Halliburton: Deepening The Divide Between Certification Of US And Canadian Securities Class Actions

Everyone has been talking about the recent decision from the US Supreme Court in Halliburton Co v Erica P. John Fund Inc (Halliburton) and its rulings regarding the "fraud on the market" doctrine in US securities class action litigation (previously reported on here and here). In Canada, many are likely wondering about the potential impact of the decision here. However, what this case shows is a deepening divide between the certification process of such actions in the US and Canada. In the US, the process is becoming more difficult for investors, while Canada remains a very pro-certification jurisdiction.

Brief Background – the "Fraud on the Market" Doctrine and the New Barrier imposed in Halliburton

A class action was filed against Halliburton and one of its executives by Erica P. John Fund, as the lead plaintiff, based on allegations that various misrepresentations were made that were designed to inflate the price of Halliburton's securities in violation of US securities laws. Halliburton subsequently made a number of corrective disclosures which, it is alleged, caused the company's stock price to drop and investors to lose money.

Investors in the US may recover damages in private securities fraud actions only if they prove they relied on the defendant's misrepresentation when they decided to buy or sell a company's securities. The US Supreme Court had previously held, in Basic Inc. v Levinson, 485 U.S. 224 (1988) (Basic), that investors could satisfy the reliance requirement by invoking a presumption that the price of securities traded in an efficient market reflects all public, material information, including material misrepresentations (commonly known as the "fraud on the market" doctrine or theory). Further, that defendants could rebut the presumption at trial by showing the alleged misrepresentation did not actually affect the stock price or had no price impact.

In Halliburton, both the District Court and (on appeal) the Fifth Circuit initially denied the motion for class certification. The USSC vacated their decisions, finding that securities fraud plaintiffs need not prove a causal connection between the alleged misrepresentations and the plaintiffs' economic losses at the class certification stage in order to invoke the presumption of reliance. On remand, the US Supreme Court again overturned the District Court and Fifth Circuit. This time, the lower courts had certified the class but concluded that Halliburton could only use...