In what may be the biggest business case of the term, the Supreme Court today declined to show its hand.
Halliburton v. Erica P. John Fund, Inc. takes aim at shareholder class actions, a field of law that the Court itself created in a 1988 case, Basic v. Levinson. A four-justice majority in Basic held that shareholders suing over misrepresentations may prove that they relied on the false statements—a necessary element of any fraud suit—by presumption: if the market for the stock in question is more-or-less efficient, their reliance on any misrepresentations that are baked into the price of the stock may be presumed. Without this presumption, each shareholder would have to individually demonstrate his or her actual knowledge of the misrepresentation and actual reliance upon it, precluding the kind of “commonality” required to bring a class action.
Basic came at the tail-end of the Court’s decades-long experiment in policymaking by creating and defining the contours of civil actions. Where Congress passed remedial laws—here, Section 10(b) the Securities Exchange Act of 1934—the Court would often read into them “implied” causes of action allowing private litigants to bring suit and seek damages over alleged infractions that would otherwise be left to regulators.
The test of time has shown that the Court is ill-suited to this function, particularly in the securities-law context. Since Basic, stock-drop class actions have boomed, and attaining class certification (merely by relying on Basic’s presumption that the issues at play are common to class members) just about guarantees a settlement. But there has been commensurately little benefit to shareholders, who are, in the end, the ones who wind up paying any damages or settlements, with the lawyers skimming off a good portion. In other words, these suits are very likely a net negative for shareholders—which may explain why Congress has never authorized them legislatively. And in a 2013 decision, four of the Court’s conservatives stated their willingness to reconsider Basic.
Chief Justice Roberts, however, kept his own counsel then, and that is what he did today. His few questions, most directed at the plaintiffs’ counsel David Boies and Malcolm Stewart, arguing for the government in support of the plaintiffs, focused on concrete results.