Securities Fraud remanded in light of Halliburton II

After the district court certified the class in Local 703 v. Regions Financial Corp. (762 F.3d 1248), Regions appealed the order.  The Eleventh Circuit found the certification well-reasoned but remanded to reconsider in regards to the recently decided Halliburton Co. v. Erica P. John Fund, Inc. (Halliburton II, 134 S.Ct. 2398). According to the allegations, Regions’ issued misrepresentations in analyst statements and financial disclosures beginning in 2008.  In 2009, the company made a substantial corrective disclosure that caused the stock price to plummet.  The plaintiffs brought a class action suit for all investors who purchased stock during the applicable period and the district court certified the class under Fed. R. Civ. P. 23(a) and 23(b)(3).  Regions appealed, arguing that the plaintiffs did not prove common questions of reliance, Regions’ offered sufficient rebuttal evidence of class-wide reliance, the name representatives were atypical, and the period for class certification was unjustified.

The defendant claimed that the plaintiffs failed to establish that the stock was traded on an efficient market to invoke Basic v. Levinson's (485 U.S. 224) “fraud on the market” presumption.  Regions argued the court should have applied an analytical examination to determine market efficiency, should have required evidence of an immediate change in stock price, and that these errors contributed to the application of a per se rule that every market is efficient.

The Eleventh Circuit found the trial judge properly applied the Basic presumption and rejected Regions' arguments.  The Court refused to adopt a mandatory analytical framework in order to maintain the flexibility of examining market efficiency on a case-by-case fact intensive inquiry.  This did not mean, however, that district court’s approached the issue blindly - the Eleventh Circuit stated that high-volume trading activity facilitated by people who analyze stock information or who make trades based upon that information defined an efficient market.   These features might not apply to every case though, because stocks traded on a smaller scale, or not widely followed, could still be traded on an efficient market.  Regions suggested that the Court adopt the factors from Cammer v. Bloom (711 F.Supp 1264), but the Court thought it unwise to require such an analysis in every case.

The Court also rejected the argument for proof of an immediate effect on stock price as it would defeat the Basic presumption.  The disclosures made by Regions were also intended to prevent any effect on stock price, not cause a significant decline.  Finally, the Eleventh Circuit agreed against the application of a per se rule of market efficiency, but did not find such applied by the district court.

However, the Court agreed with Regions, on the argument that Defendants may introduce evidence of price impact, or lack thereof, to rebut the Basic presumption as established in Hallibuton II.  Because the district court relied on the law before Halliburton II, the issue had to be remanded for reconsideration.

Regions’ arguments for atypical class representatives were also rejected.  The Court agreed with Regions regarding the class period however, because the district court applied the wrong dates.  The plaintiffs requested the class period encompass the date of the initial disclosure to the date of the corrective disclosure, but the district court extended the class period by one extra day.  The Court remanded the issue to be corrected.

The Court affirmed the Basic presumption application, the typicality of class representatives, and the start date of the class period, but vacated and remanded the other issues.