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Goldman Ruling Unlikely to Move Needle on Class Actions


June 22, 2021

The U.S. Supreme Court’s decision on Monday to vacate certification for a class of Goldman Sachs investors is a temporary win for the bank, but may do little to prevent future securities claims from achieving class status, experts told Law360.

The majority opinion, penned by Justice Amy Coney Barrett, remanded the decade-old case to the Second Circuit for clarification on whether a split appellate panel properly considered the generic nature of Goldman’s alleged misstatements about avoiding conflicts of interest when it ruled that the bank failed to prove those statements did not impact its stock price.

Both the bank and the investors said they welcomed the ruling, as it simultaneously keeps Goldman’s challenge to the investors’ class certification alive and rejects the bank’s argument that it should not bear the burden of disproving the price impact of its alleged misstatements.

But according to law professors and attorneys, the narrow decision did not change the standard that defendants have to meet for defeating class certification or take away investors’ ability to claim a company’s corporate statements kept its stock price artificially inflated.

“It changes very little, and is not the dramatic decision that defendants sought and plaintiffs feared,” Columbia Law School professor John C. Coffee Jr. told Law360.

“The plaintiffs may have lost the battle, which they could still recoup on remand, but they did not lose the war — and that is a big victory,” he added.

. . .

‘Victory for Investors’

The bank had argued that the Second Circuit erred in finding that defendants bear the ultimate burden of persuasion, or the duty to convince the court of their side, in rebutting the Basic presumption by disproving price impact.

Goldman said the federal rules of evidence put the burden on investors to actually prove impact, an argument that three justices sided with but was rejected by the majority. The majority said Monday that both Basic and Halliburton II put the burden on the defendants to do more than merely present evidence that could disprove price impact.

Plaintiff-side securities litigators lauded that aspect of the high court’s decision. Korein Tillery LLC attorney Chad Bell said Monday that a finding to the contrary would have “made class certification in securities cases far more difficult.”

Defendants face a “very high burden” for disproving price impact at the class certification stage, according to Cohen Milstein Sellers & Toll PLLC partner Laura Posner, meaning the Supreme Court’s decision not to shift that burden toward plaintiffs marks “an important victory for investors.”

“I do not anticipate this decision having a significant — or quite frankly, even negligible — impact on class certification generally,” Posner told Law360. “[It’s] a big blow to defendants who had hoped to significantly water down the standard and make it easier to rebut the presumption of reliance.”

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The Class Certification War

Still, several professors told Law360 that the decision doesn’t offer defendants many new tools for fighting class certification.

Georgetown University Law Center professor Robert Thompson said defendants “gained a small, additional space to argue” for a lack of price impact at the certification stage, but added that “it seems unlikely at this point to make a big difference one way or the other.”

“The chances of winning on this issue at class certification have gone up slightly for defendants, but [it’s] not likely to be decisive in very many cases,” he told Law360.

Thompson also noted that the relatively short opinions offered by the justices Monday “suggest this decision was not designed to make large changes,” and that the Basic presumption “seems more secure after this decision.”

Coffee said that on top of holding that defendants still bear the burden of disproving price impact, the ruling recognized the inflation maintenance theory, which had never before been considered by the court.

While Justice Barrett explicitly declined to comment on the validity of the theory, “there is enough discussion of inflation maintenance that lower courts are likely to treat it as established doctrine until if and when the court reconsiders it,” Coffee said.

“Those are both big victories, as a contrary result would have shifted the balance of advantage to defendants in securities litigation to a considerable degree,” he told Law360.

Fisch said that while the Second Circuit could issue more defendant-friendly decisions on remand, she doesn’t “expect something terribly damaging or problematic.”

“This isn’t really going to make it harder to bring class actions,” Fisch said of the opinion overall. “Anyone who was hoping for that from the Goldman decision isn’t getting it.”

Read Goldman Ruling Unlikely to Move Needle on Class Actions.