Understanding Halliburton In Light Of Recent Supreme Court Jurisprudence

In recent years, the Supreme Court has decided a number of cases that, alone and certainly in the aggregate, have significantly impacted the ability of plaintiffs to initiate and maintain class actions.

By and large, these decisions have opened up new avenues for companies to prevent plaintiffs from commencing class actions in the first place or for defendants successfully to challenge class certification. In particular, and as discussed previously by the authors,1 the Court in a series of decisions has upheld the ability of contracting parties to eliminate class procedures in arbitration; raised the bar for plaintiffs to obtain class certification by requiring them to prove each of the Rule 23 prerequisites at the class certification stage; and barred courts from applying the federal securities law to predominantly extraterritorial investors and transactions, thereby eliminating such class actions.

As explained in the Court's opinions, these decisions were premised on an adherence to congressional intent as reflected in statutory text, which to the Court overrode other considerations that might have warranted a contrary result.

Among the most, if not the most, highly anticipated of the recent class action decisions was Halliburton Co. v. Erica P. John Fund, Inc., 2014 BL 172975 (U.S. 2014) (''Halliburton II''). But the result in Halliburton II is difficult to square with the Court's recent class action jurisprudence. The Halliburton II Court considered the continuing vitality of the fraud-on-the-market presumption in claims asserting violations of Section 10(b) of the Securities Exchange Act of 1934 (the ''Exchange Act'').2 In particular, the Court had the opportunity to jettison the presumption—a classic example of judgemade law originally articulated in Basic Inc. v. Levinson, 485 U.S. 224 (1988)—in favor of faithful observance of statutory text. Instead, Halliburton II retained the fraud-on-the-market presumption, and in so doing, preserved the ability of plaintiffs to assert Section 10(b) claims as class actions.

This article examines Halliburton II alongside other Supreme Court decisions over the last several years that have had the effect of limiting the availability of the class action device, discusses recent lower court decisions applying this precedent, and explores how defendants are using or could consider employing the applicable case law to defeat class certification. Some of these recent Supreme Court decisions confront Rule 23 issues directly, while others touch on class action issues more tangentially. But they have all been favorable to class-action defendants. This article argues that Halliburton II appears to be somewhat of a departure from those cases. However, there is room within the Halliburton II decision for securities class action defendants to make powerful arguments at the class certification stage that in practice were not available before Halliburton II.

Demanding Proof that Rule 23 Class Certification Standards Are Satisfied

Prior to Halliburton, the Supreme Court had issued a number of decisions that had the effect of making it more difficult for plaintiffs to obtain class certification under Federal Rule of Civil Procedure 23 (''Rule 23''). For the most part, these opinions rely on the principle that a plaintiff must affirmatively demonstrate that the prerequisites to certification set forth in Rule 23 are satisfied before class certification can be granted.

Rule 23 requires plaintiffs seeking class certification to establish that: (1) the class is so numerous that joinder of class members is impracticable; (2) there are questions of law or fact common to the class; (3) the claims or defenses of the class representatives are typical of those of the class; and (4) the class representatives will fairly and adequately protect the interests of the class. See Rule 23(a). Plaintiffs also must satisfy one of the following requirements under Rule 23(b): (1) prosecuting individual actions risks either inconsistent adjudications or would be dispositive of the interests of others; (2) defendants have acted or refused to act on grounds generally applicable to the class; or (3) there are common questions of law or fact that predominate over any individual class member's questions and that a class action is superior to other methods of adjudication. See Rule 23(b).

Recent Supreme Court jurisprudence has directed district courts to conduct an in-depth analysis into whether plaintiff has satisfied Rule 23 prerequisites at the class certification stage, even if those questions are implicated by the merits of plaintiffs' claims. Not surprisingly, raising the bar for class certification will limit the number of putative class actions that are certified (and continue to settlement or trial), and may also have the effect of reducing the overall number of class actions filed.

In Wal-Mart Stores, Inc., v. Dukes, 131 S. Ct. 2541 (2011), a case concerning alleged discriminatory employment practices in violation of Title...