In Erica P. John Fund Inc. v. Halliburton Co.,1 the U.S. Supreme Court reversed a decision by the U.S. Court of Appeals for the Fifth Circuit that held that a plaintiff must prove loss causation as part of the necessary predicate to be entitled to invoke the fraud-on-the-market presumption of reliance. Establishing reliance is a prerequisite to obtaining class certification in securities fraud actions and the fraud-on-the-market presumption is generally the only way to establish class-wide reliance. In its decision, the Supreme Court held that loss causation has nothing to do with whether an investor can establish the fraud-on-the-market-theory”2 articulated in Basic Inc. v. Levinson.3 The Halliburton decision narrowly focused on whether establishing loss causation as defined in Dura Pharmaceuticals Inc. v. Broudo,4 was a prerequisite to the fraud-on-the-market presumption of reliance.
Loss Cause, Reliance and Certification
Class actions are “an exception to the usual rule that litigation is conducted by and on behalf of individual named parties only.”5 Rule 23 of the Federal Rules of Civil Procedure requires that a putative class representative establish that it can satisfy the four requirements of Rule 23(a).6 In addition, in an action seeking money damages, a putative class representative must also establish that it satisfies the predominance requirement of Rule 23(b)(3) that “questions of law or fact common to class members predominate over any questions affecting only individual members,” as well as showing that a class action is superior to other means of adjudicating the class’ claims.7
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