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May 23, 2014

A ‘Tale of Two Professors’ at Heart of Halliburton Case

Reuters’ Alison Frankel features the efforts of two law professors to, “destroy securities fraud class action lawsuits by investors” — Stanford Law School Professor Joseph Grundfest and University of Michigan Professor Adam Pritchard.

Each of these professors has submitted friend of the court briefs in Halliburton Co v. Erica P. John Fund, in which the Supreme Court is expected to hand down a decision in the coming days.

As Frankel writes, in the Halliburton decision, “the Supreme Court will decide the future of securities fraud class actions, litigation that has generated more than $80 billion in settlements and untold billions more in legal fees.”

Both Grundfest’s and Pritchard’s briefs supported Halliburton, but advocated, “different rationales for curtailing shareholder cases.” Each professor’s approach centers on the 1988 Supreme Court decision in the case Basic v. Levinson which, Frank writes, “led to an explosion of shareholder class actions.”

Pritchard’s approach focuses, “on the one provision of the Securities Exchange Act of 1934 (the law governing securities fraud) that specifically addresses private shareholder suits. That provision, Section 18, requires investors to prove they relied on corporate misrepresentations. Pritchard argued that Section 18 severely restricts the damages shareholders can collect in fraud class actions.”

Grundfest’s approach argues, “that Basic can’t override the language of Section 18. Investors…can’t recover money damages at all without showing they relied on corporate misstatements.” Grundfest’s prediction for the outcome of Halliburton? “It’s 50-50-50,” he said.

Read the full article here.

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