Halliburton Co. v. Erica P. John Fund, Inc., 573 U.S. 258 (2014)
Halliburton Co. v.
1) Should Basic Inc. v. Levinson's fraud-on-the-market presumption of classwide reliance be overruled? 2) If not, may a defendant rebut that presumption at the class certification stage with evidence that the alleged misrepresentation had no price impact, thereby defeating predominance under Rule 23(b)(3)?
In Rule 10b-5 securities fraud class actions seeking damages under Rule 23(b)(3), plaintiffs may invoke a rebuttable presumption of reliance under Basic by showing that: (a) the alleged misrepresentation was public; (b) the security traded in an efficient market; and (c) the plaintiff traded the security between the misrepresentation and the corrective disclosure. Materiality is a merits issue common to the class and need not be proven at class certification (Amgen Inc. v. Connecticut Retirement Plans and Trust Funds). Plaintiffs need not prove loss causation at certification (Halliburton I). Although plaintiffs are not required to prove price impact at certification, defendants must be allowed to rebut Basic's presumption at that stage with evidence—direct or indirect—that the alleged misrepresentation did not affect the market price, and a showing of no price impact defeats predominance.
No. The Court declined to overrule Basic's fraud-on-the-market presumption. Yes. A defendant must be permitted, at the class certification stage, to rebut the presumption of reliance with evidence that the alleged misrepresentation had no price impact. The judgment was vacated and the case remanded for consideration of Halliburton's price-impact evidence.
Halliburton II preserves the viability of securities fraud class actions by reaffirming Basic, while meaningfully strengthening defendants' ability to resist class certification through early, rigorous price-impact challenges. It cements price impact as a certification-stage inquiry tied to predominance, ensures Amgen's materiality rule remains intact, and confirms that loss causation is not a certification prerequisite. Practically, the case accelerates event-study practice to the front end of litigation and influences settlement leverage by enabling defendants to defeat or narrow classes before merits discovery and trial. For law students, the case illustrates how substantive doctrine (reliance under Rule 10b-5) and procedural thresholds (Rule 23(b)(3) predominance) interact, and how stare decisis and institutional considerations shape the Court's approach to economic theory in legal rules.