WASHINGTON — The Supreme Court on Wednesday seemed open to the possibility of making it harder for investors to join together to sue corporations for securities fraud – but maybe not as hard as companies that have to defend such lawsuits would like.
During arguments in a closely watched case against Halliburton Co., (v. Erica P. John Fund Inc., 13-317), most justices appeared unwilling to completely overturn a quarter-century-old decision (Basic v. Levinson, 1988), that has helped investors launch class-action cases based on the effect misleading statements have on a company’s stock price.
Four Supreme Court conservative justices – Antonin Scalia, Clarence Thomas, Anthony Kennedy and Samuel Alito – said in a ruling last year that they were willing to reconsider the Basic decision.
But some conservative justices, including Kennedy, who has often been a swing vote, suggested a middle ground that would force investors to show much earlier in a case that the alleged fraud caused a stock’s price to drop.
Halliburton is trying to block a class-action lawsuit claiming the energy services company inflated its stock price. A group of investors say they lost money when Halliburton’s stock price dropped after revelations of misrepresenting revenues, understating its liability in asbestos litigation and overstating the benefits of a merger.
The Supreme Court has been hostile to class-action lawsuits over the past few years, tossing out a massive employment discrimination lawsuit case against Wal-Mart and voiding a consumer class action against Comcast Corp.
Halliburton lawyer Aaron Streett referred to both of those cases on Wednesday as he urged the court to overturn its 1988 decision, a ruling that sparked a wave of securities-related class-action lawsuits against publicly traded companies and has led to billions in settlements.
David Boies, attorney for the investors suing Halliburton, argued that the court should keep the Basic decision because Congress has passed legislation over the past two decades assuming it is the law of the land.
Any change in the standard for green-lighting class-action lawsuits could have a chilling effect on shareholders who bring the cases, which have generated an estimated $73 billion in settlements since 1997. Investor groups say class actions help curb corporate abuse and market fraud, while opponents claim they extort money from corporations and create a windfall for plaintiff’s lawyers.
The justices are expected to make a ruling before summer.