Friday, November 22, 2013

Demise of "Fraud on the Market"?

You may already know this, but we had to comment on the Supreme Courts November 15 grant of certiorari in Halliburton Co. v. Erica P. John Fund, Inc., No. 13-317 on the question of:  (1) Whether this Court should overrule or substantially modify the holding of Basic, Inc. v. Levinson, 485 U.S. 224 (1988), to the extent that it recognizes a presumption of classwide reliance derived from the fraud-on-the-market theory.  As to the case itself, theres plenty more information over at SCOTUSblog.
We see fraud on the market claims, both explicitly and as substantively identical non-reliance theories, regularly in our sandbox, most commonly in third-party payer and other economic loss suits.  As a result, we posted a 50-state survey in 2010 listing the precedent that rejects fraud on the market in non-securities cases.  A recent example (although the court tried to deny it) of the use of fraud on the market-like causation analysis is the First Circuits 2013 decisions in the Neurontin litigation earlier this year, which we blogged about here.  Maybe well at least see a GVR (grant, vacate, remand) in Neurontin, although RICO presents somewhat different issues.

 As we mentioned in the lead-in to the 50-state survey, the Basic fraud on the market decision commanded only four votes of a depleted 7-member court.  The underlying causation presumption has never gained majority acceptance on the Court in the ensuing 25 years.  Not every third-party payer/economic loss case is brought under RICO, and our minimum hope is, if Basic is overruled on the fraud on the market presumption, that such arguments disappear in the cases that our clients face as well.  After all, a favorable development in the securities field should be a fortiori with respect to similar sorts of non-securities claims against our clients.
With Halliburton pending, make sure to preserve fraud on the market-related issues in your pending cases.  Well know the answer by the end of June, 2014.

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