(CN) - International corporate law firm Haynes and Boone released its inaugural Securities Litigation Year in Review 2011, predicting an interesting year ahead while highlighting some of the major decisions issued by the U.S. Supreme Court and the Circuit and District Courts.
     The review looked largely at four decisions handed down in 2011: Wal-Mart Stores, Inc. v. Dukes; Erica P. John Fund, Inc. v. Halliburton Co.; Matrixx Initiatives, Inc. v. Siracusano; and Janus Capital Group, Inc. v. First Derivative Traders. The Halliburton and Matrixx decisions can be "characterized as 'plaintiff-friendly' - from a Supreme Court generally considered to be 'pro-business,' " the review states.
     On June 20, 2011, in Wal-Mart Stores, Inc. v. Dukes, the largest sexual discrimination class action in U.S. history, the Supreme Court dealt a blow to those seeking to certify class actions by reversing a lower court's decision in granting certification in a nationwide class action made up of 1.5 million female employees against Wal-Mart.
     The Court found that the plaintiffs had not met the "commonality" requirement, "that there are questions of law or fact common to the class" for class action certification. The Court also found that the plaintiffs' claim for individual monetary claims could not be certified under Federal Rule of Civil Procedure 23(b) (2).
     Although not a securities class action, the Wal-Mart ruling holds significance for securities class claims due to the issue of commonality, said Nick Even, Co-Chair of Haynes and Boones' national Securities and Shareholder Litigation and Class Action Defense practices and co-author of the report.
"The potential [for securities class actions] lies in the issue of commonality because it has always been treated as a given in securities cases," he said. "A bar has now been set for plaintiffs to beef up allegations and for defendants to be more aggressive in driving a wedge in lack of commonality."
     Both plaintiffs and defendants can learn a lesson in affirming or contesting securities cases from the Wal-Mart ruling, Even said.
     In Halliburton, the oilfield services company stood accused of violating Section 10(b) of the Securities Exchange Act of 1934 and Rule 10b-5 by plaintiff Erica P. John Fund. The complaint asserted that Halliburton knowingly made false statements regarding revenues and legal liabilities causing the company's stock price to drop when correct disclosures were issued. On June 6, 2011, in a unanimous decision, the Supreme Court reversed a ruling from the Fifth Circuit Court of Appeals determining that plaintiffs in a securities fraud action do not need to prove loss causation in order to rely on the "fraud-on-the-market" theory as a means of obtaining class certification. The fraud-on-the-market theory was first outlined in a 1988 decision in Basic, Inc. v. Levinson, which determined that plaintiffs are not obligated to show that they were aware of a defendant's false statements. The matter previously split the Circuit Courts, the review says.
     On February 10, 2012, however, Halliburton filed petition in the U.S. Court of Appeals for the Fifth Circuit for permission to appeal the District Court's decision in granting class action certification, signaling that the case may be far from over.
     Another pertinent decision was Matrixx, where plaintiff investors accused the pharmaceutical company of failing to disclose that cold remedy Zicam was linked to anosmia, a loss of the sense of smell. Mattrix argued that there was no "statistical significance" linking Zicam to anosmia, making any undisclosed information immaterial. The argument was accepted and the plaintiffs' complaint dismissed by the District Court. The 9th Circuit reversed the decision and the Supreme Court affirmed it on March 22, 2011, refusing to adopt a "bright-line rule for materiality to statistical significance." The Court found the bright-line rule to be inconsistent with Basic, Inc. v. Levinson in which the matter of materiality was analyzed. The materiality test states that, "disclosure is material if there is a substantial likelihood that it would alter the total mix of available information." The Supreme Court agreed that the plaintiffs sufficiently alleged a possible link between Zicam and anosmia.
     The Janus decision on June 13, 2011 can be characterized as a pro-business decision, said Even, after the Supreme Court found that an investment advisor who allegedly made false statements in prospectuses issued by a fund he was responsible for could not be held liable for the statements. The Court held that because the statements could not be attributed to him solely, the advisor could not be held responsible under Section 10(b) of the Securities Exchange Act as he could not have been considered to have "made" the statements at issue. The Court determined responsibility fell to "the person or entity with ultimate authority over the statement including its content and whether and how to communicate it."
     The decision confirms the "narrow field of primary liability in securities fraud cases and makes a clear statement on who makes or controls content issued by corporations," Even said.
     While 2010 and 2011 saw an "unusually high level" of securities class actions, Even forecasted a "bit of a downturn in 2012 at the Supreme Court level." This year will, however, be "an interesting year to watch," at the District and Circuit Court levels as these courts have the task of applying the decisions handed down from the Supreme Court last year.