Amicus Curiae Brief — Goldman Sachs Group, Inc., et al., Petitioners v. Arkansas Teacher Retirement System, et al.

No. 20-222

In the

Supreme Court of the United States

GOLDMAN SACHS GROUP, INC., et al.,

Petitioners,

v.

ARKANSAS TEACHER RETIREMENT SYSTEM, et al.,

Respondents.

On Writ of Certiorari to the United States

Court of A ppeals for the Second Circuit

BRIEF OF FORMER SEC OFFICIALS AND

LAW PROFESSORS AS AMICI CURIAE

IN SUPPORT OF PETITIONERS

Todd G. Cosenza

Counsel of Record

Charles D. Cording

Madeleine L. Tayer

Willkie Farr & Gallagher LLP

787 Seventh Avenue

New York, NY 10019

(212) 728-8000

tcosenza@willkie.com

Counsel for Amici Curiae

February 1, 2021

301231

A

(800) 274-3321 • (800) 359-6859

i

QUESTIONS PRESENTED

1.

Whether a defendant in a securities

class action may rebut the presumption of

classwide reliance recognized in Basic Inc. v.

Levinson, 485 U.S. 224 (1988), by pointing to the

generic nature of the allenged misstatements in

showing that the statements had no impact on the

price of the security, even though that evidence is

also relevant to the substantive element of

materiality.

2.

Whether a defendant seeking to rebut

the Basic presumption has only a burden of

production or also the ultimate burden of

persuasion.

ii

TABLE OF CONTENTS

QUESTIONS PRESENTED ..................................... i

TABLE OF AUTHORITIES .................................... iv

INTRODUCTION AND STATEMENT OF

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

SUMMARY OF ARGUMENT .................................. 3

ARGUMENT ............................................................ 5

I.

FACTS AND PROCEDURAL HISTORY ..... 5

II.

THE COURT OF APPEALS’ PRICE

IMPACT

ANALYSIS

VIOLATES

HALLIBURTON II ........................................ 8

A.

Consideration of the Nature of

the Alleged Misstatements Falls

Squarely

Within

the

Compromise

Reached

in

Halliburton II ................................... 8

B.

This Court Has Previously

Rejected the Restricted View on

Price Impact Evidence Adopted

by the Court of Appeals ............... 12

C.

If Left Uncorrected, the Court

of

Appeals’

Decision

Will

Adversely

Impact

Public

Companies....................................... 16

D.

The Court of Appeals’ Decision

Will Render Class Certification

Merely a Formality in Virtually

Any Securities Action Premised

iii

on the Inflation Maintenance

Theory .............................................. 19

III.

A DEFENDANT SEEKING TO REBUT

THE BASIC PRESUMPTION BEARS

ONLY THE BURDEN OF PRODUCTION,

NOT THE BURDEN OF PERSUASION. ... 21

CONCLUSION ....................................................... 25

iv

TABLE OF AUTHORITIES

Cases

Page(s)

Alaska Elec. Pension Fund v. Pharmacia Corp.,

554 F.3d 342 (3d Cir. 2009) .............................. 20

In re Allstate Corp. Securities Litigation,

966 F.3d 595 (7th Cir. 2020) ....................... 15, 23

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

568 U.S. 455 (2013) ....................................... 9, 13

Aranaz v. Catalyst Pharm. Partners Inc.,

302 F.R.D. 657 (S.D. Fla. 2014) ........................ 23

Basic Inc. v. Levinson,

485 U.S. 224 (1988) ................................. 3, 10, 21

Bing Li v. Aeterna Zentaris, Inc.,

324 F.R.D. 331 (D.N.J. 2018) ........................... 23

Dura Pharms., Inc. v. Broudo,

544 U.S. 336 (2005) ........................................... 19

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

309 F.R.D. 251 (N.D. Tex. 2015)....................... 23

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

563 U.S. 804 (2011) ............................................. 9

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

718 F.3d 423 (5th Cir. 2013), vacated

and remanded by 573 U.S. 258 (2014) ....... 13, 14

v

FindWhat Investor Group v. FindWhat.com,

658 F.3d 1282 (11th Cir. 2011) ......................... 20

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

573 U.S. 258 (2014) ....................................passim

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

818 F.3d 775 (8th Cir. 2016) ............................. 22

KBC Asset Mgmt. NV v. 3D Sys. Corp.,

2017 WL 4297450 (D.S.C. Sept. 28, 2017) ....... 23

In re Pfizer Inc. Sec. Litig.,

819 F.3d 642 (2d Cir. 2016) .............................. 19

Schleicher v. Wendt,

618 F.3d 679 (7th Cir. 2010) ............................. 20

St. Mary’s Honor Ctr. v. Hicks,

509 U.S. 502 (1993) ........................................... 22

In re Vivendi, S.A. Sec. Litig.,

838 F.3d 223 (2d Cir. 2016) .............................. 20

Waggoner v. Barclays PLC,

875 F.3d 79 (2d Cir. 2017), cert. denied,

138 S. Ct. 1702 (2018) ....................................... 22

vi

Other Authorities

Donald C. Langevoort, Judgment Day for

Fraud-on-the-Market: Reflections on

Amgen and the Second Coming of

Halliburton, 57 ARIZ. L. REV. 37, 46-47

(2015) ................................................................... 9

1

INTRODUCTION AND STATEMENT OF

INTEREST OF AMICI CURIAE1

The amici curiae are a group of individuals who

have a strong interest in these issues: former officials

of the United States Securities and Exchange

Commission and law professors whose scholarship

and teaching focuses on the federal securities laws.

Although each individual amicus may not endorse

every statement herein,2 this brief reflects the

consensus of the amici that this case presents

exceptionally important questions on the Basic

presumption and a defendant’s right to rebut the

same, the lower courts’ resolution of these issues was

incorrect and threatens to eviscerate that right, and

therefore, this Court should reverse the order

affirming the district court’s certification of the class.

In alphabetical order, the amici curiae are:



Brian G. Cartwright – Former General

Counsel of the U.S. Securities and Exchange

Commission from 2006 to 2009;

1 No counsel for a party authored this brief in whole or in part,

and no person or entity, other than the amici curiae or their

counsel, contributed money to fund its preparation or

submission. All parties have consented to the filing of this

brief pursuant to this Court’s Rule 37.3(a).

2 In addition, the views expressed by the amici here do not

necessarily reflect the views of the institutions with which

they are or have been associated, whose names are included

solely for purposes of identification.

2



Ronald J. Colombo – Professor of Law and Dean

for Distance Education at the Maurice A.

Deane School of Law at Hofstra University;



Elizabeth Cosenza – Associate Professor and

Area Chair, Law and Ethics at Fordham

University;



Charles C. Cox – Former Commissioner of the

U.S. Securities and Exchange Commission

from 1983 to 1989;



Richard A. Epstein – The Peter and Kirsten

Bedford Senior Fellow at the Hoover

Institution, and the Laurence A. Tisch

Professor of Law at New York University

School of Law;



The Honorable Joseph A. Grundfest – William

A. Franke Professor of Law and Business at

Stanford Law School, and Commissioner of the

U.S. Securities and Exchange Commission

from 1985 to 1990;



Simon Lorne – Former General Counsel of the

U.S. Securities and Exchange Commission

from 1993 to 1996;



Paul G. Mahoney – David and Mary Harrison

Distinguished Professor of Law at the

University of Virginia School of Law, and Dean

of the same from 2008 to 2016;



Adam C. Pritchard – The Frances and George

Skestos Professor of Law at the University of

Michigan Law School;



Amanda M. Rose – Professor of Law at

Vanderbilt University Law School and

3

Professor of Management at Vanderbilt

University Owen Graduate School of

Management;



Matthew Turk – Assistant Professor of

Business Law and Ethics at Indiana

University’s Kelley School of Business;



Andrew N. Vollmer – Senior Affiliated Scholar,

Mercatus Center at George Mason University;

former Professor of Law, General Faculty,

University of Virginia School of Law; former

Deputy General Counsel of the U.S. Securities

and Exchange Commission; and



Karen E. Woody – Associate Professor of Law

at Washington & Lee University School of Law.

SUMMARY OF ARGUMENT

The questions presented in this appeal are

extremely important to securities class actions. At

stake here is whether defendants can rebut the fraudon-the-market presumption created in Basic Inc. v.

Levinson, 485 U.S. 224 (1988), in opposing class

certification, as squarely required by this Court in

Halliburton Co. v. Erica P. John Fund, Inc., 573 U.S.

258 (2014) (“Halliburton II”). In his vigorous dissent

from the court of appeals’ panel decision affirming the

district court’s granting of class certification, Judge

Sullivan explained that by precluding consideration of

the generic nature of the challenged statements in

assessing price impact, the court of appeals’ decision

has made Basic “truly irrebuttable,” and class

certification “all but a certainty in every case.” (Pet.

4

App. 44a.) As detailed below, this result eliminates

the careful balance first recognized in Basic and

affirmed in Halliburton II. There, this Court did not

reverse the judge-made Basic presumption. It held,

however, that defendants must be afforded the

opportunity to show at class certification that alleged

misstatements did not have price impact—the

premise of the efficient market theory underlying

Basic. To remediate the significant consequences of

the court of appeals’ nullification of Halliburton II in

the leading circuit for securities cases and the center

of the nation’s financial markets, this Court should

reverse the court of appeals’ decision.

Also at issue in this case is whether a defendant

seeking to rebut the Basic presumption has only a

burden of production—as it should under Federal

Rule of Evidence 301—or also the ultimate burden of

persuasion. This Court should make clear that Rule

301 applies, as it does to all presumptions for which

no federal statute provides otherwise.

This case takes on heightened importance amid

the emerging trend of securities class action plaintiffs

relying on the novel “inflation maintenance” theory.

That theory, never before sanctioned by this Court,

posits that a class may be certified where an alleged

misstatement does not itself introduce inflation into

the stock price, but simply maintains inflation

previously introduced through some other, even nonfraudulent, means. Coupling such an expansive view

of price impact with such a restrictive view of the right

to rebutting price impact recognized in Halliburton II

ensures almost automatic class certification in

inflation maintenance cases. That is, a class would be

5

certified any time a public company makes generic or

aspirational disclosures about mitigating risk or

engaging in best practices—as nearly all public

companies do—and then suffers a stock price drop.

That cannot be consistent with the aim and holding of

Halliburton II. Simply put, if the court of appeals’

decision stands, companies will be almost defenseless

against plaintiffs’ class certification arguments, which

will become de facto irrebuttable.

ARGUMENT

I.

FACTS AND PROCEDURAL HISTORY

In 2010, Respondents brought this securities

action on behalf of a putative class of Goldman Sachs

shareholders against Petitioners in the United States

District Court for the Southern District of New York,

alleging violations of Section 10(b) of the Securities

Exchange Act of 1934 and Rule 10b-5 (as well as

Section 20(a), the provision for “control person”

liability). Respondents alleged that Petitioners made

material misrepresentations with respect to two

categories of statements: (1) aspirational goals,

including statements such as “[o]ur clients’ interests

always come first” and “[i]ntegrity and honesty are at

the heart of our business”; and (2) warnings about the

risks of conflicts of interest, including statements such

as “[c]onflicts of interest are increasing and a failure

to appropriately identify and deal with conflicts of

interest could adversely affect our businesses.” J.A.

31–33, 27–29; D. Ct. Dkt. 136, at 5–6. Respondents

alleged that the challenged statements were

6

fraudulent because Goldman Sachs had undisclosed

client conflicts with respect to some of their financial

instruments, and subsequent news reports of

government enforcement activity relating to alleged

conflicts of interest demonstrated the falsity of the

challenged statements to the market. Petitioners

moved to dismiss, arguing that the alleged

misstatements were immaterial as a matter of law.

The court denied the motion in relevant part. (Pet.

App. 7a.)

Thereafter, Respondents moved to certify the

class, invoking the Basic presumption and relying on

the inflation maintenance theory, which (as described

above) purportedly makes certain statements

actionable merely because they maintained an

already inflated stock price. To rebut the Basic

presumption, Petitioners presented evidence showing

that the alleged misstatements had no price impact.

First, Petitioners argued that the generic,

aspirational nature of the alleged misstatements

could not have affected the stock price. Second,

Petitioners showed that Goldman Sachs’ stock price

had not declined in response to news reports on 36

separate dates before the purported “corrective

disclosures” despite the fact that those reports

included allegations about Goldman Sachs’ conflicts of

interest. In fact, Petitioners’ experts showed that the

stock price drops on the “corrective disclosure” dates

were caused by investor concerns over the potential

impact of government enforcement activity, not by the

revelation of the falsity of the challenged statements,

and that none of the challenged statements were

mentioned in any of the analyst reports on Goldman

7

Sachs during the Class Period. The district court

granted Respondents’ motion for class certification.

(Pet. App. 79a-94a.)

The court of appeals granted Petitioners’ petition

for an interlocutory appeal and vacated the district

court’s order, holding that the district court failed to

apply the preponderance of the evidence standard for

determining whether Petitioners rebutted the Basic

presumption, while rejecting Petitioners’ argument

that Rule 301 applies. (Pet. App. 60a-78a.) The court

of appeals also held that the district court erred by

refusing to consider Petitioners’ evidence that

Goldman Sachs’ generic statements had no price

impact because the stock price had not reacted to the

news reports of client conflicts on 36 dates, reasoning

that “[a]lthough price impact touches on materiality,

which is not an appropriate consideration at the class

certification stage, it ‘differs from materiality in a

crucial respect’ ” because it “refers to the effect of a

misrepresentation on a stock price.” (Pet. App. 76a77a (quoting Halliburton II, 573 U.S. at 282.))

On remand, Petitioners detailed the generic

nature of the statements, and presented economic and

empirical evidence showing that the challenged

statements had no price impact and that the

decreases in stock price following the “corrective

disclosures” were not attributable to the alleged

misstatements. Despite that evidence, the district

court again granted Respondents’ motion for class

certification. (Pet. App. 47a-59a.)

The court of appeals then granted Petitioners’

petition for an interlocutory appeal and affirmed the

decision below to certify the class, finding that

8

Petitioners failed to rebut the Basic presumption.

(Pet. App. 1a-46a.) The court rejected Petitioners’

argument, based on Halliburton II, that the district

court erred in refusing to consider the generic nature

of the statements as evidence that such statements

had no impact on the stock price. (Pet. App. 19a-27a.)

Viewing Petitioners’ argument as an attempt to

impermissibly “smuggl[e] materiality into Rule 23,”

the

court

stated

that

“[w]hether

alleged

misstatements are too general to demonstrate price

impact has nothing to do with the issue of whether

common questions predominate over individual ones.”

(Pet. App. 22a, 23a.) Characterizing Petitioners’

burden as a “heavy” one, the court of appeals

explained that the Basic presumption could be

rebutted only by showing that the “entire price decline

on the corrective-disclosure dates was due to

something other than its alleged misstatements.”

(Pet. App. 28a & n.18.) The petition for a writ of

certiorari was filed after Petitioners’ petition for

rehearing was denied on June 15, 2020. (Pet. App.

95a-96a.)

II.

THE COURT OF APPEALS’ PRICE

IMPACT ANALYSIS VIOLATES

HALLIBURTON II.

A.

Consideration of the Nature of the

Alleged Misstatements Falls

Squarely Within the Compromise

Reached in Halliburton II.

In affirming the district court’s legally and

factually flawed class certification order, the court of

9

appeals rendered this Court’s decision in Halliburton

II a de facto nullity. Halliburton II reflected a

compromise between the two diametrically opposed

arguments represented in that case: securities class

action defendants urged that Basic’s fraud-on-themarket presumption be overruled, while securities

class action plaintiffs urged that defendants not have

any opportunity to rebut the fraud-on-the-market

presumption at class certification.3

Since this Court’s creation of the fraud-on-themarket presumption in Basic, courts have struggled

with the presumption’s practical application. In Erica

P. John Fund, Inc. v. Halliburton Co., 563 U.S. 804

(2011) (“Halliburton I”), this Court addressed some of

the ambiguity surrounding Basic by rejecting the

argument that plaintiffs must affirmatively show loss

causation to invoke the fraud-on-the-market

presumption. The Court reasoned that loss causation

did not relate to whether an investor had relied on a

misrepresentation “either directly or presumptively

through the fraud-on-the-market theory.” Id. at 813.

Two years later, in Amgen Inc. v. Conn. Ret. Plans &

Tr. Funds, 568 U.S. 455 (2013), this Court seemingly

leaned further in the direction of securities fraud class

action plaintiffs, holding that plaintiffs need not

establish materiality and defendants may not rebut

materiality prior to class certification.

3 See Donald C. Langevoort, Judgment Day for Fraud-on-theMarket: Reflections on Amgen and the Second Coming of

Halliburton, 57 ARIZ. L. REV. 37, 46-47 (2015).

10

With Halliburton I and Amgen handed down only

two years apart, this Court appeared to be steadily

lowering the bar for securities fraud class action

plaintiffs to advance their cases. That seemingly

changed in Halliburton II. There, Chief Justice

Roberts (joined by Justices Kennedy, Ginsburg,

Breyer, Sotomayor and Kagan), while reaffirming the

viability of the fraud-on-the-market presumption,

provided much-needed clarity on how to apply the

fraud-on-the-market presumption in practice. The

middle ground established by the Supreme Court in

Halliburton II provides that defendants in securities

fraud class actions must be afforded an opportunity

to rebut the fraud-on-the-market presumption of

reliance “with evidence of a lack of price impact . . .

before class certification.” 573 U.S. at 277. Although

the majority opinion failed to overturn Basic and held

that plaintiffs need not prove price impact to first

invoke the fraud-on-the-market presumption, the

Court also made clear that defendants are entitled to

an opportunity to rebut the Basic presumption at

class certification by presenting evidence that severs

the link between the alleged misrepresentations and

the stock price. Id. at 279–80. Significantly, in so

holding, the Halliburton II Court cited Basic’s own

expansive articulation of the standard for securities

fraud class action defendants to break that link: “[a]ny

showing that severs the link between the alleged

misrepresentation and . . . the price received (or paid)

by the plaintiff” for the shares in question. Id. at 281

(citing Basic, 485 U.S. at 248) (emphasis added). No

qualification was placed on the defendants’ rebuttal

right. In particular, the Court did not preclude

11

consideration of price-impact evidence that could also

implicate the other elements of a Rule 10b-5 claim

that had been addressed in its recent decisions, such

as loss causation (Halliburton I) or materiality

(Amgen).

This Court’s decision in Halliburton II thus

reflects a carefully constructed compromise between

the apparently plaintiff-friendly trend in Halliburton

I and Amgen, and the defendants’ contention in

Halliburton II that Basic be overruled entirely. In

many ways, this compromise represents a recognition

of what was implicit in Basic: (i) the presumption of

fraud-on-the-market is exactly that, only a

presumption, and as such, is rebuttable; and (ii)

evidence introduced by defendants demonstrating the

absence of price impact before class certification will

break the link between the challenged statements and

the stock price, thereby defeating that presumption.

See 573 U.S. at 268–69.

By refusing to consider evidence that should have

served to rebut the Basic presumption under

Halliburton II, the court of appeals’ decision here is at

odds with this compromise. The court of appeals

erroneously barred Petitioners from relying on the

generic and aspirational nature of the alleged

misstatements to show a lack of price impact,

reasoning that such inquiry is merely a “means for

smuggling materiality into Rule 23.” (Pet. App. 21a,

n.11 & 22a.) Nevertheless, as Judge Sullivan astutely

noted in his dissent, “[t]he mere fact that such an

inquiry ‘resembles’ an assessment of materiality does

not make it improper.” (Pet. App. 45a.) As mandated

by Halliburton II, a defendant is entitled to rebut the

12

Basic presumption at the class certification stage with

any

evidence

showing

that

an

alleged

misrepresentation did not actually affect the stock’s

price, regardless of whether it is also “highly relevant

at the merits stage.” 573 U.S. at 283. Moreover, this

Court made it abundantly clear in Halliburton II that

“[there] is no reason to artificially limit the inquiry at

[that] stage.” Id. at 262. Therefore, the nature of the

alleged misstatements should have been considered

by the court of appeals in determining whether

Petitioners rebutted the Basic presumption, as such

rebuttal evidence indisputably falls squarely within

the compromise reached in Halliburton II.

B.

This Court Has Previously Rejected

the Restricted View on Price

Impact Evidence Adopted by the

Court of Appeals.

The court of appeals incorrectly viewed evidence

about the generic nature of challenged statements as

“a means for smuggling materiality into Rule 23” in

violation of Amgen. (Pet. App. 21a, n.11 & 22a.) But

nothing in Amgen prohibits a court from considering

at the class certification stage the generality or

specificity of the alleged misstatements, which

directly bears on price impact. (Pet. App. 45a.) In

fact, the generality of an alleged misstatement is

powerful evidence of a lack of price impact. As

explained by Petitioners’ expert, Dr. Laura Starks,

generic statements like those at issue here are

pervasive in company communications. J.A. 599-605,

626. Accordingly, analysts and institutional investors

are unlikely to consider a company’s generic and

13

aspirational statements in valuing a company’s stock,

which is exactly what happened here. As Judge

Sullivan recognized, the challenged statements are so

generic that “no reasonable investor would have

attached any significance” to them. (Pet. App. 44a45a.) Moreover, Dr. Starks found that “analysts did

not view [the challenged] statements as containing

information pertinent to an investment decisionmaking process.” J.A. 599-605, 626. In imposing a

blanket prohibition against such evidence, the court

of appeals misconstrued Amgen in much the same

manner as the Fifth Circuit in Halliburton II, which

prompted this Court’s reversal in that case.

In Amgen, this Court held that proof of materiality

is not a prerequisite to certification of a securities

fraud class action. See 568 U.S. at 459. Even though

materiality is a precondition to Basic’s fraud-on-themarket presumption, the Court reasoned that, “[a]s to

materiality . . ., the class is entirely cohesive. It will

prevail or fail in unison.” Id. at 460. In so ruling, the

Amgen majority also affirmed the district court’s

refusal to consider Amgen’s “truth-on-the-market”

rebuttal evidence at the class certification stage. Id.

at 481.

On this basis, between Halliburton I and

Halliburton II, the Fifth Circuit concluded that

defendants could not offer evidence of a lack of price

impact at class certification. Erica P. John Fund, Inc.

v. Halliburton Co., 718 F.3d 423 (5th Cir. 2013),

vacated and remanded by 573 U.S. 258 (2014).

Specifically, the Fifth Circuit refused to consider

defendants’ expert report conclusively showing that

there was no statistically significant impact on the

14

stock’s price on 20 of the 22 misrepresentation dates,

and that the price increases on the two remaining

misrepresentation dates were not caused by any of the

alleged misrepresentations. Applying Amgen, the

Fifth Circuit reasoned that price impact evidence may

not be considered because, like materiality, price

impact does not bear on common question

predominance under Federal Rule of Civil Procedure

23. Id. at 432.

The Fifth Circuit made the same error as the court

of appeals did here: because “[t]he price impact

evidence considered here is both similar to and offered

for much the same reason as the materiality evidence”

that this Court in Amgen held should not be

considered at class certification, the Fifth Circuit

refused to credit Halliburton’s contention that it was

challenging reliance, not materiality, through its

truth-on-the-market defense. Id. at 434 n.10. This

Court rejected the Fifth Circuit’s analysis in

Halliburton II.

There, this Court explained that, even though the

same issues counseling against considering

materiality evidence could also apply to weighing

price impact evidence at class certification, “[p]rice

impact is different. The fact that a misrepresentation

‘was reflected in the market price at the time of the

transaction’—that it had price impact—is ‘Basic’s

fundamental premise.’ It thus has everything to do

with the issue of predominance at the class

certification stage.” Halliburton II, 573 U.S. 258, 281,

283 (internal citation omitted).

Even though the same evidence often bears on

price impact and materiality, Halliburton II holds

15

that, notwithstanding Amgen, price impact evidence

may be considered at class certification, not for the

purpose of rebutting materiality or rearguing a court’s

decision on the sufficiency of the complaint’s pleading

of materiality, but to demonstrate a lack of price

impact and thereby to rebut the Basic presumption.

Indeed, the Seventh Circuit recently held in In re

Allstate Corp. Securities Litigation, 966 F.3d 595 (7th

Cir. 2020), that the district court there failed to

adhere to Halliburton II’s holding when it failed to

consider permissible price impact evidence at class

certification. Noting the “challenge” courts face in

reconciling Halliburton I, Amgen, and Halliburton II,

the Seventh Circuit properly permitted defendants to

introduce price impact rebuttal evidence at the class

certification stage, including an expert report showing

that there was “no statistically significant increase in

Allstate’s stock price following any of the alleged

misrepresentations.” Id. at 611. The Seventh Circuit

held that such evidence—similar to the evidence

profferred by Petitioners here—should have been

considered by the district court as price-impact

rebuttal evidence, even though it undoubtedly

implicated the separate element of materiality. Id.

The Seventh Circuit’s approach is more consistent

with Halliburton II. Any other reading of these cases

creates a conflict between this Court’s Amgen and

Halliburton II rulings, requiring district courts to

undertake the impossible task of parsing permissible

price impact evidence from impermissible materiality

evidence. As Judge Sullivan persuasively observed, “I

don’t believe that such rigid compartmentalization is

possible[.]” (Pet. App. 45a.) Without an affirmation

16

from this Court that, under Halliburton II, price

impact evidence may be presented at the class

certification stage to rebut the Basic presumption,

even if the evidence also implicates materiality, lower

courts will continue to violate Halliburton II and deny

defendants the opportunity to rebut the Basic

presumption with permissible evidence. That is,

although price impact resembles materiality, this

Court’s precedent directs courts “to consider the

nature of the alleged misstatements in assessing

whether and why” there was no price impact. (Id. at

44a.)

C.

If Left Uncorrected, the Court of

Appeals’ Decision Will Adversely

Impact Public Companies.

The court of appeals’ decision impermissibly limits

the price impact evidence that district courts can

consider at class certification. Here, the court of

appeals barred consideration of the generic nature of

the alleged misstatements, reasoning that the issue

should be dealt with at the pleading stage. (Pet. App.

20a n.10.) But that is often not what happens in

practice. At the pleading stage, plaintiffs regularly

argue that materiality is a mixed question of law and

fact, and accordingly, cases dealing with generic

statements oftentimes are not resolved on materiality

grounds at the pleading stage. This Court should

make clear that district courts must consider all

relevant price impact evidence (even if it overlaps

with materiality) at the Rule 23 stage.

17

The court of appeals’ decision here risks draconian

practical consequences because publicly traded

companies routinely include generic statements of

corporate principle similar to those at issue here in

their public filings. The publication of these anodyne

statements combined with a later stock price drop

should not give rise to automatic class certification,

even if shareholders happen to lose money.

These risks are particularly heightened during the

ongoing COVID-19 crisis, where aspirational

statements about best practices amid a fast-moving

global pandemic have already been weaponized by

plaintiffs and turned into a predicate for securities

fraud class actions, as securities markets around the

world are extremely volatile. Most significantly, a

pharmaceutical company at the forefront of COVID19 research is facing a shareholder class action

lawsuit following the disclosure of adverse news from

a highly-consequential, yet highly-expedited clinical

trial. Just last week, a putative securities class action

lawsuit was filed in the U.S. District Court for the

Southern District of New York against U.K.

pharmaceutical company AstraZeneca PLC and its

executives based upon the disclosure of setbacks in its

effort to develop a COVID-19 vaccine. See Compl.,

Monroe Cty. Emps. Ret. Sys. v. AstraZeneca PLC, et

al., No. 21-cv-722-JPO (S.D.N.Y Jan. 26, 2021) (ECF

No. 1). The complaint predicates allegations of

securities fraud on, inter alia, statements by the

AstraZeneca CEO pledging to “uphold the integrity of

the scientific process” and noting that “[w]e continue

to lead across multiple fronts in the global response to

the COVID-19 pandemic.” Id. at 12, 15.

18

Further, companies in the travel industry that

have made generic disclosures about business

principles during the COVID-19 outbreak now face

investor securities class action lawsuits after a stock

price drop. See, e.g., Compl. at 14, City of Riviera

Beach Gen. Emps. Ret. Sys. v. Royal Caribbean

Cruises Ltd., et al., No. 20-cv-24111-KMW (S.D. Fla.

Oct. 7, 2020) (ECF No. 1) (challenged disclosures by

cruise company defendant include statement that it

“initiated strong safeguards to help contain the

spread of the disease and protect [its] guests and

crew”); Consol. Am. Compl. at 23, 34, Douglas v.

Norwegian Cruise Lines, et al., No. 20-21107-CivSCOLA (S.D. Fla. Jul. 31, 2020) (ECF No. 56)

(challenged statements by cruise company defendant

include that it was “working tirelessly to do what is

right for [its] guests, crew and shareholders while

protecting the equity of [its] brands” and “plac[es] the

utmost importance on the safety of our guests and

crew”).

Granting class certification based on generic

statements of corporate principle would be contrary to

this Court’s precedent and congressional intent as

reflected in the Private Securities Litigation Reform

Act. See Halliburton II, 573 U.S. at 277 (explaining

that the PSLRA was enacted “to combat perceived

abuses in securities litigation with heightened

pleading requirements, limits on damages and

attorney’s fees, a ‘safe harbor’ for certain kinds of

statements, restrictions on the selection of lead

plaintiffs in securities class actions, sanctions for

frivolous litigation, and stays of discovery pending

motions to dismiss”); see also Dura Pharms., Inc. v.

19

Broudo, 544 U.S. 336, 345 (2005) (“The securities

statutes seek to maintain public confidence in the

marketplace . . . by deterring fraud, in part, through

the availability of private securities fraud actions. . . .

But the statutes make these latter actions available,

not to provide investors with broad insurance against

market losses, but to protect them against those

economic losses that misrepresentations actually

cause.”). The private right of action under the

securities law is not intended to function as a

guarantee against stock price declines, especially in

times of crisis.

D.

The Court of Appeals’ Decision Will

Render Class Certification Merely a

Formality in Virtually Any

Securities Action Premised on the

Inflation Maintenance Theory.

The importance of the fact that Respondents’

claims are premised on the inflation maintenance

theory cannot be understated.

The inflation

maintenance theory permits plaintiffs to argue that

certain statements can be actionable if they merely

maintained an already inflated stock price. See In re

Pfizer Inc. Sec. Litig., 819 F.3d 642, 659 (2d Cir. 2016).

Here, the court of appeals permitted the application of

the inflation maintenance theory to generalized

statements of corporate principle, an unprecedented

expansion of an already expansive theory.

Accordingly, the court of appeals rendered class

certification a mere formality in virtually any

20

securities class action premised on the inflation

maintence theory.

The only two circumstances in which any court had

previously applied the inflation maintenance theory

involved alleged misstatements that (1) were unduly

optimistic statements about specific, material

financial or operational information made to stop a

stock price from declining;4 or (2) falsely conveyed that

the company had met market expectations about a

specific, material financial metric, product, or event.5

In any event, whatever the merits or flaws of this

theory, general statements that companies routinely

make in corporate disclosures, like the ones at issue

in this case, cannot “maintain” an inflated stock price.

Plaintiffs’ reliance on the theory comes as no

surprise given the recent surge in inflation

maintenance cases filed by securities class action

plaintiffs across the country, and defendants’

extraordinarily low success rates in rebutting the

Basic presumption in such cases. (Pet. App. 19a n.9.)

This trend makes the inflation maintenance theory

susceptible to abuse at class certification, especially if

it is transformed into a catch-all path for securities

fraud plaintiffs to certify investor classes based

simply on a stock drop, even when the challenged

4 See, e.g., In re Vivendi, S.A. Sec. Litig., 838 F.3d 223 (2d Cir.

2016); Schleicher v. Wendt, 618 F.3d 679 (7th Cir. 2010).

5 See, e.g., FindWhat Inv. Grp. v. FindWhat.com, 658 F.3d 1282

(11th Cir. 2011); Alaska Elec. Pension Fund v. Pharmacia

Corp., 554 F.3d 342 (3d Cir. 2009).

21

statements were too general to cause any price

impact. If allowed to become a catch-all in this way,

it would be in direct contradiction to this Court’s

precedent, see Halliburton II, 573 U.S. 258, and would

result in effectively eliminating the price impact

requirement altogether.

Given the risk of abuse of the inflation

maintenance theory at class certification, this Court

should reverse the court of appeals’ decision and hold

that courts must consider any relevant evidence

offered to show that an alleged misrepresentation had

no price impact. Otherwise, plaintiffs nationwide will

continue to benefit from the Basic presumption, which

depends on price impact, even in cases like this where,

despite Respondents’ invocation of the inflation

maintenance theory, there is no evidence of price

impact.

III.

A DEFENDANT SEEKING TO REBUT

THE BASIC PRESUMPTION BEARS

ONLY THE BURDEN OF PRODUCTION,

NOT THE BURDEN OF PERSUASION.

At issue in this case is also the question of how a

defendant in a securities class action must empirically

rebut the Basic presumption. Neither Basic nor

Halliburton II spelled out the precise burden of proof

that each must party bear. Nor is that surprising:

presumptions are specifically controlled by Rule 301,

which the Court in Basic expressly cited, indicating

that it is the proper procedural device “for allocating

the burdens of proof between parties.” 485 U.S. at

245.

22

Indeed, the Federal Rules of Evidence, by their

terms, apply to all “civil cases and proceedings” in

United States courts. FED. R. EVID. 1101(b). Rule 301

plainly applies to presumptions in all civil cases

“unless a federal statute . . . provide[s] otherwise.”

FED. R. EVID. 301; see St. Mary’s Honor Ctr. v. Hicks,

509 U.S. 502, 507 (1993) (recognizing that Rule 301

governs “all presumptions”). In this case, there is no

such federal statute. Therefore, Rule 301 applies.

Rule 301 makes clear that the party against whom

a presumption is directed only bears “the burden of

producing evidence to rebut the presumption,” with

the “burden of persuasion . . . remaining on the party

who had it originally.” FED. R. EVID. 301 (emphasis

added). Therefore, when the plaintiff makes a prima

facie showing of market efficiency, the burden of

production shifts to the defendant to present evidence

showing a lack of price impact, but the burden of

persuasion always rests with the plaintiff. See IBEW

Local 98 Pension Fund v. Best Buy Co., 818 F.3d 775,

782 (8th Cir. 2016). It was thus not incumbent upon

Petitioners here to prove the absence of price impact.

Given the evident applicability of Rule 301, the

court of appeals erred when it applied the following

burden-shifting standard: while the plaintiff “bears

the initial burden of demonstrating that the

prerequisites for the Basic presumption are met,” once

this showing is made, the burden of persuasion “shifts

to the defendant to rebut the presumption” by a

preponderance of the evidence. (Pet. App. 27a-28a.).

See also Waggoner v. Barclays PLC, 875 F.3d 79, 102

(2d Cir. 2017), cert. denied, 138 S. Ct. 1702 (2018).

The Seventh Circuit has similarly erred in holding

23

that the burden of persuasion to rebut the Basic

presumption shifts to the defendant once a plaintiff

has met its burden. See In re Allstate Corp. Securities

Litigation, 966 F.3d 595 (7th Cir. 2020).

In contrast, the Eighth Circuit properly applied

Rule 301 in Best Buy, requiring only that the

defendant “come forward with evidence showing a

lack of price impact” once plaintiffs presented a prima

facie case that the Basic presumption applied. 818

F.3d at 782. District courts in other circuits have also

applied Rule 301. See, e.g., Bing Li v. Aeterna

Zentaris, Inc., 324 F.R.D. 331, 344 (D.N.J. 2018)

(applying Rule 301 and requiring only that defendant

produce evidence to rebut presumption); KBC Asset

Mgmt. NV v. 3D Sys. Corp., 2017 WL 4297450, at *8

(D.S.C. Sept. 28, 2017) (applying Rule 301 and

requiring only that defendants “come forward” with

evidence showing a lack of price impact); but see Erica

P. John Fund, Inc. v. Halliburton Co., 309 F.R.D. 251,

260 (N.D. Tex. 2015) (shifting burden of persuasion to

defendants); Aranaz v. Catalyst Pharm. Partners Inc.,

302 F.R.D. 657, 673 (S.D. Fla. 2014) (same).

The decision below incorrectly disregarded the

burdens prescribed in Rule 301, which is clearly

applicable to the Basic presumption. And, in effect,

the Second Circuit’s burden-shifting standard further

entrenches the Basic presumption’s irrebutability

problem.

Placing the burden of persuasion on

defendants while disallowing certain evidence bearing

directly on price impact puts defendants in a catch-22:

they must persuade, but are barred from presenting

evidence they need to do so. Simply put, defendants

in the Second Circuit are burdened with a standard

24

they virtually cannot meet, and should not have to

meet in the first place. As such, this Court should

clarify that Rule 301 applies to the Basic

presumption, and that the burden of persuasion never

shifts to the defendants in such cases.

25

CONCLUSION

For the foregoing reasons, the judgment of the

court of appeals should be reversed.

In the

alternative, the judgment should be vacated and the

case remanded for further proceedings.

Respectfully submitted,

Todd G. Cosenza

Counsel of Record

Charles D. Cording

Madeleine L. Tayer

WILLKIE FARR &

GALLAGHER LLP

787 Seventh Avenue

New York, NY 10019

tcosenza@willkie.com

(212) 728-8000

Counsel for Amici

February 1, 2021