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Removing a significant hurdle for plaintiffs in securities class actions, the Supreme Court ruled Monday that investors need not prove at the class certification stage that a company’s deceptive conduct caused their economic losses. The Court struck down a ruling by the U.S. Court of Appeals for the 5th Circuit that said so-called “loss causation” had to be proven before investors can proceed as a class. The ruling in Erica P. John Fund Co. v. Halliburton was unanimous, and came just six weeks after the case was argued. It was a poignant personal win for the Fund’s lawyer David Boies of Boies, Schiller & Flexner, and not just because it was his first appearance at the high court since losing Bush v. Gore in 2000. The suit against Halliburton had been handled since 2006 by Boies’ daughter Caryl, who died of lung cancer in December 2010 just days before the high court granted review of the case. In a statement, David Boies said the ruling was a “tribute to my late daughter…who persevered with this case at a time when few gave it any chance of success.” Boies also called the decision “a victory for effective enforcement of public securities laws and for individuals and institutions that are injured by securities fraud.” The ruling also was the fourth win for investors in the last two terms in Supreme Court securities cases – the other three being Matrixx Initiatives v. Siracusano, decided in March, and Merck & Co. v. Reynolds and Jones v. Harris Associates, both decided last year. But that was not enough for commentators to proclaim a pro-plaintiff trend on a Court that has long been viewed as skeptical of class actions. “Each of the cases really must be looked at on its own terms,” said David Frederick of Kellogg, Huber, Hansen, Todd, Evans & Figel, who has been involved in all four cases on the plaintiffs’ side. In the Halliburton case, Frederick said, “The 5th Circuit had erected a very draconian rule that went too far,” and the Court was correct in striking it down. But he said it was “pretty narrowly written” and not necessarily a sign of a pro-plaintiff shift by the Court. “If the question is whether the Court is developing a pro-plaintiff jurisprudence, I certainly wouldn’t go that far,” said Michael Miarmi of Lieff, Cabraser, Heimann & Bernstein, who authored a brief in the case for the National Association of Shareholder and Consumer Attorneys. “But this shows they are certainly willing to look at certain issues.” Opponents of securities class actions also said the decision was narrow and did not address other issues important to class actions. “I see this as a characteristically narrow opinion of Chief Justice Roberts that resolves only the question presented and leaves larger issues for another day,” said John Elwood of Vinson & Elkins, author of a brief in the case urging the Court to cut back on presumptions that benefited plaintiffs, articulated in the 1988 case Basic Inc. v. Levinson. The case was brought against Halliburton under Section 10(b) of the Securities Exchange Act, claiming that company executives made misrepresentations about its future revenues and its exposure to asbestos lawsuits, all aimed at inflating its stock price. But the district court and the 5th Circuit kept the suit from proceeding because plaintiffs had not proven a connection between the misrepresentation and their losses. The 5th Circuit said that proof was needed to trigger the “fraud on the market” presumption that investors relied on the misrepresentations in buying or selling stocks. But the high court, in an opinion written by Chief Justice John Roberts Jr., said the two concepts were unrelated. “Loss causation addresses a matter different from whether an investor relied on a misrepresentation, presumptively or otherwise, when buying or selling a stock,” Roberts wrote. “The Court said the issue was really apples and oranges,” said Matthew Matule of Skadden, Arps, Slate, Meagher & Flom in New York. The 5th Circuit ruling, he said, had “enhanced the toolkit for defendants in securities class actions,” but its demise was “not all that controversial.” But Pace Law School professor Jill Gross, a securities litigation expert, saw some larger meaning in the decision, stating that it “sends a strong signal that lower courts cannot use class certification as a procedural device to block investors from vindicating their statutory rights.” Tony Mauro can be contacted at [email protected].

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