The Supreme
Court appeared divided into three camps on whether to overrule or alter a
long-standing legal precedent that provides the foundation for many
class-action lawsuits alleging securities fraud.
The court
heard an hour-long oral argument in a case involving Halliburton Co. and
whether to overturn a 1988 Supreme Court decision which held that investors in
securities-fraud lawsuits don’t have to prove they relied upon any misleading
statements by a company.
By the end of
an hour-long argument session, it appeared some justices were looking for a
middle-ground to resolve the case.
The court, in
Basic v. Levinson, said it was enough that investors rely on the integrity of
stock prices, which are a reflection of publicly available company information.
That legal doctrine, known as fraud-on-the-market, has provided a basis for
allowing investors to pool their claims into one large class-action lawsuit.
Read the full WSJ story here.
If the court
abandons its earlier precedent it could make it difficult for investors to
bring class-actions alleging they were misled.
The court’s
four liberal justices, including Justice Elena Kagan, voiced resistance
Wednesday to overturning the 1988 decision.
Justice Kagan
said Congress has been active in passing securities-law reforms and has had “every opportunity” to overrule or alter
the court’s Basic decision, but hasn’t done so. She and other liberal justices
suggested there was no strong justification for the court to overrule its prior
precedent, which the court generally is reluctant to do.
Conservatives
justices expressed concern about the court’s 1988 ruling, but appeared divided
on how to proceed.
Justices
Antonin Scalia and Samuel Alito voiced skepticism of the premises behind the
court’s earlier decision, suggesting it had made it too easy for investors to
have their lawsuits certified to proceed as class-actions. Justice Scalia said
once investor cases are allowed to go forward as class-actions, company
defendants feel pressure to settle even weak cases.
But Justice
Anthony Kennedy, a moderate conservative justice, repeatedly asked questions
that sought a compromise in deciding the case. He asked whether companies
defending against securities-fraud allegations ought to have a chance, before a
class-action is certified, to argue that any alleged company misrepresentations
didn’t have an impact on the company’s stock price. The court could embrace
that approach without abandoning its earlier case, he suggested.
Other justices
later voiced interest in Justice Kennedy’s line of questioning. By the end of
the session, it didn’t appear that a majority of the court was prepared to
fully abandon the 1988 precedent.
The case is
being closely watched in investing circles and by the business community. The
underlying dispute focuses on a decade-old lawsuit covering investors who
bought HalliburtonHAL +1.02% shares between 1999 and 2001. The plaintiffs
allege that Halliburton misled the public about its asbestos liabilities, about
revenue on construction contracts, and about the benefits of its 1998 merger
with Dresser Industries. Halliburton argued that any misrepresentations alleged
by the plaintiffs had no actual impact on the company’s share price.
Halliburton
asked the court to overturn the 1988 precedent, but as a fallback position, has
also advocated for changes to the legal process that are similar to the ones
raised by Justice Kennedy.
A ruling is
expected by the end of June.
No comments:
Post a Comment