The Supreme Court agreed Nov. 15 to reconsider a key legal precedent that investors rely on when bringing class-action lawsuits. The petition was brought by Halliburton Co., Houston, and backed by numerous business groups alarmed at what they see as the ease of bringing such suits.
“It's the future of securities fraud class action that hangs in the balance,” said Lawrence Sucharow, chairman of law firm Labaton Sucharow LLP in New York, in an interview. Granting Halliburton's argument for revisiting a 1988 legal ruling that allows for fraud-on-the-market lawsuits “would make it virtually impossible to form a securities fraud class action,” said Mr. Sucharow, whose firm represents investors in such lawsuits.
In June 2011, Halliburton lost a related bid to stop the class action led by the Erica P. John Fund Inc. in Milwaukee, when the Supreme Court ruled investors did not first have to prove losses. The case is Halliburton Co. vs. Erica P. John Fund Inc.
Halliburton's latest argument in the Erica P. John case challenges the legal precedent known as Basic Inc. vs. Levinson, saying it should be overruled or modified. This argument echoes comments made by some Supreme Court justices last February in an investor class-action case led by the $24.3 billion Connecticut Retirement Plans & Trust Funds, Hartford, against Amgen Inc. While the court's majority rebuffed efforts to make stock-loss class-action lawsuits more difficult to start, other justices questioned whether “Basic” should be revisited.
Since then, several groups have filed amicus briefs supporting Halliburton, and more are expected. “We hope the U.S. Supreme Court's decision to grant certiorari is a step toward reining in a wave of securities class actions that have inflicted tremendous costs on public companies and their shareholders without producing corresponding benefits to investors,” said Lily Fu Claffee, general counsel for the U.S. Chamber of Commerce, in an e-mailed statement.
But Mr. Sucharow countered that “there's a reason for these laws. If you lived through the financial crisis, you've got to believe that there is fraud.”