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From Securities Regulation Daily, July 27, 2015

Halliburton leverages price-impact victory to largely defeat class certification

By Anne Sherry, J.D.

Making good use of the Supreme Court’s ruling that a defendant may rebut the presumption of reliance prior to class certification by demonstrating the lack of price impact, Halliburton thwarted class certification as to five corrective disclosures identified by the plaintiffs. The district court for the Northern District of Texas held, however, that Halliburton did not satisfy its burden on the sixth corrective disclosure because its reliance on a two-day window to measure price impact was inappropriate in an efficient market (Erica P. John Fund, Inc. v. Halliburton Co., July 25, 2015, Lynn, B.).

After the Supreme Court ruled last June that a defendant may defeat the Basic presumption of reliance by demonstrating that the alleged misrepresentation had no impact on the stock’s market price, the district court ordered the lead plaintiff and Halliburton to brief the price-impact issues. The plaintiffs then sought to certify a class for asbestos and accounting claims, beginning on the day that Halliburton announced its Q2 1999 results and ending on December 7, 2001, the day the company announced a $30 million asbestos-related verdict against its subsidiary, Dresser.

Corrective disclosures. The plaintiffs identified six disclosures that they allege corrected prior misrepresentations made by Halliburton. Halliburton argued, however, that the disclosures were in fact not corrective and that it had thereby demonstrated a lack of price impact. The court held that under the Supreme Court’s two Halliburton decisions as well as its Amgen decision, the issue of whether disclosures are corrective is not a proper inquiry at the class certification stage. Instead, the court assumed for the sake of the proceedings that the asserted misrepresentations were misrepresentations that were corrected by the asserted corrective disclosures.

One- or two-day window. The court concluded that Halliburton met its burden of demonstrating that five of the corrective disclosures did not affect the price of the company’s stock. As to the sixth—the announcement of the verdict against Dresser—Halliburton could not defeat the reliance presumption based on the price rebounding the next business day after that disclosure. An efficient market prices news in within a matter of minutes, the court wrote, so a price impact on the day after the disclosure does not aid the plaintiff, nor does a second-day rebound negate a price impact on the first day. Although some of the stock price decline following the announcement of the verdict was likely paralleled in other companies with asbestos exposure, Halliburton did not demonstrate that this general uncertainty about asbestos liabilities caused all of the substantial price decline on that day. The court granted the class certification motion only with respect to this alleged corrective disclosure. 

The case is No. 3:02-CV-1152-M.

Attorneys: Brian S. Martin (Thompson, Coe, Cousins & Irons, LLP) for Highlands Insurance Co. Darren J. Check (Kessler Topaz Meltzer & Check, LLP) for Private Asset Management. David Boies (Boies, Schiller & Flexner LLP) for The Erica P. John Fund, Inc. Jessica B. Pulliam (Baker Botts) for Halliburton Co.

Companies: Highlands Insurance Co.; Private Asset Management; The Erica P. John Fund, Inc.; Halliburton Co.

MainStory: TopStory AccountingAuditing FraudManipulation PublicCompanyReportingDisclosure TexasNews

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