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The U.S. Supreme Court recently granted certiorari to review a Second Circuit Court of Appeals decision that could alter the landscape of class action litigation under Rule 10b-5. The issue in
Goldman Sachs Group, Inc. v. Arkansas Teacher Retirement Sys., Case No. 20-222, 2020 WL 7296815 (U.S. Dec. 11, 2020), would impact the nature of the evidence that can be offered to rebut the “
Basic presumption.” Goldman Sachs urges that it should have been permitted to rebut the
Basic presumption at the class certification stage in an “inflation maintenance” case with evidence that the allegedly false or misleading statements were merely immaterial, generic superlatives that did not impact the stock’s price. If the Supreme Court were to agree, the decision would establish another important, real-world line of defense in securities class actions. More broadly, such a decision could further blur the lines between class
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Looking ahead, we preview cases currently pending before the
Supreme Court which have already been accepted for review by
the Court, and in some cases have already been argued that
may be of particular interest to readers of the Need-to-Know
Litigation Weekly. These cases pertain to various topics in
Securities Litigation, Antitrust, IP Litigation, and jurisdictional
questions of broad interest.
Securities Litigation:
Goldman Sachs Group Inc. v.
Arkansas Teacher Retirement System, No. 20-222
Relevant Issues to be Addressed: (1)
Whether defendants in a securities fraud class action under Section
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Rebutting the Presumption of Class-Wide Reliance at the Class Certification Stage: Analysis of and Key Takeaways From Arkansas Teacher Ret. Sys. V. Goldman Sachs Grp., Inc. and the Supreme Court’s Recent Grant of Certiorari Thursday, December 17, 2020
Since the Supreme Court’s decision in
Basic Inc. v. Levinson, 485 U.S. 224 (1988), plaintiffs have been permitted to invoke a rebuttable presumption of class-wide reliance at the class certification stage in securities fraud cases, thereby skirting any obligation to establish individualized reliance for each member of the proposed class. In
Halliburton Co. v. Erica P. John Fund, Inc., 573 U.S. 258 (2014)
, the Supreme Court clarified that defendants must be afforded an opportunity to rebut this presumption, and cautioned judges not to “artificially limit” the types of rebuttal evidence a defendant may offer, even if such evidence “is also highly relevant at the merits stage.”
On Dec. 11, 2020, the Supreme Court granted certiorari in
Arkansas Teacher Retirement System, et al. v. Goldman Sachs Group, Inc.,
[1] to review a decision by the Second Circuit Court of Appeals upholding certification of an investor class alleging that Goldman violated securities laws by concealing conflicts of interest. This long running case presents important and recurring issues in securities class action litigation as to (i) whether the presumption of classwide reliance recognized in
Basic v. Levinson
[2] can be rebutted by pointing to the generic nature of alleged misstatements, and (ii) the burden of proof in rebutting the
Basic presumption.
The underlying action dates back to 2011. Plaintiffs alleged that Goldman’s general public statements that it had extensive procedures designed to identify and address conflicts of interest and that it was dedicated to complying with the law were misleading, in violation of Section 10(b) of the Securities Exchange Act of 1934
Supreme Court to revisit shareholder class-action threshold
The U.S. Supreme Court in Washington
The Supreme Court agreed Friday to review a petition by Goldman Sachs Group challenging a class-action suit led by the $17.6 billion Arkansas Teacher Retirement System over misrepresentations made to investors during the subprime mortgage crisis, and questioning whether shareholders have too much power to pursue such class-action alliances.
Other plaintiffs in the suit include the $16 billion West Virginia Investment Management Board, Charleston, and the $6.2 million Plumbers and Pipefitters National Pension Fund, Alexandria, Va.
The 2011 lawsuit stemmed from Goldman Sachs Abacus collateralized debt obligation, a subprime mortgage-based financial instrument assembled with the help of hedge fund Paulson & Co. Its contrary bet against the CDO was not disclosed to investors, leading in 2010 to Goldman Sachs $550 million settlement with the Securities and Exchange Commission.