Tracking the latest developments in the fight for a fair America
By S. Douglas Bunch
Associate, Cohen Milstein
On June 23, 2014, the U.S. Supreme Court issued its decision in Halliburton Co. v. Erica P. John Fund, Inc. (“Halliburton II”). In rejecting Halliburton’s attempt to radically restrict the rights of investors, the Supreme Court affirmed the principles it announced over a quarter century ago in Basic v. Levinson, a decision that ensures investors have the opportunity to prove their claims—and those of other investors—in a class action.
Halliburton II had generated much anticipation and commentary due to its potential to threaten the continued viability of the fraud-on-the-market presumption of reliance recognized by the Court in Basic v. Levinson, 485 U.S. 224 (1988). Under the fraud-on-the-market presumption, publicly available information is assumed to be reflected in the market price of a stock, and, in turn, investors can be presumed to have relied on the information because their purchasing and sales decisions account for the price of the security. This eases the burden on investors, who need not show reliance on a defendant’s misrepresentations when bringing suits for securities fraud.
The presumption is crucial in class actions. Justice Thomas, joined by Justices Scalia and Alito, wrote an acrimonious concurrence to the Court’s opinion, in which he argued that Basic should have been overruled because “[l]ogic, economic realities, and our subsequent jurisprudence have undermined the foundations of the Basic presumption, and stare decisis cannot prop up the façade that remains.” Had Justice Thomas’s viewpoint prevailed, it might have meant the end of securities fraud class actions altogether, because without the Basic presumption, each individual investor in the class would have needed to demonstrate that he or she directly relied on the alleged misstatements when deciding to purchase or sell stock, making class certification in securities fraud cases nearly impossible.
However, in an important victory for investors, the Supreme Court in Halliburton II declined to overrule Basic and instead reaffirmed the principles underlying that decision. The Court rejected the arguments advanced by Halliburton that the fraud-on-the-market presumption is inconsistent with congressional intent, that the presumption is no longer justified by economic theory, and that the presumption is undermined by the notion that some investors do not rely on the integrity of the stock’s market price.
The Court also squarely rejected Halliburton’s policy arguments contending that Basic should have been overturned because of the supposed “harmful consequences” of securities class actions. The Court properly noted that the forum for addressing such concerns is Congress, not the courts. This portion of the Court’s ruling will hopefully put an end to the repeated and baseless anti-investor policy arguments raised by defendants during litigation in an attempt to curtail investor rights.
The Court did adopt one of Halliburton’s proposed alternatives to overruling Basic: defendants will now be allowed to attempt to rebut the presumption of reliance at the class certification stage by trying to present evidence that the misrepresentations did not affect the stock price. Defendants were already permitted to introduce such “price impact” evidence at the class certification stage to rebut a plaintiff’s showing that the stock at issue traded in an efficient market, and could even introduce such evidence, at the merits stage, to defeat the presumption of reliance itself. All the Supreme Court’s ruling in Halliburton II means is that defendants may now attack the presumption of reliance earlier, by submitting such evidence at class certification.
This changes very little. In fact, the Second and Third Circuit already allowed defendants to do just this. See, e.g., In re Salomon Analyst Metromedia Litig., 544 F.3d 474, 484 (2d Cir. 2008); In re DVI, Inc. Sec. Litig., 639 F.3d 623, 638 (3d Cir. 2011). The fact that the Supreme Court essentially just adopted the precedent of these Circuits should prevent defendants from attempting to make new arguments based on Halliburton II in those courts, and also defeat misleading arguments about the opinion’s meaning, like the fallacious notion that plaintiffs must now show a price increase to demonstrate price impact.
Affirming the continued vitality of Basic and the efficient market theory that underpins Basic is a significant victory for investors. The procedural guidelines imposed by the Court keep the burden on defendants to attempt to rebut the presumption of reliance with evidence that the alleged misrepresentation did not impact the price of a defendant’s stock. The ruling should not unduly restrict the rights of investors, and the conduct of securities class actions should not substantially change in the wake of the decision. Indeed, in her own concurrence, joined by Justices Breyer and Sotomayor, Justice Ginsburg made it clear that because the burden for demonstrating lack of price impact continues to rest solely on defendants, the Court’s ruling “should impose no heavy toll on securities-fraud plaintiffs with tenable claims.”
S. Douglas Bunch is a member of the Securities Fraud/Investor Protection practice group at Cohen Milstein. He is currently litigating multiple securities class actions.
From AFJ President Nan Aron’s latest column in The Huffington Post:
This is a very bad time for American women in the Supreme Court.
Three big cases were decided right at the end of its term that will profoundly affect women’s lives, subject them to conditions that are never applied to men, and damage their ability to control their own lives and health.
In McCullen v. Coakley, the Court in a “faux-nanimous” decision in which the four moderate-liberals clearly played defense, found that a 35-foot buffer zone around the entrance to abortion clinics in Massachusetts was a violation of the First Amendment. The Commonwealth had established the zones in reaction to the brutal murder of two people at a Boston clinic in 1994 and the endless harassment of women and their families attempting to enter reproductive health clinics.
But Chief Justice John Roberts, writing for the Court, swept aside reality, superimposed his own view of what happens outside clinics, and somehow found that so-called “sidewalk counselors” need to be protected more than the people who work at or make use of the clinics.
By Adam Sonfield
Senior Public Policy Associate, Guttmacher Institute
Burwell v. Hobby Lobby Stores on June 30 has already been the subject of reams and megabytes of analysis, speculation and rhetoric. You have undoubtedly read about how the majority’s decision, written by Justice Samuel Alito, allows closely held for-profit corporations—such as Oklahoma-based arts and crafts chain Hobby Lobby and Pennsylvania-based furniture manufacturer Conestoga Wood Specialties—to exclude coverage of certain contraceptive methods to which they have religious objections from the health insurance plans they sponsor for their employees and their family members, undermining a well-known requirement of the Affordable Care Act (ACA). And you have surely read about the concerns—raised in dissent by Justice Ruth Bader Ginsburg and commented on by the federal government and countless outside observers—that granting corporations religious rights that can let them ignore laws that apply to other companies could have a host of negative consequences for workers, customers and society.
(I have written here before about many of the key facts behind this case, including the benefits of contraceptive use for women and families and the importance of covering the full range of contraceptive methods and services without out-of-pocket costs, such as copayments or deductibles.)
As with many important Supreme Court rulings, this one raises far more questions than it answers. Here are some of the most important of those questions: Read more
By Gretchen Borchelt
Senior Counsel and Director of State Reproductive Health Policy, National Women’s Law Center
The majority opinion in Hobby Lobby erases women from the picture altogether. In a decision that is squarely about women’s health and equality, the male justices in the majority refuse to acknowledge the centrality of women. And in evidencing greater concern for protecting corporations from discrimination than in protecting women from discrimination, the majority opinion creates a hierarchy of discrimination where women are at the bottom (if they even merit consideration at all).
To begin with, Justice Alito’s opinion for the majority barely mentions women. As the Washington Post reported, the opinion uses the word “women” or “woman” a mere 13 times in 49 pages. Closer reading of the majority decision makes clear that seven of those mentions were either because the majority was refuting Justice Ginsburg (and her use of “women”); summarizing the government’s position (and its use of “women”) or describing the birth control coverage requirement (a simple recitation of fact).
That leaves precisely six instances in which the majority—on its own—mentioned the word “women.” There are two possible explanations. Both are troubling.
One is that the majority purposely, as a legal and literary strategy, left out “women”—the better to hide the actual women whose rights are at stake behind asserted concerns about religious freedom. Alternately, it was unintentional, but nevertheless the result of an unacknowledged but deep-seated and culturally-reinforced worldview that just does not take women into account.
Either way, women’s literal absence from the majority opinion highlights how this decision furthers legal doctrine that denigrates and erases women’s reproductive health and rights and recognizes certain forms of discrimination while dismissing others.
The majority opinion does this in a two-step process. The first is by treating birth control as different and less worthy of health coverage than other basic preventive health care services. This is clear in a passage that negatively compares the birth control coverage requirement to other coverage requirements like immunizations. Legal requirements to provide these other health care services are not automatically invalidated by this decision because, the majority explains, they “may be supported by different interests (for example, the need to combat the spread of infectious diseases).” In other words, the majority is saying, birth control is not like those other good, valuable preventive services that actually help people live better, healthier lives.
The majority opinion also merely assumes, for the sake of argument, that the interests served by the birth control coverage requirement—namely promoting public health and gender equality— are compelling and satisfy that prong of the Religious Freedom Restoration Act test. In making an assumption rather than delving into the analysis, the justices in the majority get to avoid any discussion of the benefits of birth control to women, including its place alongside immunizations in promoting public health and its value in furthering women’s equality by addressing discrimination in health care and promoting women’s social and economic opportunities. In fact, the majority opinion puts these interests in quotations, suggesting that they are questionable or invalid (believe me, they are not).
By setting up birth control as separate and less valuable than other health care needs, the majority opinion sets the stage for step two: creating a hierarchy of discrimination with women at the bottom.
The justices in the majority are very concerned about discrimination, but only when it appears to harm for-profit corporations. The majority opinion paints a picture of for-profit corporations that are trying to operate according to religious beliefs, but are threatened by discrimination at every turn. Focusing on the need to protect these corporations allows the majority to ignore the other harm that is at issue in the case: discrimination against women.
If birth control does not really promote public health, then it doesn’t matter if taking the benefit from these female employees means more unintended pregnancies. If requiring insurance plans to cover birth control isn’t acknowledged to close gender gaps in health care, then it doesn’t matter if only female employees lose a health insurance benefit that they earned with their work. If gender equality is not a real result of birth control access, then there is no need to consider whether women are forced to give up educational or career opportunities. If birth control is not directly linked to a woman’s health and the course of her life, then sex discrimination deserves no attention by the majority. And so it gets none.
The bottom line for the majority is that when discrimination against women is tied to their reproductive health, it is different from other forms of discrimination and consequently less important. In this case, it is certainly less important to the majority than protecting for-profit corporations—which the majority decided, for the first time, can exercise religion—from asserted religious discrimination. That justifies the decision’s final conclusion: it is not just acceptable but legally required that the religious beliefs of bosses are allowed to trump a woman’s health and access to the health care she needs.
By Alicia Bannon
Counsel for the Brennan Center’s Democracy Program
On June 26, the Supreme Court invalidated three of the president’s appointments to the National Labor Relations Board. The case, National Labor Relations Board v. Noel Canning, dealt with the president’s constitutional power to make recess appointments. The decision heralds a shift in power to the Senate in the appointments process—making it even more important for the Senate to reform its rules and practices so that vacancies are filled in a timely manner and our courts and agencies are fully staffed.
Noel Canning started as a collective bargaining dispute between a Pepsi bottler and the Teamsters. It turned into a blockbuster case about executive power, however, after the D.C. Circuit decided that three of the NLRB members who had ruled on the dispute had been unconstitutionally appointed by President Obama in 2012.
Noel Canning turned on the scope of the president’s constitutional power to make temporary appointments to fill executive and judicial branch vacancies when the Senate is in recess. Throughout our nation’s history, recess appointments have helped the government run smoothly when the Senate was unable to confirm nominees—including in recent years when the filibuster and other forms of Senate obstruction of the confirmation process would have otherwise left agencies like the NLRB without a quorum. As the Brennan Center detailed in a recent white paper, thousands of temporary appointments throughout history would have been illegal under the D.C. Circuit’s reasoning. Read more