Let’s state the obvious: Big Business did not get what it wanted Monday from the U.S. Supreme Court, which refused in Halliburton v. Erica P. John Fund to overturn Basic v. Levinson, the 25-year-old precedent that permits shareholders to bring classwide claims of securities fraud.
The justices didn’t even adopt the alternate approach — suggested by some Halliburton supporters in friend-of-the-court briefs — of requiring plaintiffs who want to sue as a class to show that supposed corporate misstatements had an impact on share prices. Instead, the court ruled only that defendants may argue against class certification with evidence that share prices didn’t drop as a result of the alleged fraud.
Halliburton’s lawyer, Aaron Streett of Baker Botts, told me that’s still a “significant win,” especially considering that the justices might have upheld the 5th U.S. Circuit Court of Appeals and barred defendants from using such price-impact evidence to keep shareholders from banding together.
Streett said that the decision will give defendants a chance to fend off class certification with arguments that their share price didn’t drop at all, or that the drop was attributable to something other than the disclosure of their alleged fraud.
But the cost of this small victory for defendants may turn out to be higher than they realize. According to David Boies of Boies, Schiller & Flexner who argued the Supreme Court case for investors — and shareholder lawyers Max Berger of Bernstein Litowitz Berger & Grossmann and Lawrence Sucharow of Labaton Sucharow, the Halliburton ruling not only won’t curb securities class action filings but could actually improve plaintiffs’ position after class certification.