Amicus Curiae Brief — Barclays PLC, et al., Petitioners v. Joseph Waggoner, et al.

No. 17-1209

In the

Supreme Court of the United States

BARCLAYS PLC, et al.,

Petitioners,

v.

JOSEPH WAGGONER, et al.,

Respondents.

On Petition for a Writ of Certiorari to the United

States Court of A ppeals for the Second Circuit

BRIEF AMICI CURIAE OF THE CHAMBER

OF COMMERCE OF THE UNITED STATES OF

AMERICA AND THE SECURITIES INDUSTRY

AND FINANCIAL MARKETS ASSOCIATION

IN SUPPORT OF PETITIONERS

Michael H. Park

Counsel of Record

Consovoy McCarthy Park PLLC

734 Fifth Avenue, Suite 500

New York, NY 10151

(212) 247-8006

park@consovoymccarthy.com

Patrick Strawbridge

Consovoy McCarthy Park PLLC

Ten Post Office Square

8th Floor South, PMG, #706

Boston, MA 02109

(617) 227-0548

March 30, 2018

Attorneys for Amici Curiae

(Additional Counsel Listed on Inside Cover)

279748

J. Michael Connolly

Consovoy McCarthy Park PLLC

3033 Wilson Boulevard, Suite 700

Arlington, VA 22201

(703) 243-9423

Steven P. Lehotsky

Janet Galeria

U.S. Chamber Litigation Center, Inc.

1615 H Street, NW

Washington, DC 20062

(202) 463-5337

Ira D. Hammerman

Kevin M. Carroll

Securities Industry and Financial Markets A ssociation

1101 New York Avenue, NW

Washington, DC 20005

(202) 962-7300

Attorneys for Amici Curiae

i

TABLE OF CONTENTS

Page

TABLE OF CONTENTS . . . . . . . . . . . . . . . . . . . . . . . . . . i

TABLE OF CITED AUTHORITIES . . . . . . . . . . . . . . . ii

INTEREST OF AMICI CURIAE . . . . . . . . . . . . . . . . . . 1

INTRODUCTION AND SUMMARY

OF ARGUMENT . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2

ARGUMENT . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4

I.

This Court Should Clarify the Burden

for Rebutting the Basic Presumption of

Reliance . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4

A. Plaintiffs Bear the Burden of Proving

Every Element of the Rule 23 Analysis,

Including Predominance . . . . . . . . . . . . . . . . 4

B. The Decision Below Erroneously

Places the Burden of Class

Certification in Securities Fraud Cases

on Defendants . . . . . . . . . . . . . . . . . . . . . . . . . 8

II. This Court Should Clarify That Plaintiffs Must

Present Direct Evidence of Market Efficiency

at the Class Certification Stage . . . . . . . . . . . . . 10

III. The Decision Below Will Embolden

Securities Plaintiffs To Pursue Marginal

Claims on Behalf of Questionable Classes . . . . 13

CONCLUSION . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17

ii

TABLE OF CITED AUTHORITIES

Page

CASES

Amchem Prods., Inc. v. Windsor,

521 U.S. 591 (1997) . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5

Amgen Inc. v. Conn. Ret. Plans & Trust Funds,

568 U.S. 455 (2013) . . . . . . . . . . . . . . . . . . . . . . . . . . 5, 7

Basic Inc. v. Levinson,

485 U.S. 224 (1988) . . . . . . . . . . . . . . . . . . . . . . . passim

Blue Chip Stamps v. Manor Drug Stores,

421 U.S. 723 (1975) . . . . . . . . . . . . . . . . . . . . . . . . . . . 13

Cammer v. Bloom,

711 F. Supp. 1264 (D.N.J. 1989) . . . . . . . . . . . . . . . . . 12

Comcast Corp. v. Behrend,

569 U.S. 27 (2013) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4

Dura Pharms., Inc. v. Broudo,

544 U.S. 336 (2005) . . . . . . . . . . . . . . . . . . . . . . . . . . . 12

Erica P. John Fund, Inc. v. Halliburton Co.,

563 U.S. 804 (2011) (“Halliburton I”) . . . . . . . . . . . 5, 6

Halliburton Co. v. Erica P. John Fund, Inc.,

134 S. Ct. 2398 (2014) (“Halliburton II”) . . . . . passim

IBEW Local 98 Pension Fund v. Best Buy Co.,

818 F.3d 775 (8th Cir. 2016) . . . . . . . . . . . . . . . . . . 9, 10

iii

Table of Appendices

Page

In re Xcelera.com Sec. Litig.,

430 F.3d 503 (1st Cir. 2005) . . . . . . . . . . . . . . . . . . . . 11

ITC Ltd. v. Punchgini, Inc.,

482 F.3d 135 (2d Cir. 2007) . . . . . . . . . . . . . . . . . . . . . . 9

Krogman v. Sterritt,

202 F.R.D. 467 (N.D. Tex. 2001) . . . . . . . . . . . . . . . . 12

Schleicher v. Wendt,

618 F.3d 679 (7th Cir. 2010) . . . . . . . . . . . . . . . . . . . . 11

St. Mary’s Honor Ctr. v. Hicks,

509 U.S. 502 (1993) . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9

Stoneridge Inv. Partners, LLC v. ScientificAtlanta, Inc.,

552 U.S. 148 (2008) . . . . . . . . . . . . . . . . . . . . . . . . . . . 13

Teamsters Local 445 Freight Div. Pension Fund

v. Bombardier Inc.,

546 F.3d 196 (2d Cir. 2008) . . . . . . . . . . . . . . . . . 7, 8, 11

Wal-Mart Stores, Inc. v. Dukes,

564 U.S. 338 (2011) . . . . . . . . . . . . . . . . . . . . . . . . . . 2, 5

iv

Cited Authorities

Page

STATUTES AND OTHER AUTHORITIES

Fed. R. Civ. P. 23 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4

Fed. R. Civ. P. 23(b)(3) . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4

Fed. R. Evid. 301 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3, 9

Donald C. Langevoort, Capping

Dam a ges fo r O pen-Mark et Sec ur iti es

Fraud, 38 Ariz. L. Rev. 639 (1996) . . . . . . . . . . . . . . 16

J o h n C . C o f f e e , J r. , R e f o r m i n g t h e

Secur ities Class Action: An Essay on

Deterrence and Its Implementation, 106

Colum. L. Rev. 1534 (2006) . . . . . . . . . . . . . . . . . . . . 15

Stanford Clearinghouse, Securities Class Action

Filings: 2016 Year in Review 13 (2017) . . . . . . . . . . . 14

Stanford Clear inghouse, Secur ities Class

A c t i o n S e t t l e m e n t s : 2 016 R e v i e w

and Analysis 1 (2017) . . . . . . . . . . . . . . . . . . . . . . . . . 15

Stephen M. Bainbridge, Fee-Shifting: Delaware’s

Self-Inflicted Wound, 40 Del. J. Corp. L. 851

(2016) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15, 16

William W. Bratton & Michael L. Wachter,

The Political Economy of Fraud on the

Market, 160 U. Pa. L. Rev. 69 (2011) . . . . . . . . . . . . . 16

1

INTEREST OF AMICI CURIAE1

The Chamber of Commerce of the United States of

America (the “Chamber”) is the world’s largest federation

of businesses and associations. The Chamber represents

300,000 direct members and indirectly represents an

underlying membership of more than three million U.S.

businesses and professional organizations of every size

and in every economic sector and geographic region of

the country. An important function of the Chamber is to

represent the interests of its members in matters before

the courts, Congress, and the Executive Branch. To that

end, the Chamber regularly files amicus curiae briefs in

cases that raise issues of concern to the Nation’s business

community, including in securities cases.

The Securities Industry and Financial Markets

Association (“SIFMA”) is comprised of hundreds of

member securities firms, banks, and asset managers. Its

mission is to support a strong financial industry, while

promoting investor opportunity, capital formation, job

creation, economic growth, and trust and confidence in the

financial markets. SIFMA is the United States regional

member of the Global Financial Markets Association. It

regularly files amicus curiae briefs in cases such as this

one that raise issues of vital concern to securities industry

participants.

1. Pursuant to this Court’s Rule 37.6, counsel for amici

curiae certifies that this brief was not authored in whole or in

part by counsel for any party and that no person or entity other

than amici curiae, their members, or their counsel has made

a monetary contribution intended to fund the preparation or

submission of this brief. All parties have received timely notice of

amici curiae’s intent to file and consented to the filing of this brief.

2

Amici curiae have a strong interest in this case,

which involves important issues concerning standards for

class certification in private securities actions. Many of

amici’s members are companies subject to U.S. securities

laws who are adversely affected by the Second Circuit’s

decision (i) relieving plaintiffs of their burden to provide

direct evidence of market efficiency before receiving

the Basic presumption of reliance, and (ii) heightening

the burden of company-defendants to then rebut the

presumption. In addition, amici have long been concerned

about the costs that securities class-action lawsuits impose

on the American economy.

INTRODUCTION AND SUMMARY

OF ARGUMENT

This Court has made clear that “Rule 23 does not set

forth a mere pleading standard,” and class certification is

proper only if “the trial court is satisfied, after a rigorous

analysis, that the prerequisites of Rule 23(a) have been

satisfied.” Wal-Mart Stores, Inc. v. Dukes, 564 U.S. 338,

350-51 (2011) (citation omitted). The Second Circuit’s

decision below failed to follow these instructions, and, in

doing so, created a split of authority among the circuit

courts and exacerbated confusion in the lower courts about

the proof necessary to invoke the fraud-on-the-market

presumption of reliance in securities class actions. This

Court should grant the petition for certiorari for three

reasons.

First, the decision below has created a circuit split

regarding the burden that defendants bear in rebutting

the presumption of reliance under Basic Inc. v. Levinson,

485 U.S. 224 (1988). The Second Circuit mistakenly

placed on defendants not only a burden of production

3

to come forward with evidence rebutting the Basic

presumption, but also the burden of persuasion to defeat

the presumption by a preponderance of the evidence. In

doing so, the Second Circuit improperly relieved plaintiffs

of their burden of persuasion under this Court’s decision

in Halliburton Co. v. Erica P. John Fund, Inc., 134 S. Ct.

2398 (2014) (“Halliburton II”), once defendants had

produced evidence to rebut the presumption. Because

the Basic presumption relieves plaintiffs of the burden

they otherwise carry to show reliance on allegedly

misleading information, the Second Circuit announced

the wrong standard by placing on defendants the burden

of persuasion, instead of a burden of production. This

decision created a split with the Eighth Circuit and

misapplied Federal Rule of Evidence 301.

Second, the decision below exacerbated confusion

among the courts about the proof necessary to invoke the

Basic presumption of reliance. The Second Circuit held

that “indirect evidence” of market efficiency is sufficient

for plaintiffs to establish the Basic presumption, and

thus found it unnecessary to consider “direct evidence”

of a cause-and-effect relationship between unexpected

news and the market price of the security, even though

such a relationship is the essence of the “efficient market”

required under Basic. By allowing plaintiffs to rely solely

on “indirect evidence” of market efficiency, the decision

below undermined the foundation of the fraud-on-themarket theory underlying the Basic presumption.

Third, the Second Circuit’s decision threatens to

embolden securities plaintiffs to pursue marginal claims

on behalf of questionable classes. If left uncorrected,

the decision below would effectively eliminate the

4

predominance element of Rule 23 in securities class actions

and make class certification a near certainty in such cases

involving a large, listed issuer. The business community

already faces enormous challenges from dubious classaction litigation, in the securities context and elsewhere.

The decision below will embolden plaintiffs to bring even

more questionable claims that are disconnected from real

culpability and allow them to extort settlements using

the threat of massive class-wide damages. Amici curiae

therefore respectfully urge this Court to grant the petition

for certiorari.

ARGUMENT

I.

This Court Should Clarify the Burden for Rebutting

the Basic Presumption of Reliance.

A.

Plaintiffs Bear the Burden of Proving Every

Element of the Rule 23 Analysis, Including

Predominance.

As this Court has cautioned, the class action remains

“an exception to the usual rule that litigation is conducted

by and on behalf of the individual named parties only.”

Comcast Corp. v. Behrend, 569 U.S. 27, 33 (2013) (citation

omitted). Certification of a class is appropriate only

when “questions of law or fact common to class members

predominate over any questions affecting only individual

members” and when class litigation “is superior to other

available methods for fairly and efficiently adjudicating

the controversy.” Fed. R. Civ. P. 23(b)(3).

Importantly, “Rule 23 does not set forth a mere

pleading standard,” and a party seeking class certification

5

“must affirmatively demonstrate [its] compliance with the

Rule—that is, [it] must be prepared to prove that there are

in fact sufficiently numerous parties, common questions

of law or fact, etc.” Dukes, 564 U.S. at 350 (emphasis in

original). Plaintiffs carry the burden of proof with respect

to every Rule 23 requirement, and courts must conduct

the “rigorous analysis” that Rule 23 requires. Comcast,

569 U.S. at 33.

This bu rden of proof is no di fferent for the

“predominance” requirement under Rule 23(b)(3). The

predominance inquiry is not satisfied unless “a proposed

class is ‘sufficiently cohesive to warrant adjudication

by representation.’” Amgen Inc. v. Conn. Ret. Plans &

Trust Funds, 568 U.S. 455, 469 (2013) (quoting Amchem

Prods., Inc. v. Windsor, 521 U.S. 591, 623 (1997)). Classwide issues predominate only when “the elements of the

claim are susceptible to classwide proof.” Id. at 491. The

requirement’s purpose is to ensure that the class will be

certified only when it “would achieve economies of time,

effort, and expense, and promote … uniformity of decision

as to persons similarly situated, without sacrificing

procedural fairness or bringing about other undesirable

results.” Amchem, 521 U.S. at 615 (citation omitted).

Thus, plaintiffs must prove at the class certification

stage that “questions of law or fact common to class

members predominate” in their underlying cause of

action—in this case, under Section 10(b) of the Exchange

Act and Rule 10b-5. See Erica P. John Fund, Inc. v.

Halliburton Co., 563 U.S. 804, 809 (2011) (“Halliburton

I”). Section 10(b) and Rule 10b-5 “prohibit making any

material misstatement or omission in connection with

the purchase or sale of any security.” Halliburton II,

6

134 S. Ct. at 2407. To recover damages for violations of

these provisions, plaintiffs must prove “(1) a material

misrepresentation or omission by the defendant;

(2) scienter; (3) a connection between the misrepresentation

or omission and the purchase or sale of a security;

(4) reliance upon the misrepresentation or omission;

(5) economic loss; and (6) loss causation.” Id. (citation

omitted).

The reliance element is a critical component of this

cause of action because it “ensures that there is a proper

connection between a defendant’s misrepresentation

and a plaintiff’s injury.” Amgen, 568 U.S. at 461 (citation

omitted). “The traditional (and most direct) way a plaintiff

can demonstrate reliance is by showing that he was aware

of a company’s statement and engaged in a relevant

transaction—e.g., purchasing common stock—based on

that specific misrepresentation.” Halliburton I, 563 U.S.

at 810. Thus, the Court noted in Halliburton II that the

“traditional … way” of proving reliance—i.e., “[r]equiring

proof of individualized reliance” from every securities

fraud plaintiff “effectively would ... prevent [plaintiffs]

from proceeding with a class action” in Rule 10b-5 suits.

134 S. Ct. at 2407-08 (citation omitted).

In Basic, this Court held that “securities fraud

plaintiffs can in certain circumstances satisfy the reliance

element of a Rule 10b-5 action by invoking a rebuttable

presumption of reliance, rather than proving direct

reliance on a misrepresentation.” Halliburton II, 134 S.

Ct. at 2408 (citing Basic, 485 U.S. at 246-47). The Court

based that presumption on the “fraud-on-the-market”

theory, which holds that “the market price of shares traded

on well-developed markets reflects all publicly available

information, and, hence, any material misrepresentations.”

Basic, 485 U.S. at 246.

7

The Basic presumption is premised on “price

impact”—i.e., “whether the alleged misrepresentations

affected the market price in the first place.” Halliburton

I, 563 U.S. at 814. “In the absence of price impact,

Basic’s fraud-on-the-market theory and presumption of

reliance collapse.” Halliburton II, 134 S. Ct. at 2414. “The

fundamental premise underlying the presumption is that

an investor presumptively relies on a misrepresentation

so long as it was reflected in the market price at the time

of his transaction.” Id. (quotation marks and citation

omitted). “If it was not, then there is no grounding for

any contention that the investor indirectly relied on that

misrepresentation through his reliance on the integrity

of the market price.” Id. (quotation marks and citation

omitted).

For the Basic presumption to apply, plaintiffs must

show: “(1) that the alleged misrepresentations were

publicly known, (2) that they were material, (3) that the

stock traded in an efficient market, and (4) that the plaintiff

traded the stock between the time the misrepresentations

were made and when the truth was revealed.” Halliburton

II, 134 S. Ct. at 2408. To prove market efficiency, “the most

important” factor to consider is direct evidence of cause

and effect—i.e., a causal relationship between unexpected

news and the market price. Teamsters Local 445 Freight

Div. Pension Fund v. Bombardier Inc., 546 F.3d 196, 207

(2d Cir. 2008) (citation omitted). “[I]n an efficient market,

all publicly available information is rapidly incorporated

into, and thus transmitted to investors through, the

market price.” Amgen, 568 U.S. at 466. As a result,

“[e]vidence that unexpected corporate events or financial

releases cause an immediate response in the price of a

8

security” is “the essence of an efficient market and the

foundation for the fraud on the market theory.” Teamsters

Local 445 Freight Div. Pension Fund, 546 F.3d at 207

(citation omitted). “Without the demonstration of such

a causal relationship, it is difficult to presume that the

market will integrate the release of material information

about a security into its price.” Id.

B. The Decision Below Erroneously Places the

Burden of Class Certification in Securities

Fraud Cases on Defendants.

Against this backdrop, the Second Circuit erred

by relieving Respondents of their burden of persuasion

once Petitioners rebutted the Basic presumption of

reliance. In Halliburton II, this Court made clear that

market efficiency—even if shown—does not establish

an irrebuttable presumption of price impact, and that,

at the class certification stage, the defendant must be

afforded an opportunity to rebut the plaintiffs’ “indirect

way of showing price impact” (i.e., via the fraud-on-themarket presumption) by providing “direct, more salient

evidence showing that the alleged misrepresentation did

not actually affect the stock’s market price.” 134 S. Ct. at

2415-16. The burden then shifts back to plaintiffs to prove

price impact, which is “an essential precondition for any

Rule 10b-5 class action.” Id. at 2416.

In this case, the Second Circuit erroneously eliminated

the burden shifting by holding that defendants bear

the ultimate burden of proving the absence of a price

impact. App. 44a. Thus, even though Petitioners produced

evidence that the alleged misstatements did not cause

any statistically significant price increase, the court

below held that this was insufficient because Petitioners

9

continued to bear the burden of persuasion. Id. This error

is particularly important in light of the Second Circuit’s

critical role in capital markets and securities law.

The decision below also conflicts with IBEW Local

98 Pension Fund v. Best Buy Co., 818 F.3d 775 (8th Cir.

2016). There, the Eighth Circuit applied Federal Rule

of Evidence (“FRE”) 301 to the Basic presumption of

reliance and required the defendant only to “come forward

with evidence showing a lack of price impact.” Id. at 782.

This is consistent with Halliburton II, which, as described

above, makes clear that the burden of proving reliance,

like the burden for other elements of securities fraud,

normally falls on the plaintiff. See 134 S. Ct. at 2407.

Under FRE 301—which informs the effects of the

fraud-on-the-market presumption, see Basic, 485 U.S.

at 245—when a defendant produces evidence that would

permit a reasonable jury to infer that the presumption

is incorrect, the presumption is rebutted and ceases to

operate. The burden then shifts back to the plaintiff to

prove the fact without benefit of the presumption. Cf.

St. Mary’s Honor Ctr. v. Hicks, 509 U.S. 502, 507 (1993)

(“[A]lthough the McDonnell Douglas presumption shifts

the burden of production to the defendant, ‘[t]he ultimate

burden of persuading the trier of fact that the defendant

intentionally discriminated against the plaintiff remains

at all times with the plaintiff.’”) (emphasis in original); see

also ITC Ltd. v. Punchgini, Inc., 482 F.3d 135, 148-49 (2d

Cir. 2007) (“[T]he party against whom [a presumption] is

directed” has “the burden of going forward with evidence

to rebut or meet the presumption,” but the burden of

persuasion “remains on the party who had it originally.”).

Thus, the Eighth Circuit held that defendants bear only

10

a burden of production, while plaintiffs bear the burden

of persuasion. See Best Buy, 818 F.3d at 782.

By ruling that Petitioners’ evidence was insufficient

to rebut the Basic presumption and to shift the burden to

Respondents, the court below adopted an overly lax test

that would permit plaintiffs to satisfy the predominance

requirement simply by pleading market efficiency and

without sustaining their burden to prove price impact.

This test effectively creates an irrebuttable presumption

contrary to Halliburton II and FRE 301.

The Second Circuit reasoned that FRE 301 does not

apply because it includes an exception for when “a federal

statute ... provides otherwise,” thereby shifting the burden

of persuasion to defendants. App. 48a. But its questionable

assertion that there is a “sufficient link” to the federal

securities laws to trigger the exception ignores that a

Section 10(b) private action is a private right of action

and not part of the statute itself. The Second Circuit’s

conclusion creates a conflict with the Eighth Circuit’s

decision in Best Buy warranting this Court’s review.

II. This Court Should Clarify That Plaintiffs Must

Present Direct Evidence of Market Efficiency at

the Class Certification Stage.

The court below also erred in holding that plaintiffs

can benefit from the Basic presumption of reliance without

direct evidence that the relevant securities were traded

in an efficient market. The court concluded that “indirect

evidence” of market efficiency is sufficient to satisfy

the Basic presumption on class certification. App. 36a.

11

Specifically, the Second Circuit held that direct evidence of

market efficiency is necessary only in cases involving large

companies where “the other four Cammer factors (and/

or the Krogman factors) are less compelling in showing

an efficient market.” Id.

But exclusive reliance on indirect evidence is

inconsistent with this Court’s teaching in Halliburton

II that the Basic presumption of reliance is meant to

substitute for proof of a plaintiff’s “direct reliance” on a

misrepresentation. Halliburton II, 134 S. Ct. at 2407-08.

Direct evidence of causality is necessary to determine

whether a security is traded in an efficient market. The

decision below therefore undermines the requirement that

a plaintiff prove that a market promptly incorporated new,

material information, which is the “fundamental premise”

of the fraud-on-the-market presumption. Id. at 2414.

To establish the Basic presumption, a plaintiff bears

the burden of “prov[ing]” that the price of the security

generally incorporates “all public, material information.”

Id. at 2407, 2413. In Halliburton II, this Court noted that

securities plaintiffs provide direct evidence of market

efficiency through “event studies.” Id. at 2415; see also, e.g.,

Best Buy, 818 F.3d at 779-82; Schleicher v. Wendt, 618 F.3d

679, 684 (7th Cir. 2010). “Without the demonstration of

such a causal relationship, it is difficult to presume that the

market will integrate the release of material information

about a security into its price.” Teamsters Local 445

Freight Div. Pension Fund, 546 F.3d at 207; see also In

re Xcelera.com Secs. Litig., 430 F.3d 503, 512 (1st Cir.

2005) (Without “a historical cause-and-effect relationship

between company disclosures and an immediate response

in stock price … there is little assurance that information

12

is being absorbed into the market and reflected in its

price.”). An empirical study is thus essential for evaluating

market efficiency. See Pet’r Br. 20.

The decision below, however, held that such direct

evidence is unnecessary and that plaintiffs can benefit

from the fraud-on-the-market presumption based solely

on “indirect factors.” App. 36a. These “indirect factors,”

which stem from two district court decisions, see Cammer

v. Bloom, 711 F. Supp. 1264 (D.N.J. 1989), and Krogman

v. Sterritt, 202 F.R.D. 467 (N.D. Tex. 2001), have created

an illusory substitute for evidence of market efficiency

and have caused confusion among the courts. See Pet’r

Br. 20-21. Those indirect factors are essentially proxies

for the size of the company and the liquidity of the market

in which the company’s securities trade, but they do not

measure the efficiency of the market.

The Second Circuit’s decision threatens to eviscerate

the reliance element in securities class actions. If “indirect

evidence” were sufficient to find market efficiency, which

then established reliance, then most, if not all, large

companies would be potentially liable for any statement

regardless whether investors actually relied on it. This

would have the effect of turning the securities laws into

an insurance policy. See Dura Pharms., Inc. v. Broudo,

544 U.S. 336, 347-48 (2005) (“Such a rule would tend

to transform a private securities action into a partial

downside insurance policy.”). Indeed, almost all large

companies satisfy these “indirect” factors, which include

commonplace features such as heavy trading volume,

analyst coverage, and market capitalization. Conversely,

investors in smaller issuers or bond offerings would rarely

benefit from the presumption.

13

This Court should grant certiorari to clarify the

standard for proving market efficiency under Basic and

Halliburton II, and to reject the Second Circuit’s holding

that no direct evidence of market efficiency is necessary

to establish the Basic presumption of reliance.

III. The Decision Below Will Embolden Securities

Plaintiffs To Pursue Marginal Claims on Behalf

of Questionable Classes.

Left uncorrected, the Second Circuit’s errors will

not only cause upheaval to class action law generally,

but they will cause particular damage in securities class

actions, making class certification a near certainty in the

vast majority of those actions, while depriving defendants

of their rights to a defense. This outcome will embolden

plaintiffs to bring insubstantial securities fraud claims

that bear little relation to any real culpability and serve

only to extract settlements by wielding the threat of

overbroad class-wide damages.

This Court has repeatedly warned against the threat

of abuse and unfair settlement pressures that often attend

the class treatment of securities fraud claims. See, e.g.,

Stoneridge Inv. Partners, LLC v. Scientific-Atlanta, Inc.,

552 U.S. 148, 163 (2008) (noting that “extensive discovery

and the potential for uncertainty and disruption in a

[securities fraud] lawsuit allow plaintiffs with weak claims

to extort settlements from innocent companies”); Blue

Chip Stamps v. Manor Drug Stores, 421 U.S. 723, 739

(1975) (noting that securities class action litigation poses

“a danger of vexatiousness different in degree and in kind

from that which accompanies litigation in general”).

14

Given the costs of defending against such litigation

and the potential for massive liability, settlement is a

virtual certainty in cases that survive a motion to dismiss,

regardless of merit, according to research by the Stanford

Law School Securities Class Action Clearinghouse. See

Stanford Clearinghouse, Securities Class Action Filings:

2016 Year in Review 13 (2017) (less than 1 percent of

securities class action filings from 1997 to 2016 have

reached a trial verdict).

The targeting of defendants for securities lawsuits

likewise often has little to do with the merits. Although

the implied private right of action under Section 10(b) and

Rule 10b-5 is intended to provide a remedy for investors

who suffer genuine injury from securities fraud, securities

class actions are routinely filed in the wake of almost any

negative announcement by a company that corresponds

to a stock price decline. For example, of the companies

in the S&P 500 at the beginning of 2016, one in about 12

companies (8.4 percent) was a defendant in a class action

filed during the year. Stanford Clearinghouse, Securities

Class Action Filings: 2016 Year in Review, supra, 23.

Statistics from the Stanford Clearinghouse also show that

securities fraud suits often target particular industry

sectors, in many cases ensnaring a large portion of the

publicly traded companies in a given industry. See id.

(noting that the percentage of filings in the health care

sector was over 21 percent). Because securities fraud

cases can take years to resolve, the filing of a significant

number of cases against an industry in one year can mire

that industry in litigation for years to come.

Companies already face enormous pressure to settle

securities class actions. Securities fraud class actions led

15

to nearly $6 billion in settlements in 2016, with an average

settlement of over $70 million per case. See Stanford

Clearinghouse, Securities Class Action Settlements: 2016

Review and Analysis 1 (2017). Defense costs in these cases

have been estimated to range from 25 to 35 percent of the

settlement value. See John C. Coffee, Jr., Reforming the

Securities Class Action: An Essay on Deterrence and Its

Implementation, 106 Colum. L. Rev. 1534, 1546 (2006).

The Second Circuit’s approach, if permitted to stand,

would increase these burdens.

Such burdens are not limited to companies against

which suits have been brought. They are spread to all U.S.

public companies, which must pay more for insurance, pay

more to access capital, and be placed in a worse competitive

position than their overseas counterparts. Indeed, these

cases threaten the health of the U.S. economy—imposing

huge costs on American businesses, investors, and

employees while hurting the global competiveness of U.S.

securities markets.

In addition to these costs, the Second Circuit’s

decision could have even greater economic consequences

by spurring foreign issuers to turn to securities markets

in other jurisdictions. See Stephen M. Bainbridge, FeeShifting: Delaware’s Self-Inflicted Wound, 40 Del. J. Corp.

L. 851, 865-66 (2016) (discussing studies confirming that

“the U.S. capital markets became less competitive vis-àvis other markets” and “blam[ing] shareholder litigation,

in part, for that decline”). The decision below could

discourage foreign global issuances involving the United

States due to concerns about the risk of facing large U.S.

class action lawsuits, even if most of the transactions

occurred outside the United States. See, e.g., id. at

16

866 (“The perception that exposure to the U.S. capital

markets significantly increases an issuer’s litigation risk

has a measurable impact on the attractiveness of those

markets.”).

The costs of excessive securities class actions are not

offset by corresponding benefits in the form of effective

fraud deterrence. See William W. Bratton & Michael L.

Wachter, The Political Economy of Fraud on the Market,

160 U. Pa. L. Rev. 69, 72-73 (2011). In fact, most often the

main result of settlements is a wealth transfer from one

group of innocent shareholders to another. See Donald

C. Langevoort, Capping Damages for Open-Market

Securities Fraud, 38 Ariz. L. Rev. 639, 648 n.43 (1996)

(“[I]n the average settlement, 68.2% comes from the

insurer and 31.4% from the issuer, with only 0.4% coming

from individual defendants.”) (citation omitted).

At bottom, this Court should be mindful of the

legal and economic burdens that flow from the decision

below. Many in the business community are already

deeply vulnerable to massive liability from insubstantial

securities class actions. The Court should not increase

this exposure by allowing the casual approach to class

certification taken by the Second Circuit to stand.

17

CONCLUSION

For the foregoing reasons, amici curiae respectfully

request that the Court grant the petition for certiorari.

Respectfully submitted,

Steven P. Lehotsky

Michael H. Park

Janet Galeria

Counsel of Record

U.S. Chamber Litigation

Consovoy McCarthy

Center, Inc.

Park PLLC

1615 H Street, NW

734 Fifth Avenue, Suite 500

Washington, DC 20062

New York, NY 10151

(202) 463-5337

(212) 247-8006

park@consovoymccarthy.com

Ira D. Hammerman

Patrick Strawbridge

Kevin M. Carroll

Consovoy McCarthy

Securities Industry and

Park PLLC

Financial Markets

Ten Post Office Square

A ssociation

8th Floor South, PMG, #706

1101 New York Avenue, NW

Boston, MA 02109

Washington, DC 20005

(617) 227-0548

(202) 962-7300

J. Michael Connolly

Consovoy McCarthy

Park PLLC

3033 Wilson Boulevard,

Suite 700

Arlington, VA 22201

(703) 243-9423

Attorneys for Amici Curiae

March 30, 2018