Well, it turns out Halliburton is going – you guessed it – back to the Fifth Circuit on 23(f) review.

If you recall, the Fifth Circuit overturned the district court’s class certification order in the first go-round – a decision that was vacated by the Supreme Court in Erica P. John Fund, Inc. v. Halliburton Co., 563 U.S. 804 (2011).  The district court recertified the class; the Fifth Circuit granted 23(f) review, and the Supreme Court vacated – again!  And then the district court certified the class for a third time, and the defendants petitioned for 23(f) review, and the Fifth Circuit has – again! – granted the petition. 

The thing that’s so amazing, of course, is that this case has hit the Supreme Court twice, the district court three times, and now the Fifth Circuit three times, and it’s the exact same argument, over and over and over, on the same evidence – just using slightly different words.  Namely, the defendants’ position that if there is no price increase at the time of an initial false statement, and no price drop in reaction specifically to news that later reveals the earlier statements to have been false at the time they were made, therefore it must be concluded that the false statements never impacted prices in the first place. 

This time, however, the 23(f) grant comes with a concurrence.  I’ve actually never heard of a 23(f) concurrence before – are there others?   They can’t be common, and in this case, the concurrence is by Judge Dennis – who has long been hostile to the Fifth Circuit’s strict approach to class certification in Section 10(b) cases.  See Erica P. John Fund, Inc. v. Halliburton Co., 2015 U.S. App. LEXIS 19519 (5th Cir. Nov. 4, 2015).

In his concurrence, Judge Dennis expresses open skepticism of the defendants’ argument that they can rebut Basic’s presumption of price impact by demonstrating that any alleged corrective disclosures were not, in fact, corrective.  He chides the defendants for rehashing points that the Supreme Court rejected in the first Halliburton case, namely, that if the “truth” was never disclosed in a fraud on the market case, the class cannot be certified.  But, given the issue’s importance, he “reluctantly” concurs in the panel’s decision to grant the 23(f) petition, in order to allow the Circuit to clarify the law.

In my view, Judge Dennis is absolutely correct that the defendants’ argument rehashes territory that the Supreme Court has already rejected, but, to be fair, at least some of the problem can be laid at the feet of the plaintiffs – who appear to have accepted defendants’ premise, namely, that there must be some affirmative evidence of price impact – either an upward movement when the statement is first made, or downward movement upon its correction – before a class can be certified.  That, of course, is contrary to the notion of a presumption; it is the defendants’ burden, not the plaintiffs’, to show not only that any price movements were not due to the fraud, but also that even price stability means that the fraud had no effect (i.e., that the fraud did not, say, operate to keep prices level instead of falling).  Or to put it another way, even if defendants are entirely right that the corrective statements did not reveal any truths, that still does not answer the question whether the initial false statements had an impact on price.

Anyway, in light of Judge Dennis’s concurrence, the defendants must be grateful that 23(f) petitions are usually transferred to a merits panel after being granted.  But see Margaret V. Sachs, Superstar Judges as Entrepreneurs: The Untold Story of Fraud-on-the-Market, 48 U.C. Davis L. Rev. 1207 (2015) (arguing that Judges Easterbrook and Posner of the Seventh Circuit have chosen to assign Rule 23(f) petitions to themselves for merits review in Section 10(b) cases).

Meanwhile, we can at least look forward to seeing these issues  explored in a novel setting.  The Eighth Circuit recently heard oral arguments on a 23(f) appeal from the certification decision in IBEW Local 98 Pension Fund v. Best Buy Co., 2014 U.S. Dist. LEXIS 108409 (D. Minn. Aug. 6, 2014), where – again – the defendants contend that they can rebut price impact by showing that the market did not react to the false statements initially, nor were any later statements corrective of the earlier ones.  The case has attracted a degree of industry attention; defense-side amicus briefs have been filed by the Chamber of Commerce and the Securities Industry and Financial Markets Association.  

It’s a race to see which circuit produces an opinion first; the Eighth Circuit has a large head start but then, it’s not like the Fifth Circuit needs any extra time to familiarize itself with the facts.