“The District Court’s order allows the plaintiffs’ bar to obtain class certification and force unjust settlements in securities suits by pleading around the reliance element.”
—John Masslon, WLF Senior Litigation Counsel

Click here for WLF’s brief.

WASHINGTON, DC— Washington Legal Foundation (WLF) yesterday urged the U.S. Court of Appeals for the Second Circuit to hear an appeal from a class certification order in an important securities case.  WLF argues that the U.S. District Court for the Southern District of New York’s decision contravenes recent Supreme Court precedent and merits interlocutory review.  

The case arises from BlackBerry’s alleged violation of Securities and Exchange Rule 10b-5. Plaintiffs contend that BlackBerry’s statements about smartphone sales were misleading. To support this claim, they contend that BlackBerry’s later statements showed the falsity of the original disclosures. BlackBerry sought to prove that all of its statements were true. But the District Court concluded that such evidence was irrelevant at the class-certification stage. BlackBerry has now asked the Second Circuit to review the order certifying the class.

In its brief supporting BlackBerry, WLF argues that defendants have a right to rebut the presumption of reliance in securities cases at the class-certification stage. Twice within the past decade (in Halliburton I and Halliburton II) the Supreme Court has re-affirmed that plaintiffs must prove reliance at the class-certification stage. As WLF’s brief points out, however, the District Court’s opinion makes the reliance presumption irrefutable. Smart plaintiffs’ attorneys can easily plead around reliance by arguing that a back-end statement touches on the same general topic as a front-end statement.

WLF’s brief also explains why immediate review under Rule 23(f) is necessary. Very few securities class actions reach final judgment. After a class is certified, the pressure on defendants to settle skyrockets. Rather than risk a bankruptcy-inducing verdict, defendants choose to settle certified class actions for more than what they are worth. This is thus the only chance the Second Circuit will have to review this important issue.

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