Partner Lyle Roberts (Washington, D.C.-Litigation) and associates Daniel Sachs (New York-Litigation) and Edmund Saw (Washington, D.C.-Litigation) prepared an amicus brief on behalf of the Washington Legal Foundation (WLF) filed on February 1, 2021 asking the U.S. Supreme Court to reverse or vacate a decision of the U.S. Court of Appeals for the Second Circuit in a closely-watched securities class action. The amicus brief is in support of Petitioners in Goldman Sachs Group v. Arkansas Teacher Retirement System and it argues that courts should be directed to consider the substance of alleged misstatements as part of analyzing price impact at the class certification stage.

Under the Supreme Court’s decision in Basic Inc. v. Levinson, class-wide reliance can be presumed in a securities class action if plaintiff makes certain showings, but this presumption can be rebutted by a showing that an alleged misrepresentation did not affect the stock’s market price. The Supreme Court also clarified, in Halliburton Co. v. Erica P. John Fund, that defendants may rebut the Basic presumption at the class-certification stage, and may use any type of evidence that rebuts a showing of price impact.

The WLF brief adds to Petitioners’ argument that the Second Circuit violated those precedents in this case by prohibiting an analysis of the substance of the alleged misstatements at the certification stage because such arguments also relate to materiality. The WLF brief argues that courts should examine the alleged misstatements to determine if they are the type that may introduce or maintain artificial inflation in the stock price, and that the Second Circuit’s decision, if ratified by the Supreme Court, would undermine Congress’s intent to limit the proliferation of meritless securities class actions. The WLF brief also clarifies that although a narrow circuit split exists with respect to the viability of the inflation-maintenance theory used by Respondents in the case, the Court can address the Second Circuit’s application of this theory and hold off deciding on the overall viability of the theory until it is directly addressed in a later case.

WLF is a nonprofit public-interest law firm and policy center with supporters in the U.S. Founded in 1977, WLF promotes and defends free enterprise, individual rights, limited government, and the rule of law.

The Team