United States: Eighth Circuit Denies Class Certification In Securities Fraud Suit, Finding The "Fraud-On-The-Market" Presumption Of Reliance Did Not Apply Under Halliburton II

Last Updated: April 21 2016
Article by James J. Beha, II and Justin D. Mayer

On April 12, 2016, the U.S. Court of Appeals for the Eighth Circuit issued a significant decision denying class certification in a federal securities fraud action, holding that the defendants had rebutted the fraud-on-the-market presumption of class-wide reliance. IBEW Local 98 Pension Fund, et al. v. Best Buy Co., Inc.,1 is the first federal appellate court decision denying class certification in a federal securities case under the Supreme Court's Halliburton II decision and provides useful guidance for defendants seeking to defeat class certification in federal securities class actions by rebutting the fraud-on-the-market presumption.


Investors pursuing claims for securities fraud under Section 10(b) of the Securities Exchange Act of 1934 and SEC Rule 10b-5 must prove that they relied on an alleged misrepresentation in connection with the purchase or sale of a security. In theory, the requirement to prove that each individual investor actually relied on an allegedly fraudulent statement about a company when deciding whether to invest in the company's securities would present individual questions potentially precluding certification of any Section 10(b) claims as class actions. Under decades-old Supreme Court precedent, however, if a company's stock traded in an efficient market, shareholder plaintiffs are entitled to a presumption of reliance, on the theory that investors rely on the integrity of a stock's market price and, in an efficient market, any public misstatement about the company is reflected in the market price, resulting in a "fraud on the market."2

In its 2014 decision in Halliburton II, the Supreme Court affirmed the continued validity of the "fraud-on-the-market" presumption of reliance, despite challenges to its theoretical underpinnings. The Court explained, however, that a defendant in a securities fraud action should have the opportunity at the class certification stage to rebut the presumption by showing the absence of "price impact." In other words, a defendant may rebut the presumption by showing that an alleged misstatement did not affect the stock's market price and, thus, investors could not prove reliance on the alleged misstatement by showing that the misstatement was reflected in the market price.3 As the Court explained, "if a defendant could show that the alleged misrepresentation did not, for whatever reason, actually affect the market price, . . . then the presumption of reliance would not apply."4

In Best Buy, the Eighth Circuit, applying Halliburton II, held that Best Buy had successfully rebutted the fraud-on-the-market presumption by showing a lack of price impact, and reversed the trial court's decision certifying the class.


The Best Buy case involved allegations that Best Buy's forward-looking guidance released in connection with its second quarter 2011 earnings announcements was fraudulent. Best Buy made the challenged statements both in a press release issued before the market opened on September 14, 2010, and in a conference call with stock analysts later that day. The trial court had previously held, however, that the statements in the company's press release were protected by the securities laws' safe harbor for "forward looking" statements.5 As a result, the only alleged misstatements still at issue in the case were those made during the analyst conference call later that same day.

The plaintiffs moved for class certification, relying on the fraud-on-the-market presumption of class-wide reliance. To support their motion, the plaintiffs submitted an expert report showing that Best Buy's stock traded in an efficient market and that the company's share price increased in reaction to the allegedly misleading statements on September 14. The plaintiffs' expert study did not differentiate between the effect of the statements in the press release and the later statements on the analyst conference call, however. In opposition to class certification, the defendants submitted an expert report finding that the price increase on September 14 occurred entirely in the hours after the company issued its press release but before the analyst conference call. Thus, the defendants argued, the plaintiffs could not demonstrate price impact with respect to the statements on the conference call, which were the only statements that were actionable under federal securities law. Nonetheless, the district court applied the fraud-on-the-market presumption and certified the class, finding that, even though the stock price may have been inflated before the analyst conference call, "the alleged misrepresentation could have further inflated the price, prolonged the inflation of the price, or slowed the rate of fall."

The Eighth Circuit reversed. As the court noted, under Halliburton II, a defendant may rebut the fraud-on-the-market presumption with "evidence that severs the link between the alleged misrepresentation and either the price received (or paid) by the plaintiff, or his decision to trade at a fair market price."6 Based on both experts' reports, the court concluded that the defendants had severed the link between the alleged misstatements in the conference call and the market price by showing that any increase in the market price that day was caused by the earlier statements in the company's press release, which were "virtually the same" as the alleged misstatements during the conference call. And, because the court found that the plaintiffs could not prove class-wide reliance on the alleged misstatements in the conference call based on the fraud-on-the-market presumption, the court concluded that the plaintiffs "failed to satisfy the predominance requirement of Rule 23(b)(3), and the district court abused its discretion by certifying the class."7

The Eighth Circuit's decision in Best Buy was tied to the particular facts of that case. In Best Buy, where the company had made two virtually identical statements, only one of which was legally actionable, the plaintiffs could not demonstrate that the statements underlying their claims affected the stock price. Nonetheless, as the first post-Halliburton II appellate decision denying class certification, the decision provides important guidance for defendants seeking to defeat class certification by rebutting the fraud-on-the-market presumption of reliance. Securities fraud cases frequently involve multiple related statements by the defendants, only some of which may be actionable. Applying Best Buy, to invoke the fraud-on-the-market presumption plaintiffs must show that the specific statements underlying their claims—and not other, related statements—affected the market price. And defendants may defeat class certification by demonstrating the absence of a link between the specific statements at issue in the case and the market price.


1 No. 14-3178 (8th Cir. April 12, 2016).

2 See Basic, Inc. v. Levinson, 485 U.S. 224, 245 (1988) ("the market price of shares traded on well-developed markets reflects all publicly available information, and, hence, any material misrepresentations").

3 Halliburton Co., et al. v. Erica P. John Fund, Inc., 134 S. Ct. 2398, 2415 (2014) ("Halliburton II").

4 Halliburton II, 134 S. Ct. at 2408.

5 The Private Securities Litigation Reform Act provides a safe harbor from liability for forward-looking statements that are identified as such and accompanied by meaningful cautionary language. 15 U.S.C. § 78u-5(c).

6 Best Buy, at *8 (quotation marks omitted).

7 Id. at *12-13. The dissent argued that the majority missapplied Haliburton II. According to the dissent, a showing that the alleged misrepresentation did not increase the stock price will only sever the link between the alleged misrepresentation and the market price where the plaintiff alleges that the misrepresentation fraudulently increased the stock price. In Best Buy, however, the plaintiffs relied on a "price maintenance" theory, arguing that the alleged misstatements in the conference call "confirmed" the prior misstatements in the press release and maintained Best Buy's stock price at its allegedly inflated level. To rebut the presumption under the "price maintenance" theory, the dissent would have required Best Buy to "produc[e] evidence showing that the alleged misrepresentations had not counteracted a price decline that would otherwise have occurred." Id. at *14.

Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.

© Morrison & Foerster LLP. All rights reserved

To print this article, all you need is to be registered on Mondaq.com.

Click to Login as an existing user or Register so you can print this article.

James J. Beha, II
Justin D. Mayer
In association with
Related Video
Up-coming Events Search
Font Size:
Mondaq on Twitter
Register for Access and our Free Biweekly Alert for
This service is completely free. Access 250,000 archived articles from 100+ countries and get a personalised email twice a week covering developments (and yes, our lawyers like to think you’ve read our Disclaimer).
Email Address
Company Name
Confirm Password
Mondaq Topics -- Select your Interests
 Law Performance
 Law Practice
 Media & IT
 Real Estate
 Wealth Mgt
Asia Pacific
European Union
Latin America
Middle East
United States
Worldwide Updates
Check to state you have read and
agree to our Terms and Conditions

Terms & Conditions and Privacy Statement

Mondaq.com (the Website) is owned and managed by Mondaq Ltd and as a user you are granted a non-exclusive, revocable license to access the Website under its terms and conditions of use. Your use of the Website constitutes your agreement to the following terms and conditions of use. Mondaq Ltd may terminate your use of the Website if you are in breach of these terms and conditions or if Mondaq Ltd decides to terminate your license of use for whatever reason.

Use of www.mondaq.com

You may use the Website but are required to register as a user if you wish to read the full text of the content and articles available (the Content). You may not modify, publish, transmit, transfer or sell, reproduce, create derivative works from, distribute, perform, link, display, or in any way exploit any of the Content, in whole or in part, except as expressly permitted in these terms & conditions or with the prior written consent of Mondaq Ltd. You may not use electronic or other means to extract details or information about Mondaq.com’s content, users or contributors in order to offer them any services or products which compete directly or indirectly with Mondaq Ltd’s services and products.


Mondaq Ltd and/or its respective suppliers make no representations about the suitability of the information contained in the documents and related graphics published on this server for any purpose. All such documents and related graphics are provided "as is" without warranty of any kind. Mondaq Ltd and/or its respective suppliers hereby disclaim all warranties and conditions with regard to this information, including all implied warranties and conditions of merchantability, fitness for a particular purpose, title and non-infringement. In no event shall Mondaq Ltd and/or its respective suppliers be liable for any special, indirect or consequential damages or any damages whatsoever resulting from loss of use, data or profits, whether in an action of contract, negligence or other tortious action, arising out of or in connection with the use or performance of information available from this server.

The documents and related graphics published on this server could include technical inaccuracies or typographical errors. Changes are periodically added to the information herein. Mondaq Ltd and/or its respective suppliers may make improvements and/or changes in the product(s) and/or the program(s) described herein at any time.


Mondaq Ltd requires you to register and provide information that personally identifies you, including what sort of information you are interested in, for three primary purposes:

  • To allow you to personalize the Mondaq websites you are visiting.
  • To enable features such as password reminder, newsletter alerts, email a colleague, and linking from Mondaq (and its affiliate sites) to your website.
  • To produce demographic feedback for our information providers who provide information free for your use.

Mondaq (and its affiliate sites) do not sell or provide your details to third parties other than information providers. The reason we provide our information providers with this information is so that they can measure the response their articles are receiving and provide you with information about their products and services.

If you do not want us to provide your name and email address you may opt out by clicking here .

If you do not wish to receive any future announcements of products and services offered by Mondaq by clicking here .

Information Collection and Use

We require site users to register with Mondaq (and its affiliate sites) to view the free information on the site. We also collect information from our users at several different points on the websites: this is so that we can customise the sites according to individual usage, provide 'session-aware' functionality, and ensure that content is acquired and developed appropriately. This gives us an overall picture of our user profiles, which in turn shows to our Editorial Contributors the type of person they are reaching by posting articles on Mondaq (and its affiliate sites) – meaning more free content for registered users.

We are only able to provide the material on the Mondaq (and its affiliate sites) site free to site visitors because we can pass on information about the pages that users are viewing and the personal information users provide to us (e.g. email addresses) to reputable contributing firms such as law firms who author those pages. We do not sell or rent information to anyone else other than the authors of those pages, who may change from time to time. Should you wish us not to disclose your details to any of these parties, please tick the box above or tick the box marked "Opt out of Registration Information Disclosure" on the Your Profile page. We and our author organisations may only contact you via email or other means if you allow us to do so. Users can opt out of contact when they register on the site, or send an email to unsubscribe@mondaq.com with “no disclosure” in the subject heading

Mondaq News Alerts

In order to receive Mondaq News Alerts, users have to complete a separate registration form. This is a personalised service where users choose regions and topics of interest and we send it only to those users who have requested it. Users can stop receiving these Alerts by going to the Mondaq News Alerts page and deselecting all interest areas. In the same way users can amend their personal preferences to add or remove subject areas.


A cookie is a small text file written to a user’s hard drive that contains an identifying user number. The cookies do not contain any personal information about users. We use the cookie so users do not have to log in every time they use the service and the cookie will automatically expire if you do not visit the Mondaq website (or its affiliate sites) for 12 months. We also use the cookie to personalise a user's experience of the site (for example to show information specific to a user's region). As the Mondaq sites are fully personalised and cookies are essential to its core technology the site will function unpredictably with browsers that do not support cookies - or where cookies are disabled (in these circumstances we advise you to attempt to locate the information you require elsewhere on the web). However if you are concerned about the presence of a Mondaq cookie on your machine you can also choose to expire the cookie immediately (remove it) by selecting the 'Log Off' menu option as the last thing you do when you use the site.

Some of our business partners may use cookies on our site (for example, advertisers). However, we have no access to or control over these cookies and we are not aware of any at present that do so.

Log Files

We use IP addresses to analyse trends, administer the site, track movement, and gather broad demographic information for aggregate use. IP addresses are not linked to personally identifiable information.


This web site contains links to other sites. Please be aware that Mondaq (or its affiliate sites) are not responsible for the privacy practices of such other sites. We encourage our users to be aware when they leave our site and to read the privacy statements of these third party sites. This privacy statement applies solely to information collected by this Web site.

Surveys & Contests

From time-to-time our site requests information from users via surveys or contests. Participation in these surveys or contests is completely voluntary and the user therefore has a choice whether or not to disclose any information requested. Information requested may include contact information (such as name and delivery address), and demographic information (such as postcode, age level). Contact information will be used to notify the winners and award prizes. Survey information will be used for purposes of monitoring or improving the functionality of the site.


If a user elects to use our referral service for informing a friend about our site, we ask them for the friend’s name and email address. Mondaq stores this information and may contact the friend to invite them to register with Mondaq, but they will not be contacted more than once. The friend may contact Mondaq to request the removal of this information from our database.


This website takes every reasonable precaution to protect our users’ information. When users submit sensitive information via the website, your information is protected using firewalls and other security technology. If you have any questions about the security at our website, you can send an email to webmaster@mondaq.com.

Correcting/Updating Personal Information

If a user’s personally identifiable information changes (such as postcode), or if a user no longer desires our service, we will endeavour to provide a way to correct, update or remove that user’s personal data provided to us. This can usually be done at the “Your Profile” page or by sending an email to EditorialAdvisor@mondaq.com.

Notification of Changes

If we decide to change our Terms & Conditions or Privacy Policy, we will post those changes on our site so our users are always aware of what information we collect, how we use it, and under what circumstances, if any, we disclose it. If at any point we decide to use personally identifiable information in a manner different from that stated at the time it was collected, we will notify users by way of an email. Users will have a choice as to whether or not we use their information in this different manner. We will use information in accordance with the privacy policy under which the information was collected.

How to contact Mondaq

You can contact us with comments or queries at enquiries@mondaq.com.

If for some reason you believe Mondaq Ltd. has not adhered to these principles, please notify us by e-mail at problems@mondaq.com and we will use commercially reasonable efforts to determine and correct the problem promptly.