Law Times

Law Times • September 1, 2014 Page 9 www.lawtimesnews.com Halliburton solidifies cross-border divide Class action defendants get new weapon in fraud-on-the-market cases By arshy mann Law Times n a highly anticipated decision, the U.S. Supreme Court has upheld — with some modi- fication — the fraud-on-the- market presumption with a ruling that solidifies the divide between American and Canadian securi- ties class actions. e fraud-on-the-market doctrine relies on an assump- tion that securities in an efficient marketplace will have all public information factored into the price. erefore, investors alleg- ing an issuer provided misinfor- mation don't have to prove the misinformation had an impact on share prices. In Halliburton Co. v. Erica P. John Fund Inc., the court upheld that presumption but also gave defendants a potent new weap- on to fight certification. "What Halliburton does the most is give the opportunity for a defendant to be able to bring evi- dence at the precertification stage to literally nip the whole action," says Laurie Baptiste, an associate with McCarthy Tétrault LLP. "at is the most astounding part of that decision." U.S. Supreme Court Chief Justice John Roberts wrote that if the fraud-on-the-market pre- sumption is to stand, defendants must have the right to rebut it before the court certifies a class. "Given that such indirect evi- dence of price impact will be be- fore the court at the class certifi- cation stage in any event, there is no reason to artificially limit the inquiry at that stage by exclud- ing direct evidence of price im- pact," he wrote. "What Halliburton has allowed defendants to try to do is rebut that presumption by providing actual facts that there is no impact on the stock market from what- ever the alleged representations were," says Baptiste. While allowing defendants to present this evidence at the pre- certification stage is certainly a major development, some com- mentators were expecting the U.S. Supreme Court to go much further and strike down the fraud-on-the-market presump- tion altogether. Daniel Bach, a partner at Sis- kinds LLP, doesn't think the deci- sion will have a major effect on securities class actions in Canada. "It's a very important decision for Americans, that goes without saying, but I don't think it's going to have a big impact up here," he says. Baptiste, however, thinks that at the very least it crystal- lizes the divisions between the two countries. "My conclusion is that there is a deepening divide," she says. "e U.S. is becoming more difficult while Canada is really still much easier for plaintiffs and for class actions in a lot of respects." Canadian courts have re- jected the fraud-on-the-market presumption several times, most recently in Green v. Canadian Imperial Bank of Commerce at the Ontario Court of Appeal. In the Superior Court of On- tario ruling in that case, Justice George Strathy (now Ontario chief justice) found Ontario courts didn't need to adopt a common law solution to the problem of proving reliance in securities class actions since a statutory remedy already exists under the Securities Act. "e statutory provisions contain checks, such as the leave procedure, to ensure that the remedy is not abused and bal- ances, such as the liability cap, to protect the corporation and its continuing shareholders from crippling exposures," he wrote. However, if the Canadian courts were ever to adopt the fraud-on-the-market approach, it would allow plaintiffs to by- pass statutory hurdles such as limitation periods. Baptiste expects Canadian lawyers will attempt to persuade courts here to follow the exam- ple of Halliburton in allowing evidence at the certification stage to disprove inferred reliance. "It will be interesting still to see what the courts actually say in the first decisions that actually consider Halliburton expressly or when defendants, and I'm sure they will, try to challenge certification to disprove claims of inferred reliance," she says. But Baptiste points to the recent Supreme Court of Can- ada ruling in Pro-Sys Consul- tants Ltd. v. Microso Corp. that reaffirmed the notion that the certification stage isn't the time to resolve actual issues. "e certification stage is not meant to be a test of the merits of the action, rather, this stage is concerned with form and with whether the action can properly proceed as a class action," wrote Supreme Court Justice Marshall Rothstein in that decision. "e standard of proof asks not whether there is some ba- sis in fact for the claim itself, but rather whether there is some basis in fact which es- tablishes each of the individual certification requirements." Baptiste expects the in- creased hurdles to certifica- tion in the United States put up by Halliburton, combined with the tendency of Canadian courts to allow cases to move forward, will make this coun- try look increasingly inviting for plaintiffs in securities class actions. And those trends don't look like they're changing. "is will likely remain a very big difference between se- curities actions in the two juris- dictions," she says. LT FOCUS CANADA & USA 1.800.265.8381 | EMAIL info@mckellar.com | www.mckellar.com The reason why we are Canada's largest and most comprehensive structured settlement firm has everything to do with our passion for service and performance— without exaggeration, we make life easier for you. The largest Swiss Army knife has 85 tools that can perform 141 tasks. Almost as helpful as McKellar. Untitled-8 1 14-08-26 4:06 PM I Defendants must have the right to rebut the fraud- on-the-market presumption before the court certi- fies a class, U.S. Supreme Court Chief Justice John Roberts found.

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