{"id":38153,"date":"2023-12-18T17:39:33","date_gmt":"2023-12-18T17:39:33","guid":{"rendered":"https:\/\/fideres.com\/?p=38149"},"modified":"2024-02-05T10:48:19","modified_gmt":"2024-02-05T10:48:19","slug":"after-goldman-trouble-getting-to-class","status":"publish","type":"post","link":"https:\/\/fideres.com\/it\/after-goldman-trouble-getting-to-class\/","title":{"rendered":"After Goldman – Trouble Getting to Class"},"content":{"rendered":"
In securities class action matters, an alleged misrepresentation is considered to have \u201cprice impact\u201d if it affects the market price of the security. Price impact is closely linked to the concept of class-wide reliance on alleged misrepresentations, which plaintiffs must establish before a class can be certified. Since Basic v. Levinson<\/em>, reliance is presumed<\/em> for securities trading in efficient markets.1<\/sup><\/span> However, following the Supreme Court\u2019s 2015 ruling in Halliburton II<\/em>, defendants are allowed to rebut the reliance assumption with direct evidence that the alleged misrepresentations had no price impact.2<\/sup><\/p>\n To evaluate price impact, two general approaches are possible. The first measures whether there is a \u201cfront-end\u201d price reaction at the time the misrepresentations are made. The absence of a front-end price reaction, however, does not necessarily indicate an absence of price impact. For instance, if defendants fail to disclose a significant negative development, this may not lead to an immediate increase in price, but it could still have an impact by preventing the price from falling.<\/p>\n In such situations, a second, more indirect, approach is often applied. This entails analyzing the \u201cback-end\u201d price reaction at the time the truth emerges through corrective disclosures. Plaintiffs typically argue that back-end negative price reactions indicate that the initial misrepresentations indeed had a price impact.<\/p>\n In response, defendants often claim that the corrective disclosures are unrelated to the misrepresentation in terms of their content, and that, therefore, back-end price drops do not indicate front-end price impact. Prior to Goldman<\/em>, lower courts often put little weight on such arguments at the class certification stage, viewing them as equivalent to an assessment of materiality or loss causation, which, since Amgen<\/em>, are reserved for the later merits stage.3<\/sup><\/span>, 4<\/sup><\/p>\n The Supreme Court\u2019s 2021 Goldman<\/em> order, which applies to the back-end approach described above, changed this. It ruled that, when the misrepresentation is generic (e.g., \u201cwe have faith in our business model\u201d) but the corrective disclosure is specific (e.g., \u201cour fourth quarter earnings did not meet expectations\u201d), \u201cit is less likely that the specific disclosure actually corrected the generic misrepresentation, which means that there is less reason to infer front-end price inflation\u2014that is, price impact\u2014from the back-end price drop.\u201d5<\/sup><\/span>\u00a0More sweepingly, it stated that courts assessing price impact \u201c\u2019should be open to all probative evidence on that question\u2014qualitative as well as quantitative\u2014aided by a good dose of common sense.\u2019 That is so regardless of whether the evidence is also relevant to a merits question like materiality.\u201d6<\/sup><\/span><\/p>\n Following the Supreme Court\u2019s Goldman<\/em> ruling, the case returned to the second circuit Court of Appeals. On August 10, 2023, that court released its own long-awaited ruling. Based on the Supreme Court\u2019s guidance, it decertified the Goldman class, setting a potentially important precedent for other courts.7<\/sup><\/span> The Court of Appeals argued that, in its previous certification of the class, the District Court had failed to properly factor in the mismatch in genericness between the alleged misstatements and the corrective disclosures.<\/p>\n In March 2023, similarly, the ninth circuit denied class certification related to a subset of allegations on grounds of a mismatch in genericness, citing the Supreme Court\u2019s Goldman<\/em> decision.8<\/sup><\/span><\/p>\n An important question is whether defendants challenged price impact more vigorously at the class certification stage following Goldman<\/em>. To answer the question, Fideres identified a preliminary sample of 90 10b-5 matters in which plaintiffs filed a motion for class certification between June 21, 2020 (one year prior to the Supreme Court ruling) and September 1, 2023. For each matter, we determined whether defendants filed an opposition to class certification, and if so, whether the filing challenged price impact.9<\/sup><\/span><\/p>\n As Figure 1 and the table below show, defendants challenged price impact in 17% of the cases that reached the class certification stage in the year prior to the Supreme Court ruling. The corresponding number after the ruling is 44%, more than twice as high.10<\/sup><\/span><\/p>\n Note: The first bar reflects 10b-5 cases where plaintiffs filed for class certification in the one-year period preceding the June 21, 2021 Supreme Court Goldman ruling. The second bar reflects cases where plaintiffs filed for class certification between June 21, 2021 and September 1, 2023.<\/em><\/p>\n\nThe 2021 Supreme Court Ruling in Goldman<\/em><\/h3>\n
Lower Court Rulings Since Goldman<\/em><\/h3>\n
Trends in Defendants\u2019 Filing Activity Following Goldman<\/em><\/h2>\n
\n\n
\n \n Filing Date for Plaintiff\u2019s Motion for\n Class Certification <\/td>\n \n Number of Plaintiff Motions for Class\n Certification <\/td>\n \n Defendants Oppose, Challenging Price Impact <\/td>\n <\/tr>\n \n \n June 21, 2020 - June 20, 2021 (before\n Supreme Court ruling) <\/td>\n \n 24 <\/td>\n \n 17% <\/td>\n <\/tr>\n \n \n June 21, 2021 - September 1, 2023 (after\n Supreme Court ruling) <\/td>\n \n 66 <\/td>\n \n 44% <\/td>\n <\/tr>\n <\/table>\n<\/div>