Justia Civil Procedure Opinion Summaries

Investors can recover damages in a private securities fraud action only with proof that they relied on misrepresentation in deciding to buy or sell stock. The Supreme Court held, in "Basic," that the requirement could be met by invoking a presumption that the price of stock traded in an efficient market reflects all public, material information, including material misrepresentations; a defendant can rebut the presumption by showing that the alleged misrepresentation did not actually affect the stock price. EPJ filed a putative class action, alleging misrepresentations designed to inflate Halliburton’s stock price, in violation of the Securities Exchange Act of 1934 and SEC Rule 10b–5. The Supreme Court vacated denial of class certification, concluding that securities fraud plaintiffs need not prove causal connection between the alleged misrepresentations and their economic losses at the class certification stage. On remand, Halliburton argued that certification was nonetheless inappropriate because it had shown that alleged misrepresentations had not affected stock price. Without that presumption, investors would have to prove reliance on an individual basis, so that individual issues would predominate over common ones and class certification was inappropriate under FRCP 23(b)(3). The district court certified the class. The Fifth Circuit affirmed. The Supreme Court vacated and remanded, while declining to reject the Basic presumption.The Court rejected arguments that “a robust view of market efficiency” is no longer tenable in light of evidence that material, public information often is not quickly incorporated into stock prices and that investors do not invest in reliance on the integrity of market price. Congress could alter Basic’s presumption, given recent decisions construing Rule 10b–5 claims, but has not done so, although it has responded to other concerns. The Basic doctrine includes two presumptions: if a plaintiff shows that the misrepresentation was public and material and that the stock traded in a generally efficient market, there is a presumption that the misrepresentation affected price. If the plaintiff also shows that he purchased stock at market price during the relevant period, there is a presumption that he purchased in reliance on the misrepresentation. Requiring plaintiffs to prove price impact directly would take away the first presumption. Defendants, however, must have an opportunity to rebut the presumption of reliance before class certification with evidence of lack of price impact. That a misrepresentation has price impact is Basic’s fundamental premise and has everything to do with predominance. If reliance is to be shown by that presumption, the publicity and market efficiency prerequisites must be proved before certification. Because indirect evidence of price impact will be before the court at the class certification stage in any event, there is no reason to artificially limit the inquiry at that stage by excluding direct evidence of price impact. View "Halliburton Co. v. Erica P. John Fund, Inc." on Justia Law

Plaintiffs, a class of investors, brought a securities fraud action against Genzyme Corporation, an international pharmaceutical company, and several of Genzyme’s executives, alleging that Defendants violated the Securities Exchange Act by making false or misleading statements to investors. The district court dismissed the complaint for failure to state a claim upon which relief could be granted and subsequently denied Plaintiffs’ post-judgment motion to amend the complaint. The First Circuit affirmed, holding (1) the district court did not err in concluding that the complaint failed to meet the formidable pleading standard for securities fraud claims; and (2) the district court did not abuse its discretion in denying Plaintiffs’ post-judgment motion to amend the complaint. View "Deka Int'l S.A. Luxembourg v. Genzyme Corp." on Justia Law

Mike Richey sold his interest in Richey Oilfield Construction, Inc. to Nighthawk Oilfield Services, Ltd. Richey remained employed as president of Richey Oil and became a limited partner in Nighthawk. The primary agreements regarding the transaction were a stock purchase agreement, an agreement for the purchase of Richey Oil’s goodwill, and a promissory note. Each of the acquisition agreements contained a forum selection clause naming Tarrant County as the venue for state court actions. When the business did not go as well as the parties had hoped, Richey filed suit in Wise County, where Richey resided, against two Nighthawk executives (together, Relators) for, among other claims, breach of fiduciary duty, common law fraud, statutory fraud, and violations of the Texas Securities Act. Relators responded by unsuccessfully moving the trial court to transfer venue to Tarrant County or dismiss the suit pursuant to the mandatory venue selection clauses in the acquisition agreements. Relators subsequently sought mandamus relief. The Supreme Court conditionally granted relief, holding that the trial court abused its discretion by failing to enforce the forum selection clauses in the acquisition agreements. View "In re Fisher" on Justia Law