennedy seemed particularly taken with the
brief, referring to it several times. "I call it the midway
position," he said.
Aaron M. Streett, a lawyer for the Halliburton Company who had
argued for broader limits, said he welcomed that approach as a
fallback position. But David Boies, a lawyer for the plaintiffs,
"That's very complicated," Mr. Boies said. "It takes a lot of
time. It's very expensive. It's a lot of expert testimony."
The plaintiffs contend that Halliburton made false statements on
three topics that were intended to inflate its stock price: its
financial exposure to asbestos claims, the prospective earnings from
its engineering and construction business and the expected benefits
of a merger.
Mr. Boies said the difficulty of making the showing suggested by
Justice Kennedy would vary depending on the statement, because it
can be hard to untangle the impact of a misstatement from other
factors that affect stock prices.
Perhaps surprisingly, a Justice Department lawyer, arguing in
support of the plaintiffs, seemed open to the compromise position
when Justice Kennedy asked him for his view "of the consequences if
we adopt the law professors' view?"
"If anything," the lawyer, Malcolm L. Stewart, said, "that would
be a net gain to plaintiffs, because plaintiffs already have to
prove price impact at the end of the day."
As that answer suggested, the likely outcome in the case will be
to erect a new but often surmountable hurdle in securities fraud
cases. Most observers said such a result would be a minor victory
for corporate defendants, allowing them to defeat some securities
fraud claims at the outset, but a tolerable burden for class-action
plaintiffs' lawyers. …