Securities-fraud Class Action – Class Certification

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United States Supreme Court

Case Name: Goldman Sachs Group, Inc., et al., v. Arkansas Teacher Retirement Systems, et al.,

Case No.: 20-222

Focus: Securities-fraud Class Action – Class Certification

This case involves a securities-fraud class action filed by several pension funds against The Goldman Sachs Group, Inc., and three of its former executives (collectively, Goldman). Plaintiffs allege that Goldman maintained an artificially inflated stock price by making generic statements about its ability to manage conflicts—for example, “We have extensive procedures and controls that are designed to identify and address conflicts of interest.” Plaintiffs say that Goldman’s generic statements were false or misleading in light of several undisclosed conflicts of interest, and that once the truth about Goldman’s conflicts came out, Goldman’s stock price dropped and shareholders suffered losses.

Below, this securities-fraud class action proceeded in typical fashion. Plaintiffs sought to certify a class of Goldman shareholders by invoking the presumption endorsed by this Court in Basic Inc. v. Levinson, 485 U. S. 224 (1988). The Basic presumption is premised on the theory that investors rely on the market price of a company’s security, which in an efficient market incorporates all of the company’s public misrepresentations. For its part, Goldman sought to defeat class certification by rebutting the Basic presumption through evidence that its alleged misrepresentations actually had no impact on its stock price. After determining that Goldman had failed to carry its burden of proving a lack of price impact, the District Court certified the class, and the Second Circuit affirmed.

In this Court, Goldman argues that the Second Circuit erred twice: first, by holding that the generic nature of its alleged misrepresentations is irrelevant to the price impact inquiry; and second, by assigning Goldman the burden of persuasion to prove a lack of price impact. On the first question, the parties now agree, as do we, that the generic nature of a misrepresentation often is important evidence of price impact that courts should consider at class certification. Because we conclude that the Second Circuit may not have properly considered the generic nature of Goldman’s alleged misrepresentations, we vacate and remand for the Court of Appeals to reassess the District Court’s price impact determination. On the second question, we agree with the Second Circuit that our precedents require defendants to bear the burden of persuasion to prove a lack of price impact by a preponderance of the evidence. We emphasize, though, that the burden of persuasion should rarely be outcome determinative.

Vacated and remanded

Dissenting: SOTOMAYOR, J., filed an opinion concurring in part and dissenting in part. GORSUCH, J., filed an opinion concurring in part and dissenting in part, in which THOMAS and ALITO, JJ., joined.

Concurring: SOTOMAYOR, J., filed an opinion concurring in part and dissenting in part. GORSUCH, J., filed an opinion concurring in part and dissenting in part, in which THOMAS and ALITO, JJ., joined.

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Derek A Hawkins is Corporate Counsel, at Salesforce.