U.S. justices to hear Halliburton securities class action
By Lawrence Hurley and Jonathan Stempel
(Reuters) - The U.S. Supreme Court, which in recent years has ruled for business in a string of high-profile cases, agreed on Friday to hear a case that could herald a dramatic decline in securities class action litigation.
The case will give the justices an opportunity to re-appraise a 25-year-old precedent, Basic v. Levinson, that made it easier for securities class action cases to go beyond the preliminary certification stage.
Shareholders, led by the Erica P. John Fund Inc, sued Halliburton Co (HAL.N: Quote), saying the company understated its asbestos liabilities while overstating revenues in its engineering and construction business and the benefits of its merger with Dresser Industries. Halliburton sought Supreme Court review after losing in lower courts.
In the 1988 case, the court ruled that investors did not have to prove that their loss could be directly traced to the alleged fraud. Instead, the court held that any misrepresentation about a security would be incorporated into the market price. Any investor who purchased the security at that time could be presumed to have been directly affected by the misrepresentation.
The ruling effectively launched the securities class action industry that exists today, according to Adam Pritchard, a professor at the University of Michigan Law School.
"Overruling 'Basic' would scale back securities class actions tremendously," he said.
Jay Brown, a professor at the University of Denver, Sturm College of Law, said it would be bad news for investor plaintiffs if the court required them to show they actually relied on false statements when making investment decisions.
"It will make securities class actions almost impossible to pursue," he said. Continued...