NEW YORK CITY BAR ASSOCIATION
COMMITTEE ON SECURITIES LITIGATION
May 28, 2014
Report on the Possible Impact of Halliburton II
on Securities Class Action Litigation
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I. INTRODUCTION
The U.S. Supreme Court‟s November 15, 2013 decision granting certiorari in
Halliburton Co. and David Lesar v. Erica P. John Fund has captured the imagination of the
securities bar and economists alike. At least one commentator went so far as to suggest that
“[n]o dispute on the Supreme Court‟s 2013-14 docket has attracted more intense interest in
corporate litigation circles than Halliburton … and with good reason.”1 Petitioners invite the
Supreme Court to overrule Basic, Inc. v. Levinson, a precedent that has served as a cornerstone
of federal securities fraud class action world for the last 25 years. Basic makes it possible to
certify a class action asserting claims under Section 10(b) of the Securities Exchange Act of
1934 – the federal securities fraud catchall provision – in cases involving affirmative
misrepresentations without having to show that plaintiffs individually relied on the alleged
misrepresentations. Overruling that decision could have a substantial effect on securities class
action practice. Although the end of an era, overruling Basic might not necessarily bring an end
to federal securities fraud class actions. There are a variety of different means by which
investors might be able to prosecute Section 10(b) claims based on affirmative
* This Report was drafted by the Committee on Securities Litigation‟s Fraud -on-the-Market Subcommittee.
The New York City Bar Association would like to thank the following attorneys, i n particular, for their work on the
Fraud-on-the Market Subcommittee and their assistance in preparing this repo rt: Daniel Laguardia, Christopher
Fenton, Kristen Hutchens, and Peter Smiley of Shearman & Sterling LLP; Merritt B. Fox, Michael E. Patterson
Professor of Law and NASDAQ Professor for Law and Economics of Capital Markets at Columbia University;
Roger Cooper and Anthony Shults of Cleary Gottlieb Steen & Hamilton LLP; Ja mes Goldfarb and Michael Rella of
Murphy & McGonigle; Peter Simmons of Fried Frank; Laura Posner , Chief, New Jersey Bureau of Securities; and
Nicole Schwartzberg of Skadden, Arps, Slate, Meagher & Flom LLP. T he views expressed in this article are those
of the authors and do not necessarily represent the views of, and should not be attributed to , their respective firms,
schools, or agencies.
1 Paul M. Barrett, Behind the Briefs: A Secret History of the Supreme Court’s Halliburton Case, Bloomberg
Businessweek (Feb. 21, 2014), http://www.businessweek.com/articles/2014 -02-21/behind-the-briefs-a-secret-
history-of-the-supreme-courts-halliburton-case.
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misrepresentations on an aggregate basis. And, in any event, reversal of Basic is far from a
foregone conclusion.
The impetus for the current debate over whether that longstanding precedent should be
abandoned is certain critics‟ dissatisfaction with the “fraud-on-the-market” presumption that is at
the heart of the Basic Court‟s ruling and with the efficient capital markets hypothesis on which
the presumption is premised. The Supreme Court has at its disposal potential alternative ways to
address the concerns raised by critics of the presumption and its underpinnings. Overruling
Basic is but one of them.
This report begins with the background necessary to understanding fully the issues before
the Supreme Court in Halliburton, followed by a concise explanation of the history and key
concepts most relevant to the current debate, including the efficient capital markets hypothesis,
the fraud-on-the-market presumption, and the legal landscape in which the Supreme Court
recently granted certiorari. The Supreme Court‟s decisions in Basic, Inc. v. Levinson, Erica P.
John Fund, Inc. v. Halliburton Co. (“Halliburton I”), Amgen Inc. v. Connecticut Retirement
Plans and Trust Funds (“Amgen”), and Halliburton Co. and David Lesar v. Erica P. John Fund
(“Halliburton II”) are discussed in detail. The report then draws on the perspectives and
experiences of the New York City Bar Association‟s Securities Litigation Committee, which is
comprised of academics, in-house counsel, securities regulators, and plaintiff and defense
securities litigators, to identify and analyze the potential implications of the Supreme Court‟s
decision in Halliburton II.
