On June 21, 2021, the Supreme Court issued its long-awaited decision in Goldman Sachs Group v. Arkansas Teacher Retirement System, No. 20-222, 594 U.S. ____ (2021). (CLICK HERE TO ACCESS THE OPINION). In Goldman Sachs, plaintiffs, the shareholders of the company, alleged that Goldman issued false and misleading statements of a generic nature about its ability to manage conflicts of interest and those misstatements maintained an artificially inflated stock price. At class certification, Goldman argued that the generic nature of the misstatements could not have affected the Company’s stock price, thereby demonstrating a lack of price impact and rebutting the efficient market presumption of reliance endorsed in Basic Inc. v. Levinson, 485 U. S. 224 (1988). The district court rejected Goldman’s argument and certified the class of Goldman shareholders. Goldman appealed the decision to the United States Court of Appeals for the Second Circuit, which affirmed the district court’s decision. It then petitioned the Supreme Court arguing that the Second Circuit erred in two respects: (1) by holding that the generic nature (or, the lack of materiality) of the alleged misrepresentations was irrelevant to Goldman Sachs’ argument that these statements did not impact the stock price; and (2) by assigning Goldman Sachs, rather than the class, the burden of persuasion to prove the omissions and misrepresentations did not impact the stock price.
Justice Barrett, writing for the majority, issued a two-part holding. First, the Court unanimously held that trial courts conducting a Basic analysis should consider whether the challenged statements were so generic and nonspecific that they did not distort the price of the security in question. In so holding, the Court remanded the case back to the Second Circuit “to take into account all record evidence relevant to price impact, regardless whether that evidence overlaps with materiality or any other merits issue.” Slip. Op. at 9. Second, the Court held, by a 6-to-3 majority, that to rebut the presumption of reliance, defendants have the burden of proving that the challenged statements in fact did not affect the price of the securities. Justice Gorsuch, joined by Justices Thomas and Alito, dissented to this aspect of the opinion.
The majority’s holdings were expected and should not meaningfully affect the status quo in securities fraud class action litigation. As to the first holding, Justice Barrett observed that the plaintiffs had themselves “concede[d] that the generic nature of an alleged misrepresentation often will be important evidence” to the question of whether a misrepresentation affected the price of the security. Slip. Op. at 6. Accordingly, the Court remanded the decision back to the Second Circuit to determine whether the evidence presented by Goldman was sufficient to rebut the presumption. As to the second holding, the majority reasoned its decision was simply a faithful reading of two earlier landmark precedents: Basic and Halliburton Co. v. Erica P. John Fund, Inc., 573 U. S. 258, 267 (2014) (Halliburton II). Nevertheless, despite reaffirming this existing rule that the defendants possess the burden of persuasion, the majority correctly points out that, during class certification briefing, “the plaintiffs and defendants submit competing expert evidence on price impact” and the “district court’s task is simply to assess all the evidence of price impact—direct and indirect—and determine whether it is more likely than not that the alleged misrepresentations had a price impact.” Slip. Op. at 12. In other words, securing class certification in any securities fraud litigation will continue to be hard-fought across the same historical battle lines.