Broker-Dealer Litigation - Greenberg Traurig LLP

3. Rule 23 of the Fed. R. Civ. P.
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Erica P. John Fund, Inc. v. Halliburton Co., 131 S.Ct. 2179 (2011).
The Supreme Court held that a plaintiff in a private securities fraud class action need not
prove loss causation in order to obtain class certification under Rule 23, reversing the Fifth
Circuit’s decision affirming the denial of class certification on that basis. In doing so, the Court
reaffirmed its decision in Basic, Inc. v. Levinson, 485 U.S. 224 (1988), which outlined the
“fraud-on-the-market” theory, pursuant to which investors are understood to rely generally upon
the pricing information generated by an efficient stock market when they buy and sell securities.
The decision overturned opinions by the Fifth Circuit and the Second Circuit limiting investors’
ability to use the theory by holding that the investors needed to demonstrate loss causation prior
to obtaining class certification.
In re DVI, Inc. Sec. Litig., 639 F.3d 623 (3d Cir. 2011).
The Third Circuit affirmed class certification in a securities fraud action against a
company’s auditor. On appeal, the auditor challenged the district court’s predominance findings,
arguing that the court improperly applied the fraud-on-the-market presumption of reliance, that
the plaintiff must establish loss causation prior to invoking the presumption and, in any event,
the auditor had rebutted the presumption by showing that individual issues of loss causation
predominated over common ones. The Third Circuit rejected the auditor’s arguments, holding
that invocation of the fraud-on-the-market presumption was proper to satisfy the predominance
requirement, that the plaintiff need not establish loss causation at the class certification stage, and
that the defendant’s evidence failed to rebut the presumption of reliance.
Conn. Ret. Plans and Trust Funds v. Amgen, Inc., 660 F.3d 1170 (9th Cir. 2011).
After the district court certified a securities fraud class action against a company and its
individual officers and directors, the Ninth Circuit granted the defendant’s request for permission
to bring an interlocutory appeal. On appeal, the Ninth Circuit affirmed the class certification
decision, finding that the plaintiff did not need to prove materiality in order to invoke the fraudon-the-market
presumption of reliance at the class certification stage because proof of materiality
was not necessary to ensure that the question of reliance was common among all prospective
class members’ securities fraud claims; rather, the plaintiff’s needed only to allege materiality
with sufficient plausibility. The court of appeals also held that the district court properly refused
to consider the defendant’s truth-on-the-market defense at the class certification stage since the
defense was a method of refuting materiality, which the plaintiff was not required to prove.
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