09-1403 Erica P. John Fund, Inc. v. Halliburton Co.

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Securities
Securities fraud; class actions; loss causation

Securities fraud plaintiffs need not prove loss causation in order to obtain class certification.
It is undisputed that securities fraud plaintiffs must prove certain  things in order to invoke Basic ’s rebuttable presumption of reliance. According  to the Court of Appeals, EPJ Fund had to prove the separate element of loss  causation in order to trigger the presumption. That requirement is not justified  by Basic or its logic. This Court has never mentioned loss causation as a  precondition for invoking Basic ’s rebuttable presumption. Loss causation  addresses a matter different from whether an investor relied on a  misrepresentation, presumptively or otherwise, when buying or selling a stock.

The Court has referred to the element of reliance in a private Rule 10b–5  action as “transaction causation,” not loss causation. Dura Pharmaceuticals,  Inc. v. Broudo , 544 U. S. 336 . Consistent with that description, when  considering whether a plaintiff has relied on a misrepresentation, the Court has  typically focused on facts surrounding the investor’s decision to engage in the  transaction. Loss causation, by contrast, requires a plaintiff to show that the  misrepresentation caused a subsequent economic loss. That has nothing to do with  whether an investor relied on that misrepresentation in the first place, either  directly or through the fraud-on-the-market theory. The Court of Appeals’ rule  contravenes Basic ’s fundamental premise—that an investor presumptively relies  on a misrepresentation so long as it was reflected in the market price at the  time of his transaction.

597 F. 3d 330, vacated and remanded.

09-1403 Erica P. John Fund, Inc. v. Halliburton Co.

Roberts, C.J.

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