Halliburton Co. v. Erica P. John Fund, Inc. , 134 S. Ct. 2259 ( 2014 )

(Slip Opinion) OCTOBER TERM, 2013 1
Syllabus
NOTE: Where it is feasible, a syllabus (headnote) will be released, as is
being done in connection with this case, at the time the opinion is issued.
The syllabus constitutes no part of the opinion of the Court but has been
prepared by the Reporter of Decisions for the convenience of the reader.
See United States v. Detroit Timber & Lumber Co., 200 U.S. 321, 337.
SUPREME COURT OF THE UNITED STATES
Syllabus
HALLIBURTON CO. ET AL. v. ERICA P. JOHN FUND,
INC., FKA ARCHDIOCESE OF MILWAUKEE
SUPPORTING FUND, INC.
CERTIORARI TO THE UNITED STATES COURT OF APPEALS FOR
THE FIFTH CIRCUIT
No. 13–317. Argued March 5, 2014—Decided June 23, 2014
Investors can recover damages in a private securities fraud action only
if they prove that they relied on the defendant’s misrepresentation in
deciding to buy or sell a company’s stock. In Basic Inc. v. Levinson,
485 U.S. 224, this Court held that investors could satisfy this reli-
ance requirement by invoking a presumption that the price of stock
traded in an efficient market reflects all public, material infor-
mation—including material misrepresentations. The Court also held,
however, that a defendant could rebut this presumption by showing
that the alleged misrepresentation did not actually affect the stock
price—that is, that it had no “price impact.”
Respondent Erica P. John Fund, Inc. (EPJ Fund), filed a putative
class action against Halliburton and one of its executives (collectively
Halliburton), alleging that they made misrepresentations designed to
inflate Halliburton’s stock price, in violation of section 10(b) of the
Securities Exchange Act of 1934 and Securities and Exchange Com-
mission Rule 10b–5. The District Court initially denied EPJ Fund’s
class certification motion, and the Fifth Circuit affirmed. But this
Court vacated that judgment, concluding that securities fraud plain-
tiffs need not prove loss causation—a causal connection between the
defendants’ alleged misrepresentations and the plaintiffs’ economic
losses—at the class certification stage in order to invoke Basic’s pre-
sumption of reliance. On remand, Halliburton argued that class cer-
tification was nonetheless inappropriate because the evidence it had
earlier introduced to disprove loss causation also showed that its al-
leged misrepresentations had not affected its stock price. By demon-
strating the absence of any “price impact,” Halliburton contended, it
2 HALLIBURTON CO. v. ERICA P. JOHN FUND, INC.
Syllabus
had rebutted the Basic presumption. And without the benefit of that
presumption, investors would have to prove reliance on an individual
basis, meaning that individual issues would predominate over com-
mon ones and class certification would be inappropriate under Fed-
eral Rule of Civil Procedure 23(b)(3). The District Court rejected Hal-
liburton’s argument and certified the class. The Fifth Circuit
affirmed, concluding that Halliburton could use its price impact evi-
dence to rebut the Basic presumption only at trial, not at the class
certification stage.
Held:
1. Halliburton has not shown a “special justification,” Dickerson v.
United States, 530 U.S. 428, 443, for overruling Basic’s presumption
of reliance. Pp. 4–16.
(a) To recover damages under section 10(b) and Rule 10b–5, a
plaintiff must prove, as relevant here, “ ‘reliance upon the misrepre-
sentation or omission.’ ” Amgen Inc. v. Connecticut Retirement Plans
and Trust Funds, 568 U. S. ___, ___. The Court recognized in Basic,
however, that requiring direct proof of reliance from every individual
plaintiff “would place an unnecessarily unrealistic evidentiary bur-
den on the . . . plaintiff who has traded on an impersonal market,”
485 U.S., at 245, and “effectively would” prevent plaintiffs “from pro-
ceeding with a class action” in Rule 10b–5 suits, id., at 242. To ad-
dress these concerns, the Court held that plaintiffs could satisfy the
reliance element of a Rule 10b–5 action by invoking a rebuttable pre-
sumption of reliance. The Court based that presumption on what is
known as the “fraud-on-the-market” theory, which holds that “the
market price of shares traded on well-developed markets reflects all
publicly available information, and, hence, any material misrepre-
sentations.” Id., at 246. The Court also noted that the typical “inves-
tor who buys or sells stock at the price set by the market does so in
reliance on the integrity of that price.” Id., at 247. As a result,
whenever an investor buys or sells stock at the market price, his “re-
liance on any public material misrepresentations . . . may be pre-
sumed for purposes of a Rule 10b–5 action.” Id. at 247. Basic also
emphasized that the presumption of reliance was rebuttable rather
than conclusive. Pp. 5–7.
(b) None of Halliburton’s arguments for overruling Basic so dis-
credit the decision as to constitute a “special justification.” Pp. 7–12.
(1) Halliburton first argues that the Basic presumption is in-
consistent with Congress’s intent in passing the 1934 Exchange Act—
the same argument made by the dissenting Justices in Basic. The
Basic majority did not find that argument persuasive then, and Hal-
liburton has given no new reason to endorse it now. Pp. 7–8.
(2) Halliburton also contends that Basic rested on two premis-
Cite as: 573 U. S. ____ (2014) 3
Syllabus
es that have been undermined by developments in economic theory.
First, it argues that the Basic Court espoused “a robust view of mar-
ket efficiency” that is no longer tenable in light of empirical evidence
ostensibly showing that material, public information often is not
quickly incorporated into stock prices. The Court in Basic acknowl-
edged, however, the debate among economists about the efficiency of
capital markets and refused to endorse “any particular theory of how
quickly and completely publicly available information is reflected in
market price.” 485 U.S., at 248, n. 28. The Court instead based the
presumption of reliance on the fairly modest premise that “market
professionals generally consider most publicly announced material
statements about companies, thereby affecting stock market prices.”
Id., at 247, n. 24. Moreover, in making the presumption rebuttable,
Basic recognized that market efficiency is a matter of degree and ac-
cordingly made it a matter of proof. Halliburton has not identified
the kind of fundamental shift in economic theory that could justify
overruling a precedent on the ground that it misunderstood, or has
since been overtaken by, economic realities.
Halliburton also contests the premise that investors “invest ‘in re-
liance on the integrity of [the market] price,’ ” id., at 247, identifying
a number of classes of investors for whom “price integrity” is suppos-
edly “marginal or irrelevant.” But Basic never denied the existence
of such investors, who in any event rely at least on the facts that
market prices will incorporate public information within a reasonable
period and that market prices, however inaccurate, are not distorted
by fraud. Pp. 8–12.
(c) The principle of stare decisis has “ ‘special force’ ” “in respect
to statutory interpretation” because “ ‘Congress remains free to alter
what [the Court has] done.’ ” John R. Sand & Gravel Co. v. United
States, 552 U.S. 130, 139. So too with Basic’s presumption of reli-
ance. The presumption is not inconsistent with this Court’s more re-
cent decisions construing the Rule 10b–5 cause of action. In Central
Bank of Denver, N. A. v. First Interstate Bank of Denver, N. A., 511
U.S. 164, and Stoneridge Investment Partners, LLC v. Scientific-
Atlanta, Inc., 552 U.S. 148, the Court declined to effectively elimi-
nate the reliance element by extending liability to entirely new cate-
gories of defendants who themselves had not made any material,
public misrepresentation. The Basic presumption, by contrast, mere-
ly provides an alternative means of satisfying the reliance element.
Nor is the Basic presumption inconsistent with the Court’s recent de-
cisions governing class action certification, which require plaintiffs to
prove—not simply plead—that their proposed class satisfies each re-
quirement of Federal Rule of Civil Procedure 23, including, if appli-
cable, the predominance requirement of Rule 23(b)(3). See, e.g., Wal-
4 HALLIBURTON CO. v. ERICA P. JOHN FUND, INC.
Syllabus
Mart Stores, Inc. v. Dukes, 564 U. S. ___, ___. The Basic presumption
does not relieve plaintiffs of that burden but rather sets forth what
plaintiffs must prove to demonstrate predominance. Finally, Halli-
burton emphasizes the possible harmful consequences of the securi-
ties class actions facilitated by the Basic presumption, but such con-
cerns are more appropriately addressed to Congress, which has in
fact responded, to some extent, to many of them. Pp. 12–16.
2. For the same reasons the Court declines to overrule Basic’s pre-
sumption of reliance, it also declines to modify the prerequisites for
invoking the presumption by requiring plaintiffs to prove “price im-
pact” directly at the class certification stage. The Basic presumption
incorporates two constituent presumptions: First, if a plaintiff shows
that the defendant’s misrepresentation was public and material and
that the stock traded in a generally efficient market, he is entitled to
a presumption that the misrepresentation affected the stock price.
Second, if the plaintiff also shows that he purchased the stock at the
market price during the relevant period, he is entitled to a further
presumption that he purchased the stock in reliance on the defend-
ant’s misrepresentation. Requiring plaintiffs to prove price impact
directly would take away the first constituent presumption. Halli-
burton’s argument for doing so is the same as its argument for over-
ruling the Basic presumption altogether, and it meets the same fate.
Pp. 16–18.
3. The Court agrees with Halliburton, however, that defendants
must be afforded an opportunity to rebut the presumption of reliance
before class certification with evidence of a lack of price impact. De-
fendants may already introduce such evidence at the merits stage to
rebut the Basic presumption, as well as at the class certification
stage to counter a plaintiff’s showing of market efficiency. Forbid-
ding defendants to rely on the same evidence prior to class certifica-
tion for the particular purpose of rebutting the presumption altogeth-
er makes no sense, and can readily lead to results that are
inconsistent with Basic’s own logic. Basic allows plaintiffs to estab-
lish price impact indirectly, by showing that a stock traded in an effi-
cient market and that a defendant’s misrepresentations were public
and material. But an indirect proxy should not preclude considera-
tion of a defendant’s direct, more salient evidence showing that an al-
leged misrepresentation did not actually affect the stock’s price and,
consequently, that the Basic presumption does not apply. Amgen
does not require a different result. There, the Court held that mate-
riality, though a prerequisite for invoking the Basic presumption,
should be left to the merits stage because it does not bear on the pre-
dominance requirement of Rule 23(b)(3). In contrast, the fact that a
misrepresentation has price impact is “Basic’s fundamental premise.”
Cite as: 573 U. S. ____ (2014) 5
Syllabus
Erica P. John Fund, Inc. v. Halliburton Co., 563 U. S. ___, ___. It
thus has everything to do with the issue of predominance at the class
certification stage. That is why, if reliance is to be shown through
the Basic presumption, the publicity and market efficiency prerequi-
sites must be proved before class certification. Given that such indi-
rect evidence of price impact will be before the court at the class certi-
fication stage in any event, there is no reason to artificially limit the
inquiry at that stage by excluding direct evidence of price impact.
Pp. 18–23.
718 F.3d 423, vacated and remanded.
ROBERTS, C. J., delivered the opinion of the Court, in which KENNEDY,
GINSBURG, BREYER, SOTOMAYOR, and KAGAN, JJ., joined. GINSBURG, J.,
filed a concurring opinion, in which BREYER and SOTOMAYOR,
JJ., joined. THOMAS, J., filed an opinion concurring in the judgment, in
which SCALIA and ALITO, JJ., joined.
Cite as: 573 U. S. ____ (2014) 1
Opinion of the Court
NOTICE: This opinion is subject to formal revision before publication in the
preliminary print of the United States Reports. Readers are requested to
notify the Reporter of Decisions, Supreme Court of the United States, Wash-
ington, D. C. 20543, of any typographical or other formal errors, in order
that corrections may be made before the preliminary print goes to press.
SUPREME COURT OF THE UNITED STATES
_________________
No. 13–317
_________________
HALLIBURTON CO., ET AL., PETITIONERS v. ERICA P.
JOHN FUND, INC., FKA ARCHDIOCESE OF
MILWAUKEE SUPPORTING FUND, INC.
ON WRIT OF CERTIORARI TO THE UNITED STATES COURT OF
APPEALS FOR THE FIFTH CIRCUIT
[June 23, 2014]
CHIEF JUSTICE ROBERTS delivered the opinion of the
Court.
Investors can recover damages in a private securities
fraud action only if they prove that they relied on the
defendant’s misrepresentation in deciding to buy or sell a
company’s stock. In Basic Inc. v. Levinson, 485 U.S. 224
(1988), we held that investors could satisfy this reliance
requirement by invoking a presumption that the price of
stock traded in an efficient market reflects all public,
material information—including material misstatements.
In such a case, we concluded, anyone who buys or sells the
stock at the market price may be considered to have relied
on those misstatements.
We also held, however, that a defendant could rebut this
presumption in a number of ways, including by showing
that the alleged misrepresentation did not actually affect
the stock’s price—that is, that the misrepresentation had
no “price impact.” The questions presented are whether
we should overrule or modify Basic’s presumption of reli-
ance and, if not, whether defendants should nonetheless
2 HALLIBURTON CO. v. ERICA P. JOHN FUND, INC.
Opinion of the Court
be afforded an opportunity in securities class action cases
to rebut the presumption at the class certification stage,
by showing a lack of price impact.
I
Respondent Erica P. John Fund, Inc. (EPJ Fund), is the
lead plaintiff in a putative class action against Halliburton
and one of its executives (collectively Halliburton) alleging
violations of section 10(b) of the Securities Exchange Act
of 1934, 48 Stat. 891, 15 U.S. C. §78j(b), and Securities
and Exchange Commission Rule 10b–5, 17 CFR §240.10b–5
(2013). According to EPJ Fund, between June 3, 1999,
and December 7, 2001, Halliburton made a series of mis-
representations regarding its potential liability in asbestos
litigation, its expected revenue from certain construction
contracts, and the anticipated benefits of its merger with
another company—all in an attempt to inflate the price of
its stock. Halliburton subsequently made a number of
corrective disclosures, which, EPJ Fund contends, caused
the company’s stock price to drop and investors to lose
money.
EPJ Fund moved to certify a class comprising all inves-
tors who purchased Halliburton common stock during the
class period. The District Court found that the proposed
class satisfied all the threshold requirements of Federal
Rule of Civil Procedure 23(a): It was sufficiently numer-
ous, there were common questions of law or fact, the rep-
resentative parties’ claims were typical of the class claims,
and the representatives could fairly and adequately pro-
tect the interests of the class. App. to Pet. for Cert. 54a.
And except for one difficulty, the court would have also
concluded that the class satisfied the requirement of Rule
23(b)(3) that “the questions of law or fact common to class
members predominate over any questions affecting only
individual members.” See id., at 55a, 98a. The difficulty
was that Circuit precedent required securities fraud plain-
Cite as: 573 U. S. ____ (2014) 3
Opinion of the Court
tiffs to prove “loss causation”—a causal connection be-
tween the defendants’ alleged misrepresentations and the
plaintiffs’ economic losses—in order to invoke Basic’s
presumption of reliance and obtain class certification.
App. to Pet. for Cert. 55a, and n. 2. Because EPJ Fund
had not demonstrated such a connection for any of Halli-
burton’s alleged misrepresentations, the District Court
refused to certify the proposed class. Id., at 55a, 98a. The
United States Court of Appeals for the Fifth Circuit af-
firmed the denial of class certification on the same ground.
Archdiocese of Milwaukee Supporting Fund, Inc. v. Halli-
burton Co., 597 F.3d 330 (2010).
We granted certiorari and vacated the judgment, finding
nothing in “Basic or its logic” to justify the Fifth Circuit’s
requirement that securities fraud plaintiffs prove loss
causation at the class certification stage in order to invoke
Basic’s presumption of reliance. Erica P. John Fund, Inc.
v. Halliburton Co., 563 U. S. ___, ___ (2011) (Halliburton
I ) (slip op., at 6). “Loss causation,” we explained, “ad-
dresses a matter different from whether an investor relied
on a misrepresentation, presumptively or otherwise, when
buying or selling a stock.” Ibid. We remanded the case for
the lower courts to consider “any further arguments
against class certification” that Halliburton had preserved.
Id., at ___ (slip op., at 9).
On remand, Halliburton argued that class certification
was inappropriate because the evidence it had earlier
introduced to disprove loss causation also showed that
none of its alleged misrepresentations had actually af-
fected its stock price. By demonstrating the absence of any
“price impact,” Halliburton contended, it had rebutted
Basic’s presumption that the members of the proposed
class had relied on its alleged misrepresentations simply
by buying or selling its stock at the market price. And
without the benefit of the Basic presumption, investors
would have to prove reliance on an individual basis, mean-
4 HALLIBURTON CO. v. ERICA P. JOHN FUND, INC.
Opinion of the Court
ing that individual issues would predominate over com-
mon ones. The District Court declined to consider Halli-
burton’s argument, holding that the Basic presumption
applied and certifying the class under Rule 23(b)(3). App.
to Pet. for Cert. 30a.
The Fifth Circuit affirmed. 718 F.3d 423 (2013). The
court found that Halliburton had preserved its price im-
pact argument, but to no avail. Id., at 435–436. While
acknowledging that “Halliburton’s price impact evidence
could be used at the trial on the merits to refute the pre-
sumption of reliance,” id., at 433, the court held that
Halliburton could not use such evidence for that purpose
at the class certification stage, id., at 435. “[P]rice impact
evidence,” the court explained, “does not bear on the ques-
tion of common question predominance [under Rule
23(b)(3)], and is thus appropriately considered only on the
merits after the class has been certified.” Ibid.
We once again granted certiorari, 571 U. S. ___ (2013),
this time to resolve a conflict among the Circuits over
whether securities fraud defendants may attempt to rebut
the Basic presumption at the class certification stage with
evidence of a lack of price impact. We also accepted Halli-
burton’s invitation to reconsider the presumption of reli-
ance for securities fraud claims that we adopted in Basic.
II
Halliburton urges us to overrule Basic’s presumption of
reliance and to instead require every securities fraud
plaintiff to prove that he actually relied on the defendant’s
misrepresentation in deciding to buy or sell a company’s
stock. Before overturning a long-settled precedent, how-
ever, we require “special justification,” not just an argu-
ment that the precedent was wrongly decided. Dickerson
v. United States, 530 U.S. 428, 443 (2000) (internal quota-
tion marks omitted). Halliburton has failed to make that
showing.
Cite as: 573 U. S. ____ (2014)
5
Opinion of the Court
A
Section 10(b) of the Securities Exchange Act of 1934 and
the Securities and Exchange Commission’s Rule 10b–5
prohibit making any material misstatement or omission in
connection with the purchase or sale of any security.
Although section 10(b) does not create an express private
cause of action, we have long recognized an implied pri-
vate cause of action to enforce the provision and its im-
plementing regulation. See Blue Chip Stamps v. Manor
Drug Stores, 421 U.S. 723, 730 (1975). To recover damages
for violations of section 10(b) and Rule 10b–5, a plaintiff
must prove “ ‘(1) a material misrepresentation or omission
by the defendant; (2) scienter; (3) a connection between the
misrepresentation or omission and the purchase or sale of
a security; (4) reliance upon the misrepresentation or
omission; (5) economic loss; and (6) loss causation.’ ”
Amgen Inc. v. Connecticut Retirement Plans and Trust
Funds, 568 U. S. ___, ___ (2013) (slip op., at 3–4) (quoting
Matrixx Initiatives, Inc. v. Siracusano, 563 U. S. ___, ___
(2011) (slip op., at 9)).
The reliance element “ ‘ensures that there is a proper
connection between a defendant’s misrepresentation and a
plaintiff ’s injury.’ ” 568 U. S., at ___ (slip op., at 4) (quot-
ing Halliburton I, 563 U. S., at ___ (slip op., at 4)). “The
traditional (and most direct) way a plaintiff can demon-
strate reliance is by showing that he was aware of a com-
pany’s statement and engaged in a relevant transaction—
e.g., purchasing common stock—based on that specific
misrepresentation.” Id., at ___ (slip op., at 4).
In Basic, however, we recognized that requiring such
direct proof of reliance “would place an unnecessarily
unrealistic evidentiary burden on the Rule 10b–5 plaintiff
who has traded on an impersonal market.” 485 U.S., at
245. That is because, even assuming an investor could
prove that he was aware of the misrepresentation, he
would still have to “show a speculative state of facts, i.e.,
6 HALLIBURTON CO. v. ERICA P. JOHN FUND, INC.
Opinion of the Court
how he would have acted . . . if the misrepresentation had
not been made.” Ibid.
We also noted that “[r]equiring proof of individualized
reliance” from every securities fraud plaintiff “effectively
would . . . prevent[ ] [plaintiffs] from proceeding with a
class action” in Rule 10b–5 suits. Id., at 242. If every
plaintiff had to prove direct reliance on the defendant’s
misrepresentation, “individual issues then would . . .
overwhelm[ ] the common ones,” making certification
under Rule 23(b)(3) inappropriate. Ibid.
To address these concerns, Basic held that securities
fraud plaintiffs can in certain circumstances satisfy the
reliance element of a Rule 10b–5 action by invoking a
rebuttable presumption of reliance, rather than proving
direct reliance on a misrepresentation. The Court based
that presumption on what is known as the “fraud-on-the-
market” theory, which holds that “the market price of
shares traded on well-developed markets reflects all pub-
licly available information, and, hence, any material mis-
representations.” Id., at 246. The Court also noted that,
rather than scrutinize every piece of public information
about a company for himself, the typical “investor who
buys or sells stock at the price set by the market does so in
reliance on the integrity of that price”—the belief that it
reflects all public, material information. Id., at 247. As a
result, whenever the investor buys or sells stock at the
market price, his “reliance on any public material misrep-
resentations . . . may be presumed for purposes of a Rule
10b–5 action.” Ibid.
Based on this theory, a plaintiff must make the follow-
ing showings to demonstrate that the presumption of
reliance applies in a given case: (1) that the alleged mis-
representations were publicly known, (2) that they were
material, (3) that the stock traded in an efficient market,
and (4) that the plaintiff traded the stock between the
time the misrepresentations were made and when the
Cite as: 573 U. S. ____ (2014) 7
Opinion of the Court
truth was revealed. See id., at 248, n. 27; Halliburton I,
supra, at ___ (slip op., at 5–6).
At the same time, Basic emphasized that the presump-
tion of reliance was rebuttable rather than conclusive.
Specifically, “[a]ny showing that severs the link between
the alleged misrepresentation and either the price re-
ceived (or paid) by the plaintiff, or his decision to trade at
a fair market price, will be sufficient to rebut the pre-
sumption of reliance.” 485 U.S., at 248. So for example, if
a defendant could show that the alleged misrepresentation
did not, for whatever reason, actually affect the market
price, or that a plaintiff would have bought or sold the
stock even had he been aware that the stock’s price was
tainted by fraud, then the presumption of reliance would
not apply. Id., at 248–249. In either of those cases, a
plaintiff would have to prove that he directly relied on the
defendant’s misrepresentation in buying or selling the
stock.
B
Halliburton contends that securities fraud plaintiffs
should always have to prove direct reliance and that the
Basic Court erred in allowing them to invoke a presump-
tion of reliance instead. According to Halliburton, the
Basic presumption contravenes congressional intent and
has been undermined by subsequent developments in
economic theory. Neither argument, however, so discred-
its Basic as to constitute “special justification” for overrul-
ing the decision.
1
Halliburton first argues that the Basic presumption is
inconsistent with Congress’s intent in passing the 1934
Exchange Act. Because “[t]he Section 10(b) action is a
‘judicial construct that Congress did not enact,’ ” this
Court, Halliburton insists, “must identify—and borrow
8 HALLIBURTON CO. v. ERICA P. JOHN FUND, INC.
Opinion of the Court
from—the express provision that is ‘most analogous to the
private 10b–5 right of action.’ ” Brief for Petitioners 12
(quoting Stoneridge Investment Partners, LLC v. Scientific-
Atlanta, Inc., 552 U.S. 148, 164 (2008); Musick, Peeler
& Garrett v. Employers Ins. of Wausau, 508 U.S. 286, 294
(1993)). According to Halliburton, the closest analogue
to section 10(b) is section 18(a) of the Act, which cre-
ates an express private cause of action allowing inves-
tors to recover damages based on misrepresentations
made in certain regulatory filings. 15 U.S. C. §78r(a).
That provision requires an investor to prove that he
bought or sold stock “in reliance upon” the defendant’s
misrepresentation. Ibid. In ignoring this direct reliance
requirement, the argument goes, the Basic Court relieved
Rule 10b–5 plaintiffs of a burden that Congress would
have imposed had it created the cause of action.
EPJ Fund contests both premises of Halliburton’s ar-
gument, arguing that Congress has affirmed Basic’s con-
struction of section 10(b) and that, in any event, the clos-
est analogue to section 10(b) is not section 18(a) but
section 9, 15 U.S. C. §78i—a provision that does not re-
quire actual reliance.
We need not settle this dispute. In Basic, the dissenting
Justices made the same argument based on section 18(a)
that Halliburton presses here. See 485 U.S., at 257–258
(White, J., concurring in part and dissenting in part). The
Basic majority did not find that argument persuasive
then, and Halliburton has given us no new reason to
endorse it now.
2
Halliburton’s primary argument for overruling Basic is
that the decision rested on two premises that can no longer
withstand scrutiny. The first premise concerns what is
known as the “efficient capital markets hypothesis.” Basic
stated that “the market price of shares traded on well-
Cite as: 573 U. S. ____ (2014) 9
Opinion of the Court
developed markets reflects all publicly available infor-
mation, and, hence, any material misrepresentations.”
Id., at 246. From that statement, Halliburton concludes
that the Basic Court espoused “a robust view of market
efficiency” that is no longer tenable, for “ ‘overwhelming
empirical evidence’ now ‘suggests that capital markets are
not fundamentally efficient.’ ” Brief for Petitioners 14–16
(quoting Lev & de Villiers, Stock Price Crashes and 10b–5
Damages: A Legal, Economic, and Policy Analysis, 47
Stan. L. Rev 7, 20 (1994)). To support this contention,
Halliburton cites studies purporting to show that “public
information is often not incorporated immediately (much
less rationally) into market prices.” Brief for Petitioners
17; see id., at 16–20. See also Brief for Law Professors as
Amici Curiae 15–18.
Halliburton does not, of course, maintain that capital
markets are always inefficient. Rather, in its view, Basic’s
fundamental error was to ignore the fact that “ ‘efficiency
is not a binary, yes or no question.’ ” Brief for Petitioners
20 (quoting Langevoort, Basic at Twenty: Rethinking
Fraud on the Market, 2009 Wis. L. Rev. 151, 167)). The
markets for some securities are more efficient than the
markets for others, and even a single market can process
different kinds of information more or less efficiently,
depending on how widely the information is disseminated
and how easily it is understood. Brief for Petitioners at
20–21. Yet Basic, Halliburton asserts, glossed over these
nuances, assuming a false dichotomy that renders the
presumption of reliance both underinclusive and overin-
clusive: A misrepresentation can distort a stock’s market
price even in a generally inefficient market, and a misrep-
resentation can leave a stock’s market price unaffected
even in a generally efficient one. Brief for Petitioners at
21.
Halliburton’s criticisms fail to take Basic on its own
terms. Halliburton focuses on the debate among econo-
10 HALLIBURTON CO. v. ERICA P. JOHN FUND, INC.
Opinion of the Court
mists about the degree to which the market price of a
company’s stock reflects public information about the
company—and thus the degree to which an investor can
earn an abnormal, above-market return by trading on
such information. See Brief for Financial Economists as
Amici Curiae 4–10 (describing the debate). That debate is
not new. Indeed, the Basic Court acknowledged it and
declined to enter the fray, declaring that “[w]e need not
determine by adjudication what economists and social
scientists have debated through the use of sophisticated
statistical analysis and the application of economic the-
ory.” 485 U.S., at 246–247, n. 24. To recognize the pre-
sumption of reliance, the Court explained, was not “con-
clusively to adopt any particular theory of how quickly and
completely publicly available information is reflected in
market price.” Id., at 248, n. 28. The Court instead based
the presumption on the fairly modest premise that “mar-
ket professionals generally consider most publicly an-
nounced material statements about companies, thereby
affecting stock market prices.” Id., at 247, n. 24. Basic’s
presumption of reliance thus does not rest on a “binary”
view of market efficiency. Indeed, in making the pre-
sumption rebuttable, Basic recognized that market effi-
ciency is a matter of degree and accordingly made it a
matter of proof.
The academic debates discussed by Halliburton have not
refuted the modest premise underlying the presumption of
reliance. Even the foremost critics of the efficient-capital-
markets hypothesis acknowledge that public information
generally affects stock prices. See, e.g., Shiller, We’ll
Share the Honors, and Agree to Disagree, N. Y. Times,
Oct. 27, 2013, p. BU6 (“Of course, prices reflect available
information”). Halliburton also conceded as much in its
reply brief and at oral argument. See Reply Brief 13
(“market prices generally respond to new, material infor-
mation”); Tr. of Oral Arg. 7. Debates about the precise
Cite as: 573 U. S. ____ (2014) 11
Opinion of the Court
degree to which stock prices accurately reflect public in-
formation are thus largely beside the point. “That the . . .
price [of a stock] may be inaccurate does not detract from
the fact that false statements affect it, and cause loss,”
which is “all that Basic requires.” Schleicher v. Wendt,
618 F.3d 679, 685 (CA7 2010) (Easterbrook, C. J.). Even
though the efficient capital markets hypothesis may have
“garnered substantial criticism since Basic,” post, at 6
(THOMAS, J., concurring in judgment), Halliburton has not
identified the kind of fundamental shift in economic the-
ory that could justify overruling a precedent on the ground
that it misunderstood, or has since been overtaken by,
economic realities. Contrast State Oil Co. v. Khan, 522
U.S. 3 (1997), unanimously overruling Albrecht v. Herald
Co., 390 U.S. 145 (1968).
Halliburton also contests a second premise underlying
the Basic presumption: the notion that investors “invest
‘in reliance on the integrity of [the market] price.’ ” Reply
Brief 14 (quoting 485 U.S., at 247; alteration in original).
Halliburton identifies a number of classes of investors for
whom “price integrity” is supposedly “marginal or irrele-
vant.” Reply Brief 14. The primary example is the value
investor, who believes that certain stocks are undervalued
or overvalued and attempts to “beat the market” by buying
the undervalued stocks and selling the overvalued ones.
Brief for Petitioners 15–16 (internal quotation marks
omitted). See also Brief for Vivendi S. A. as Amicus Curiae
3–10 (describing the investment strategies of day trad-
ers, volatility arbitragers, and value investors). If many
investors “are indifferent to prices,” Halliburton contends,
then courts should not presume that investors rely on the
integrity of those prices and any misrepresentations in-
corporated into them. Reply Brief 14.
But Basic never denied the existence of such investors.
As we recently explained, Basic concluded only that “it is
reasonable to presume that most investors—knowing that
12 HALLIBURTON CO. v. ERICA P. JOHN FUND, INC.
Opinion of the Court
they have little hope of outperforming the market in the
long run based solely on their analysis of publicly availa-
ble information—will rely on the security’s market price as
an unbiased assessment of the security’s value in light of
all public information.” Amgen, 568 U. S., at ___ (slip op.,
at 5) (emphasis added).
In any event, there is no reason to suppose that even
Halliburton’s main counterexample—the value investor—
is as indifferent to the integrity of market prices as Halli-
burton suggests. Such an investor implicitly relies on the
fact that a stock’s market price will eventually reflect
material information—how else could the market correc-
tion on which his profit depends occur? To be sure, the
value investor “does not believe that the market price
accurately reflects public information at the time he trans-
acts.” Post, at 11. But to indirectly rely on a misstate-
ment in the sense relevant for the Basic presumption, he
need only trade stock based on the belief that the market
price will incorporate public information within a reason-
able period. The value investor also presumably tries to
estimate how undervalued or overvalued a particular
stock is, and such estimates can be skewed by a market
price tainted by fraud.
C
The principle of stare decisis has “ ‘special force’ ” “in
respect to statutory interpretation” because “ ‘Congress
remains free to alter what we have done.’ ” John R. Sand
& Gravel Co. v. United States, 552 U.S. 130, 139 (2008)
(quoting Patterson v. McLean Credit Union, 491 U.S. 164,
172–173 (1989)). So too with Basic’s presumption of reli-
ance. Although the presumption is a judicially created
doctrine designed to implement a judicially created cause
of action, we have described the presumption as “a sub-
stantive doctrine of federal securities-fraud law.” Amgen,
supra, at ___ (slip op., at 5). That is because it provides a
Cite as: 573 U. S. ____ (2014) 13
Opinion of the Court
way of satisfying the reliance element of the Rule 10b–5
cause of action. See, e.g., Dura Pharmaceuticals, Inc. v.
Broudo, 544 U.S. 336, 341–342 (2005). As with any other
element of that cause of action, Congress may overturn
or modify any aspect of our interpretations of the reli-
ance requirement, including the Basic presumption it-
self. Given that possibility, we see no reason to exempt
the Basic presumption from ordinary principles of stare
decisis.
To buttress its case for overruling Basic, Halliburton
contends that, in addition to being wrongly decided, the
decision is inconsistent with our more recent decisions
construing the Rule 10b–5 cause of action. As Halliburton
notes, we have held that “we must give ‘narrow dimen-
sions . . . to a right of action Congress did not authorize
when it first enacted the statute and did not expand when
it revisited the law.’ ” Janus Capital Group, Inc. v. First
Derivative Traders, 564 U. S. ___, ___ (2011) (slip op., at 6)
(quoting Stoneridge, 552 U.S., at 167); see, e.g., Central
Bank of Denver, N. A. v. First Interstate Bank of Denver,
N. A., 511 U.S. 164 (1994) (refusing to recognize aiding-
and-abetting liability under the Rule 10b–5 cause of ac-
tion); Stoneridge, supra (refusing to extend Rule 10b–5
liability to certain secondary actors who did not them-
selves make material misstatements). Yet the Basic
presumption, Halliburton asserts, does just the opposite,
expanding the Rule 10b–5 cause of action. Brief for Peti-
tioners 27–29.
Not so. In Central Bank and Stoneridge, we declined to
extend Rule 10b–5 liability to entirely new categories of
defendants who themselves had not made any material,
public misrepresentation. Such an extension, we ex-
plained, would have eviscerated the requirement that a
plaintiff prove that he relied on a misrepresentation made
by the defendant. See Central Bank, supra, at 180; Stone-
ridge, supra, at 157, 159. The Basic presumption does
14 HALLIBURTON CO. v. ERICA P. JOHN FUND, INC.
Opinion of the Court
not eliminate that requirement but rather provides an
alternative means of satisfying it. While the presumption
makes it easier for plaintiffs to prove reliance, it does not
alter the elements of the Rule 10b–5 cause of action and
thus maintains the action’s original legal scope.
Halliburton also argues that the Basic presumption
cannot be reconciled with our recent decisions governing
class action certification under Federal Rule of Civil Pro-
cedure 23. Those decisions have made clear that plaintiffs
wishing to proceed through a class action must actually
prove—not simply plead—that their proposed class satis-
fies each requirement of Rule 23, including (if applicable)
the predominance requirement of Rule 23(b)(3). See Wal-
Mart Stores, Inc. v. Dukes, 564 U. S. ___, ___ (2011) (slip
op., at 10); Comcast Corp. v. Behrend, 569 U. S. ___, ___
(2013) (slip op., at 5–6). According to Halliburton, Basic
relieves Rule 10b–5 plaintiffs of that burden, allowing
courts to presume that common issues of reliance predom-
inate over individual ones.
That is not the effect of the Basic presumption. In
securities class action cases, the crucial requirement for
class certification will usually be the predominance re-
quirement of Rule 23(b)(3). The Basic presumption does
not relieve plaintiffs of the burden of proving—before class
certification—that this requirement is met. Basic instead
establishes that a plaintiff satisfies that burden by prov-
ing the prerequisites for invoking the presumption—
namely, publicity, materiality, market efficiency, and
market timing. The burden of proving those prerequisites
still rests with plaintiffs and (with the exception of mate-
riality) must be satisfied before class certification. Basic
does not, in other words, allow plaintiffs simply to plead
that common questions of reliance predominate over indi-
vidual ones, but rather sets forth what they must prove to
demonstrate such predominance.
Basic does afford defendants an opportunity to rebut the
Cite as: 573 U. S. ____ (2014) 15
Opinion of the Court
presumption of reliance with respect to an individual
plaintiff by showing that he did not rely on the integrity of
the market price in trading stock. While this has the
effect of “leav[ing] individualized questions of reliance in
the case,” post, at 12, there is no reason to think that these
questions will overwhelm common ones and render class
certification inappropriate under Rule 23(b)(3). That the
defendant might attempt to pick off the occasional class
member here or there through individualized rebuttal
does not cause individual questions to predominate.
Finally, Halliburton and its amici contend that, by
facilitating securities class actions, the Basic presumption
produces a number of serious and harmful consequences.
Such class actions, they say, allow plaintiffs to extort large
settlements from defendants for meritless claims; punish
innocent shareholders, who end up having to pay settle-
ments and judgments; impose excessive costs on businesses;
and consume a disproportionately large share of judicial
resources. Brief for Petitioners 39–45.
These concerns are more appropriately addressed to
Congress, which has in fact responded, to some extent, to
many of the issues raised by Halliburton and its amici.
Congress has, for example, enacted the Private Securities
Litigation Reform Act of 1995 (PSLRA), 109 Stat. 737,
which sought to combat perceived abuses in securities
litigation with heightened pleading requirements, limits
on damages and attorney’s fees, a “safe harbor” for certain
kinds of statements, restrictions on the selection of lead
plaintiffs in securities class actions, sanctions for frivolous
litigation, and stays of discovery pending motions to dis-
miss. See Amgen, 568 U. S., at ___ (slip op., at 19–20).
And to prevent plaintiffs from circumventing these re-
strictions by bringing securities class actions under state
law in state court, Congress also enacted the Securities
Litigation Uniform Standards Act of 1998, 112 Stat. 3227,
which precludes many state law class actions alleging
16 HALLIBURTON CO. v. ERICA P. JOHN FUND, INC.
Opinion of the Court
securities fraud. See Amgen, supra, at ___ (slip op., at 20).
Such legislation demonstrates Congress’s willingness to
consider policy concerns of the sort that Halliburton says
should lead us to overrule Basic.
III
Halliburton proposes two alternatives to overruling
Basic that would alleviate what it regards as the decision’s
most serious flaws. The first alternative would require
plaintiffs to prove that a defendant’s misrepresentation
actually affected the stock price—so-called “price im-
pact”—in order to invoke the Basic presumption. It should
not be enough, Halliburton contends, for plaintiffs to
demonstrate the general efficiency of the market in which
the stock traded. Halliburton’s second proposed alterna-
tive would allow defendants to rebut the presumption of
reliance with evidence of a lack of price impact, not only at
the merits stage—which all agree defendants may already
do—but also before class certification.
A
As noted, to invoke the Basic presumption, a plaintiff
must prove that: (1) the alleged misrepresentations were
publicly known, (2) they were material, (3) the stock traded
in an efficient market, and (4) the plaintiff traded the
stock between when the misrepresentations were made
and when the truth was revealed. See Basic, 485 U.S., at
248, n. 27; Amgen, supra, at ___ (slip op., at 15). Each of
these requirements follows from the fraud-on-the-market
theory underlying the presumption. If the misrepresenta-
tion was not publicly known, then it could not have dis-
torted the stock’s market price. So too if the misrepresen-
tation was immaterial—that is, if it would not have “ ‘been
viewed by the reasonable investor as having significantly
altered the “total mix” of information made available,’ ”
Basic, supra, at 231–232 (quoting TSC Industries, Inc. v.
Cite as: 573 U. S. ____ (2014) 17
Opinion of the Court
Northway, Inc., 426 U.S. 438, 449 (1976))—or if the mar-
ket in which the stock traded was inefficient. And if the
plaintiff did not buy or sell the stock after the misrepre-
sentation was made but before the truth was revealed,
then he could not be said to have acted in reliance on a
fraud-tainted price.
The first three prerequisites are directed at price im-
pact—“whether the alleged misrepresentations affected
the market price in the first place.” Halliburton I, 563
U. S., at ___ (slip op., at 8). In the absence of price impact,
Basic’s fraud-on-the-market theory and presumption of
reliance collapse. The “fundamental premise” underlying
the presumption is “that an investor presumptively relies
on a misrepresentation so long as it was reflected in the
market price at the time of his transaction.” 563 U. S., at
___ (slip op., at 7). If it was not, then there is “no ground-
ing for any contention that [the] investor[ ] indirectly
relied on th[at] misrepresentation[ ] through [his] reliance
on the integrity of the market price.” Amgen, supra, at ___
(slip op., at 17).
Halliburton argues that since the Basic presumption
hinges on price impact, plaintiffs should be required to
prove it directly in order to invoke the presumption.
Proving the presumption’s prerequisites, which are at best
an imperfect proxy for price impact, should not suffice.
Far from a modest refinement of the Basic presumption,
this proposal would radically alter the required showing
for the reliance element of the Rule 10b–5 cause of action.
What is called the Basic presumption actually incorpo-
rates two constituent presumptions: First, if a plaintiff
shows that the defendant’s misrepresentation was public
and material and that the stock traded in a generally
efficient market, he is entitled to a presumption that the
misrepresentation affected the stock price. Second, if the
plaintiff also shows that he purchased the stock at the
market price during the relevant period, he is entitled to a
18 HALLIBURTON CO. v. ERICA P. JOHN FUND, INC.
Opinion of the Court
further presumption that he purchased the stock in reli-
ance on the defendant’s misrepresentation.
By requiring plaintiffs to prove price impact directly,
Halliburton’s proposal would take away the first constitu-
ent presumption. Halliburton’s argument for doing so is
the same as its primary argument for overruling the Basic
presumption altogether: Because market efficiency is not a
yes-or-no proposition, a public, material misrepresentation
might not affect a stock’s price even in a generally efficient
market. But as explained, Basic never suggested other-
wise; that is why it affords defendants an opportunity to
rebut the presumption by showing, among other things,
that the particular misrepresentation at issue did not
affect the stock’s market price. For the same reasons we
declined to completely jettison the Basic presumption, we
decline to effectively jettison half of it by revising the
prerequisites for invoking it.
B
Even if plaintiffs need not directly prove price impact to
invoke the Basic presumption, Halliburton contends that
defendants should at least be allowed to defeat the pre-
sumption at the class certification stage through evidence
that the misrepresentation did not in fact affect the stock
price. We agree.
1
There is no dispute that defendants may introduce such
evidence at the merits stage to rebut the Basic presump-
tion. Basic itself “made clear that the presumption was
just that, and could be rebutted by appropriate evidence,”
including evidence that the asserted misrepresentation (or
its correction) did not affect the market price of the de-
fendant’s stock. Halliburton I, supra, at ___ (slip op., at
5); see Basic, supra, at 248.
Nor is there any dispute that defendants may introduce
Cite as: 573 U. S. ____ (2014) 19
Opinion of the Court
price impact evidence at the class certification stage, so
long as it is for the purpose of countering a plaintiff’s
showing of market efficiency, rather than directly rebut-
ting the presumption. As EPJ Fund acknowledges, “[o]f
course . . . defendants can introduce evidence at class
certification of lack of price impact as some evidence that
the market is not efficient.” Brief for Respondent 53. See
also Brief for United States as Amicus Curiae 26.
After all, plaintiffs themselves can and do introduce
evidence of the existence of price impact in connection with
“event studies”—regression analyses that seek to show
that the market price of the defendant’s stock tends to
respond to pertinent publicly reported events. See Brief
for Law Professors as Amici Curiae 25–28. In this case,
for example, EPJ Fund submitted an event study of vari-
ous episodes that might have been expected to affect the
price of Halliburton’s stock, in order to demonstrate that
the market for that stock takes account of material, public
information about the company. See App. 217–230 (de-
scribing the results of the study). The episodes examined
by EPJ Fund’s event study included one of the alleged
misrepresentations that form the basis of the Fund’s suit.
See id., at 230, 343–344. See also In re Xcelera.com Secu-
rities Litigation, 430 F.3d 503, 513 (CA1 2005) (event
study included effect of misrepresentation challenged in
the case).
Defendants—like plaintiffs—may accordingly submit
price impact evidence prior to class certification. What
defendants may not do, EPJ Fund insists and the Court of
Appeals held, is rely on that same evidence prior to class
certification for the particular purpose of rebutting the
presumption altogether.
This restriction makes no sense, and can readily lead to
bizarre results. Suppose a defendant at the certification
stage submits an event study looking at the impact on the
price of its stock from six discrete events, in an effort to
20 HALLIBURTON CO. v. ERICA P. JOHN FUND, INC.
Opinion of the Court
refute the plaintiffs’ claim of general market efficiency.
All agree the defendant may do this. Suppose one of the
six events is the specific misrepresentation asserted by the
plaintiffs. All agree that this too is perfectly acceptable.
Now suppose the district court determines that, despite
the defendant’s study, the plaintiff has carried its burden
to prove market efficiency, but that the evidence shows no
price impact with respect to the specific misrepresentation
challenged in the suit. The evidence at the certification
stage thus shows an efficient market, on which the alleged
misrepresentation had no price impact. And yet under
EPJ Fund’s view, the plaintiffs’ action should be certified
and proceed as a class action (with all that entails), even
though the fraud-on-the-market theory does not apply and
common reliance thus cannot be presumed.
Such a result is inconsistent with Basic’s own logic.
Under Basic’s fraud-on-the-market theory, market effi-
ciency and the other prerequisites for invoking the pre-
sumption constitute an indirect way of showing price
impact. As explained, it is appropriate to allow plaintiffs
to rely on this indirect proxy for price impact, rather than
requiring them to prove price impact directly, given
Basic’s rationales for recognizing a presumption of reli-
ance in the first place. See supra, at 6–7, 16–17.
But an indirect proxy should not preclude direct evi-
dence when such evidence is available. As we explained in
Basic, “[a]ny showing that severs the link between the
alleged misrepresentation and . . . the price received (or
paid) by the plaintiff . . . will be sufficient to rebut the
presumption of reliance” because “the basis for finding
that the fraud had been transmitted through market price
would be gone.” 485 U.S., at 248. And without the pre-
sumption of reliance, a Rule 10b–5 suit cannot proceed as
a class action: Each plaintiff would have to prove reliance
individually, so common issues would not “predominate”
over individual ones, as required by Rule 23(b)(3). Id., at
Cite as: 573 U. S. ____ (2014) 21
Opinion of the Court
242. Price impact is thus an essential precondition for any
Rule 10b–5 class action. While Basic allows plaintiffs to
establish that precondition indirectly, it does not require
courts to ignore a defendant’s direct, more salient evidence
showing that the alleged misrepresentation did not actually
affect the stock’s market price and, consequently, that
the Basic presumption does not apply.
2
The Court of Appeals relied on our decision in Amgen in
holding that Halliburton could not introduce evidence of
lack of price impact at the class certification stage. The
question in Amgen was whether plaintiffs could be re-
quired to prove (or defendants be permitted to disprove)
materiality before class certification. Even though mate-
riality is a prerequisite for invoking the Basic presump-
tion, we held that it should be left to the merits stage,
because it does not bear on the predominance requirement
of Rule 23(b)(3). We reasoned that materiality is an objec-
tive issue susceptible to common, classwide proof. 568
U. S., at ___ (slip op., at 11). We also noted that a failure
to prove materiality would necessarily defeat every plain-
tiff ’s claim on the merits; it would not simply preclude
invocation of the presumption and thereby cause individual
questions of reliance to predominate over common ones.
Ibid. See also id., at ___ (slip op., at 17–18). In this latter
respect, we explained, materiality differs from the publicity
and market efficiency prerequisites, neither of which is
necessary to prove a Rule 10b–5 claim on the merits. Id.,
at ___–___ (slip op., at 16–18).
EPJ Fund argues that much of the foregoing could be
said of price impact as well. Fair enough. But price im-
pact differs from materiality in a crucial respect. Given
that the other Basic prerequisites must still be proved at
the class certification stage, the common issue of material-
ity can be left to the merits stage without risking the
22 HALLIBURTON CO. v. ERICA P. JOHN FUND, INC.
Opinion of the Court
certification of classes in which individual issues will end
up overwhelming common ones. And because materiality
is a discrete issue that can be resolved in isolation from
the other prerequisites, it can be wholly confined to the
merits stage.
Price impact is different. The fact that a misrepresenta-
tion “was reflected in the market price at the time of [the]
transaction”—that it had price impact—is “Basic’s funda-
mental premise.” Halliburton I, 563 U. S., at ___ (slip op.,
at 7). It thus has everything to do with the issue of pre-
dominance at the class certification stage. That is why, if
reliance is to be shown through the Basic presumption,
the publicity and market efficiency prerequisites must be
proved before class certification. Without proof of those
prerequisites, the fraud-on-the-market theory underlying
the presumption completely collapses, rendering class
certification inappropriate.
But as explained, publicity and market efficiency are
nothing more than prerequisites for an indirect showing of
price impact. There is no dispute that at least such indi-
rect proof of price impact “is needed to ensure that the
questions of law or fact common to the class will ‘predomi-
nate.’ ” Amgen, 568 U. S., at ___ (slip op., at 10) (emphasis
deleted); see id., at ___ (slip op., at 16–17). That is so even
though such proof is also highly relevant at the merits
stage.
Our choice in this case, then, is not between allowing
price impact evidence at the class certification stage or
relegating it to the merits. Evidence of price impact will
be before the court at the certification stage in any event.
The choice, rather, is between limiting the price impact
inquiry before class certification to indirect evidence, or
allowing consideration of direct evidence as well. As
explained, we see no reason to artificially limit the inquiry
at the certification stage to indirect evidence of price
impact. Defendants may seek to defeat the Basic pre-
Cite as: 573 U. S. ____ (2014) 23
Opinion of the Court
sumption at that stage through direct as well as indirect
price impact evidence.
* * *
More than 25 years ago, we held that plaintiffs could
satisfy the reliance element of the Rule 10b–5 cause of
action by invoking a presumption that a public, material
misrepresentation will distort the price of stock traded in
an efficient market, and that anyone who purchases the
stock at the market price may be considered to have done
so in reliance on the misrepresentation. We adhere to that
decision and decline to modify the prerequisites for invok-
ing the presumption of reliance. But to maintain the
consistency of the presumption with the class certification
requirements of Federal Rule of Civil Procedure 23, de-
fendants must be afforded an opportunity before class
certification to defeat the presumption through evidence
that an alleged misrepresentation did not actually affect
the market price of the stock.
Because the courts below denied Halliburton that oppor-
tunity, we vacate the judgment of the Court of Appeals for
the Fifth Circuit and remand the case for further proceed-
ings consistent with this opinion.
It is so ordered.
Cite as: 573 U. S. ____ (2014) 1
GINSBURG, J., concurring
SUPREME COURT OF THE UNITED STATES
_________________
No. 13–317
_________________
HALLIBURTON CO., ET AL., PETITIONERS v. ERICA P.
JOHN FUND, INC., FKA ARCHDIOCESE OF
MILWAUKEE SUPPORTING FUND, INC.
ON WRIT OF CERTIORARI TO THE UNITED STATES COURT OF
APPEALS FOR THE FIFTH CIRCUIT
[June 23, 2014]
JUSTICE GINSBURG, with whom JUSTICE BREYER and
JUSTICE SOTOMAYOR join, concurring.
Advancing price impact consideration from the merits
stage to the certification stage may broaden the scope of
discovery available at certification. See Tr. of Oral Arg.
36–37. But the Court recognizes that it is incumbent upon
the defendant to show the absence of price impact. See
ante, at 17–18. The Court’s judgment, therefore, should
impose no heavy toll on securities-fraud plaintiffs with
tenable claims. On that understanding, I join the Court’s
opinion.
Cite as: 573 U. S. ____ (2014) 1
THOMAS, J., concurring in judgment
SUPREME COURT OF THE UNITED STATES
_________________
No. 13–317
_________________
HALLIBURTON CO., ET AL., PETITIONERS v. ERICA P.
JOHN FUND, INC., FKA ARCHDIOCESE OF
MILWAUKEE SUPPORTING FUND, INC.
ON WRIT OF CERTIORARI TO THE UNITED STATES COURT OF
APPEALS FOR THE FIFTH CIRCUIT
[June 23, 2014]
JUSTICE THOMAS, with whom JUSTICE SCALIA and
JUSTICE ALITO join, concurring in the judgment.
The implied Rule 10b–5 private cause of action is “a
relic of the heady days in which this Court assumed
common-law powers to create causes of action,” Correc-
tional Services Corp. v. Malesko, 534 U.S. 61, 75 (2001)
(SCALIA, J., concurring); see, e.g., J. I. Case Co. v. Borak,
377 U.S. 426, 433 (1964). We have since ended that
practice because the authority to fashion private remedies
to enforce federal law belongs to Congress alone. Stone-
ridge Investment Partners, LLC v. Scientific-Atlanta, Inc.,
552 U.S. 148, 164 (2008). Absent statutory authorization
for a cause of action, “courts may not create one, no matter
how desirable that might be as a policy matter.” Alexan-
der v. Sandoval, 532 U.S. 275, 286–287 (2001).
Basic Inc. v. Levinson, 485 U.S. 224 (1988), demon­
strates the wisdom of this rule. Basic presented the ques­
tion how investors must prove the reliance element of the
implied Rule 10b–5 cause of action—the requirement that
the plaintiff buy or sell stock in reliance on the defendant’s
misstatement—when they transact on modern, impersonal
securities exchanges. Were the Rule 10b–5 action statu-
tory, the Court could have resolved this question by inter­
preting the statutory language. Without a statute to
2 HALLIBURTON CO. v. ERICA P. JOHN FUND, INC.
THOMAS, J., concurring in judgment
interpret for guidance, however, the Court began instead
with a particular policy “problem”: for investors in imper­
sonal markets, the traditional reliance requirement was
hard to prove and impossible to prove as common among
plaintiffs bringing 10b–5 class-action suits. Id., at 242,
245. With the task thus framed as “resol[ving]” that
“ ‘problem’ ” rather than interpreting statutory text, id., at
242, the Court turned to nascent economic theory and
naked intuitions about investment behavior in its efforts
to fashion a new, easier way to meet the reliance require­
ment. The result was an evidentiary presumption, based
on a “fraud on the market” theory, that paved the way for
class actions under Rule 10b–5.
Today we are asked to determine whether Basic was
correctly decided. The Court suggests that it was, and
that stare decisis demands that we preserve it. I disagree.
Logic, economic realities, and our subsequent jurispru­
dence have undermined the foundations of the Basic pre­
sumption, and stare decisis cannot prop up the façade that
remains. Basic should be overruled.
I
Understanding where Basic went wrong requires an
explanation of the “reliance” requirement as traditionally
understood.
“Reliance by the plaintiff upon the defendant’s deceptive
acts is an essential element” of the implied 10b–5 private
cause of action.1 Stoneridge, supra, at 159. To prove
——————
1 As
the private Rule 10b–5 action has evolved, the Court has drawn
on the common-law action of deceit to identify six elements a private
plaintiff must prove: “ ‘(1) a material misrepresentation or omission by
the defendant; (2) scienter; (3) a connection between the misrepresenta­
tion or omission and the purchase or sale of a security; (4) reliance upon
the misrepresentation or omission; (5) economic loss; and (6) loss
causation.’ ” Amgen Inc. v. Connecticut Retirement Plans and Trust
Funds, 568 U. S. ___, ___–___ (2013) (slip op., at 3–4).
Cite as: 573 U. S. ____ (2014) 3
THOMAS, J., concurring in judgment
reliance, the plaintiff must show “ ‘transaction causation,’ ”
i.e., that the specific misstatement induced “the investor’s
decision to engage in the transaction.” Erica P. John
Fund, Inc. v. Halliburton Co., 563 U. S. ___, ___–___
(2011) (slip op., at 6–7). Such proof “ensures that there is
a proper ‘connection between a defendant’s misrepresenta­
tion and a plaintiff ’s injury’ ”—namely, that the plaintiff
has not just lost money as a result of the misstatement,
but that he was actually defrauded by it. Id., at ___ (slip
op., at 4); see also Dirks v. SEC, 463 U.S. 646, 666–667, n.
27 (1983) (“[T]o constitute a violation of Rule 10b–5, there
must be fraud. . . . [T]here always are winners and losers;
but those who have ‘lost’ have not necessarily been de­
frauded”). Without that connection, Rule 10b–5 is reduced
to a “ ‘scheme of investor’s insurance,’ ” because a plaintiff
could recover whenever the defendant’s misstatement
distorted the stock price—regardless of whether the mis­
statement had actually tricked the plaintiff into buying (or
selling) the stock in the first place. Dura Pharmaceuti-
cals, Inc. v. Broudo, 544 U.S. 336, 345 (2005) (quoting
Basic, supra, at 252 (White, J., concurring in part and
dissenting in part)).
The “traditional” reliance element requires a plaintiff to
“sho[w] that he was aware of a company’s statement and
engaged in a relevant transaction . . . based on that spe-
cific misrepresentation.” Erica P. John Fund, supra, at ___
(slip op., at 4). But investors who purchase stock from
third parties on impersonal exchanges (e.g., the New York
Stock Exchange) often will not be aware of any particular
statement made by the issuer of the security, and there­
fore cannot establish that they transacted based on a
specific misrepresentation. Nor is the traditional reliance
requirement amenable to class treatment; the inherently
individualized nature of the reliance inquiry renders it
impossible for a 10b–5 plaintiff to prove that common
questions predominate over individual ones, making class
4 HALLIBURTON CO. v. ERICA P. JOHN FUND, INC.
THOMAS, J., concurring in judgment
certification improper. See Basic, supra, at 242; Fed. Rule
Civ. Proc. 23(b)(3).
Citing these difficulties of proof and class certification,
485 U.S., at 242, 245, the Basic Court dispensed with the
traditional reliance requirement in favor of a new one
based on the fraud-on-the-market theory.2 The new ver­
sion of reliance had two related parts.
First, Basic suggested that plaintiffs could meet the
reliance requirement “ ‘indirectly,’ ” id., at 245. The Court
reasoned that “ ‘ideally, [the market] transmits infor­
mation to the investor in the processed form of a market
price.’ ” Id., at 244. An investor could thus be said to have
“relied” on a specific misstatement if (1) the market had
incorporated that statement into the market price of the
security, and (2) the investor then bought or sold that
security “in reliance on the integrity of the [market] price,”
id., at 247, i.e., based on his belief that the market price
“ ‘reflect[ed]’ ” the stock’s underlying “ ‘value,’ ” id., at 244.
Second, Basic created a presumption that this “indirect”
form of “reliance” had been proved. Based primarily on
certain assumptions about economic theory and investor
behavior, Basic afforded plaintiffs who traded in efficient
markets an evidentiary presumption that both steps of the
novel reliance requirement had been satisfied—that (1)
the market had incorporated the specific misstatement
into the market price of the security, and (2) the plaintiff
——————
2 In the years preceding Basic, lower courts and commentators exper­
imented with various ways to facilitate 10b–5 class actions by relaxing
or eliminating the reliance element of the implied 10b–5 action. See,
e.g., Blackie v. Barrack, 524 F.2d 891 (CA9 1975); Note, The Fraud-on­
the-Market Theory, 95 Harv. L. Rev. 1143 (1982); Note, The Reliance
Requirement in Private Actions under SEC Rule 10b–5, 88 Harv. L.
Rev. 584, 592–606 (1975). The “fraud-on-the-market theory” is an
umbrella term for those varied efforts. Black, Fraud on the Market: A
Criticism of Dispensing with Reliance Requirements in Certain Open
Market Transactions, 62 N. C. L. Rev. 435, 439–457 (1984).
Cite as: 573 U. S. ____ (2014) 5
THOMAS, J., concurring in judgment
did transact in reliance on the integrity of that price.3 Id.,
at 247. A defendant was ostensibly entitled to rebut the
presumption by putting forth evidence that either of those
steps was absent. Id., at 248.
II
Basic’s reimagined reliance requirement was a mistake,
and the passage of time has compounded its failings.
First, the Court based both parts of the presumption of
reliance on a questionable understanding of disputed
economic theory and flawed intuitions about investor
behavior. Second, Basic’s rebuttable presumption is at
odds with our subsequent Rule 23 cases, which require
plaintiffs seeking class certification to “ ‘affirmatively
demonstrate’ ” certification requirements like the predom­
inance of common questions. Comcast Corp. v. Behrend,
569 U. S. ___, ___ (2013) (slip op., at 5) (quoting Wal-Mart
Stores, Inc. v. Dukes, 564 U. S. ___, ___ (2011) (slip op., at
10)). Finally, Basic’s presumption that investors rely on
the integrity of the market price is virtually irrebuttable
in practice, which means that the “essential” reliance
element effectively exists in name only.
A
Basic based the presumption of reliance on two factual
assumptions. The first assumption was that, in a “well­
developed market,” public statements are generally “re­
flected” in the market price of securities. 485 U.S., at
247. The second was that investors in such markets
transact “in reliance on the integrity of that price.” Ibid.
——————
3 An investor could invoke this presumption by demonstrating certain
predicates: (1) a public statement; (2) an efficient market; (3) that the
shares were traded after the statement was made but before the truth
was revealed; and (4) that the statement was material. Basic, 485
U.S., at 248, n. 27.
6 HALLIBURTON CO. v. ERICA P. JOHN FUND, INC.
THOMAS, J., concurring in judgment
In other words, the Court created a presumption that a
plaintiff had met the two-part, fraud-on-the-market ver­
sion of the reliance requirement because, in the Court’s
view, “common sense and probability” suggested that each
of those parts would be met. Id., at 246.
In reality, both of the Court’s key assumptions are
highly contestable and do not provide the necessary sup­
port for Basic’s presumption of reliance. The first assump­
tion—that public statements are “reflected” in the market
price—was grounded in an economic theory that has
garnered substantial criticism since Basic. The second as-
sumption—that investors categorically rely on the integrity
of the market price—is simply wrong.
1
The Court’s first assumption was that “most publicly
available information”—including public misstatements—
“is reflected in [the] market price” of a security. Id., at
247. The Court grounded that assumption in “empirical
studies” testing a then-nascent economic theory known as
the efficient capital markets hypothesis. Id., at 246–247.
Specifically, the Court relied upon the “semi-strong” ver­
sion of that theory, which posits that the average investor
cannot earn above-market returns (i.e., “beat the market”)
in an efficient market by trading on the basis of publicly
available information. See, e.g., Stout, The Mechanisms of
Market Inefficiency: An Introduction to the New Finance,
28 J. Corp. L. 635, 640, and n. 24 (2003) (citing Fama,
Efficient Capital Markets: A Review of Theory and Empir­
ical Work, 25 J. Finance 383, 388 (1970)).4 The upshot of
——————
4 The “weak form” of the hypothesis provides that an investor cannot
earn an above-market return by trading on historical price data. See
Dunbar & Heller, Fraud on the Market Meets Behavioral Finance, 31
Del. J. Corporate L. 455, 463–464 (2006) (hereinafter Dunbar & Heller).
The “strong form” provides that investors cannot achieve above-market
returns even by trading on nonpublic information. See ibid. The weak
Cite as: 573 U. S. ____ (2014) 7
THOMAS, J., concurring in judgment
the hypothesis is that “the market price of shares traded
on well-developed markets [will] reflec[t] all publicly
available information, and, hence, any material misrepre­
sentations.” Basic, supra, at 246. At the time of Basic,
this version of the efficient capital markets hypothesis was
“widely accepted.” See Dunbar & Heller 463–464.
This view of market efficiency has since lost its luster.
See, e.g., Langevoort, Basic at Twenty: Rethinking Fraud
on the Market, 2009 Wis. L. Rev. 151, 175 (“Doubts about
the strength and pervasiveness of market efficiency are
much greater today than they were in the mid-1980s”). As
it turns out, even “well-developed” markets (like the New
York Stock Exchange) do not uniformly incorporate infor­
mation into market prices with high speed. “[F]riction in
accessing public information” and the presence of “pro­
cessing costs” means that “not all public information will
be impounded in a security’s price with the same alacrity,
or perhaps with any quickness at all.” Cox, Understand­
ing Causation in Private Securities Lawsuits: Building on
Amgen, 66 Vand. L. Rev. 1719, 1732 (2013) (hereinafter
Cox). For example, information that is easily digestible
(merger announcements or stock splits) or especially
prominent (Wall Street Journal articles) may be incorpo­
rated quickly, while information that is broadly applicable
or technical (Securities and Exchange Commission filings)
may be incorporated slowly or even ignored. See Stout,
supra, at 653–656; see e.g., In re Merck & Co. Securities
Litigation, 432 F.3d 261, 263–265 (CA3 2005) (a Wall
Street Journal article caused a steep decline in the com­
pany’s stock price even though the same information was
contained in an earlier SEC disclosure).
Further, and more importantly, “overwhelming empiri­
cal evidence” now suggests that even when markets do
incorporate public information, they often fail to do so
——————
form is generally accepted; the strong form is not. See ibid.
8 HALLIBURTON CO. v. ERICA P. JOHN FUND, INC.
THOMAS, J., concurring in judgment
accurately. Lev and de Villiers, Stock Price Crashes and
10b–5 Damages: A Legal, Economic and Policy Analysis,
47 Stan. L. Rev. 7, 20–21 (1994); see also id., at 21 (“That
many share price movements seem unrelated to specific
information strongly suggests that capital markets are not
fundamentally efficient, and that wide deviations from
fundamentals . . . can occur”(footnote omitted)). “Scores”
of “efficiency-defying anomalies”—such as market swings
in the absence of new information and prolonged devia­
tions from underlying asset values—make market efficiency
“more contestable than ever.” Langevoort, Taming the
Animal Spirits of the Stock Markets: A Behavioral Ap­
proach to Securities Regulation, 97 Nw. U. L. Rev. 135,
141 (2002); Dunbar & Heller 476–483. Such anomalies
make it difficult to tell whether, at any given moment, a
stock’s price accurately reflects its value as indicated by
all publicly available information. In sum, economists
now understand that the price impact Basic assumed
would happen reflexively is actually far from certain even
in “well-developed” markets. Thus, Basic’s claim that
“common sense and probability” support a presumption of
reliance rests on shaky footing.
2
The Basic Court also grounded the presumption of
reliance in a second assumption: that “[a]n investor who
buys or sells stock at the price set by the market does so in
reliance on the integrity of that price.” 485 U.S., at 247.
In other words, the Court assumed that investors transact
based on the belief that the market price accurately re­
flects the underlying “ ‘value’ ” of the security. See id., at
244 (“ ‘[P]urchasers generally rely on the price of the stock
as a reflection of its value’ ”). The Basic Court appears to
have adopted this assumption about investment behavior
based only on what it believed to be “common sense.” Id.,
at 246. The Court found it “ ‘hard to imagine that there
Cite as: 573 U. S. ____ (2014) 9
THOMAS, J., concurring in judgment
ever is a buyer or seller who does not rely on market in­
tegrity. Who would knowingly roll the dice in a crooked
crap game?’ ” Id., at 246–247.
The Court’s rather superficial analysis does not with­
stand scrutiny. It cannot be seriously disputed that a
great many investors do not buy or sell stock based on a
belief that the stock’s price accurately reflects its value.
Many investors in fact trade for the opposite reason—that
is, because they think the market has under- or overval­
ued the stock, and they believe they can profit from that
mispricing. Id., at 256 (opinion of White, J.); see, e.g.,
Macey, The Fraud on the Market Theory: Some Prelimi­
nary Issues, 74 Cornell L. Rev. 923, 925 (1989) (The “op­
posite” of Basic’s assumption appears to be true; some
investors “attempt to locate undervalued stocks in an
effort to ‘beat the market’ . . . in essence betting that the
market . . . is in fact inefficient”). Indeed, securities
transactions often take place because the transacting
parties disagree on the security’s value. See, e.g., Stout,
Are Stock Markets Costly Casinos? Disagreement, Mar-
ket Failure, and Securities Regulation, 81 Va. L. Rev.
611, 619 (1995) (“[A]vailable evidence suggests that . . . in-
vestor disagreement inspires the lion’s share of equities
transactions”).
Other investors trade for reasons entirely unrelated to
price—for instance, to address changing liquidity needs,
tax concerns, or portfolio balancing requirements. See id.,
at 657–658; see also Cox 1739 (investors may purchase
“due to portfolio rebalancing arising from its obeisance to
an indexing strategy”). These investment decisions—
made with indifference to price and thus without regard
for price “integrity”—are at odds with Basic’s understand­
ing of what motivates investment decisions. In short,
Basic’s assumption that all investors rely in common on
10 HALLIBURTON CO. v. ERICA P. JOHN FUND, INC.
THOMAS, J., concurring in judgment
“price integrity” is simply wrong.5
The majority tries (but fails) to reconcile Basic’s as­
sumption about investor behavior with the reality that
many investors do not behave in the way Basic assumed.
It first asserts that Basic rested only on the more modest
view that “ ‘most investors’ ” rely on the integrity of a
security’s market price. Ante, at 12 (quoting not Basic, but
Amgen Inc. v. Connecticut Retirement Plans & Trust
Funds, 568 U. S. ___, ___ (2013) (slip op., at 5) (emphasis
added)). That gloss is difficult to square with Basic’s plain
language: “An investor who buys or sells stock at the price
set by the market does so in reliance on the integrity of
that price.” Basic, 458 U.S., at 247; see also id., at 246–
247 (“ ‘[I]t is hard to imagine that there ever is a buyer or
seller who does not rely on market integrity’ ”). In any
event, neither Basic nor the majority offers anything more
than a judicial hunch as evidence that even “most” inves­
tors rely on price integrity.
The majority also suggests that “there is no reason to
suppose” that investors who buy stock they believe to be
undervalued are “indifferent to the integrity of market
prices.” Ante, at 12. Such “value investor[s],” according to
the majority, “implicitly rel[y] on the fact that a stock’s
market price will eventually reflect material information”
——————
5 The Basic Court’s mistaken intuition about investor behavior ap­
pears to involve a category mistake: the Court invoked a hypothesis
meant to describe markets, but then used it “in the one way it is not
meant to be used: as a predictor of the behavior of individual investors.”
Langevoort, Theories, Assumptions, and Securities Regulation: Market
Efficiency Revisited, 140 U. Pa. L. Rev. 851, 895 (1992). The efficient
capital markets hypothesis does not describe “how investors behave; [it]
only suggests the consequences of their collective behavior.” Cox 1736.
“Nothing in the hypothesis denies what most popular accounts assume:
that much information searching and trading by investors, from insti­
tutions on down, is done in the (perhaps erroneous) belief that under­
valued or overvalued stocks exist and can systematically be discovered.”
Langevoort, Theories, supra, at 895.
Cite as: 573 U. S. ____ (2014) 11
THOMAS, J., concurring in judgment
and “presumably tr[y] to estimate how undervalued or
overvalued a particular stock is” by reference to the mar­
ket price. Ibid. Whether the majority’s unsupported
claims about the thought processes of hypothetical inves­
tors are accurate or not, they are surely beside the point.
Whatever else an investor believes about the market, he
simply does not “rely on the integrity of the market price”
if he does not believe that the market price accurately
reflects public information at the time he transacts. That
is, an investor cannot claim that a public misstatement
induced his transaction by distorting the market price if
he did not buy at that price while believing that it accu­
rately incorporated that public information. For that sort
of investor, Basic’s critical fiction falls apart.
B
Basic’s presumption of reliance also conflicts with our
more recent cases clarifying Rule 23’s class-certification
requirements. Those cases instruct that “a party seeking
to maintain a class action ‘must affirmatively demonstrate
his compliance’ with Rule 23.” Comcast, 569 U. S., at ___
(slip op., at 5) (quoting Wal-Mart, 564 U. S., at ___ (slip
op., at 10). To prevail on a motion for class certification, a
party must demonstrate through “evidentiary proof ” that
“ ‘questions of law or fact common to class members pre­
dominate over any questions affecting only individual
members.’ ” 569 U. S., at ___ (slip op., at 5–6) (quoting
Fed. Rule Civ. Proc. 23(b)(3)).
Basic permits plaintiffs to bypass that requirement of
evidentiary proof. Under Basic, plaintiffs who invoke the
presumption of reliance (by proving its predicates) are
deemed to have met the predominance requirement of
Rule 23(b)(3). See ante, at 14; Amgen, supra, at ___ (slip
op., at 6) (Basic “facilitates class certification by recogniz­
ing a rebuttable presumption of classwide reliance”);
Basic, 485 U.S., at 242, 250 (holding that the District
12 HALLIBURTON CO. v. ERICA P. JOHN FUND, INC.
THOMAS, J., concurring in judgment
Court appropriately certified the class based on the pre­
sumption of reliance). But, invoking the Basic presump­
tion does not actually prove that individual questions of
reliance will not overwhelm the common questions in the
case. Basic still requires a showing that the individual
investor bought or sold in reliance on the integrity of the
market price and, crucially, permits defendants to rebut
the presumption by producing evidence that individual
plaintiffs do not meet that description. See id., at 249
(“Petitioners . . . could rebut the presumption of reliance
as to plaintiffs who would have divested themselves of
their Basic shares without relying on the integrity of the
market”). Thus, by its own terms, Basic entitles defend­
ants to ask each class member whether he traded in reli­
ance on the integrity of the market price. That inquiry,
like the traditional reliance inquiry, is inherently individ­
ualized; questions about the trading strategies of individ­
ual investors will not generate “ ‘common answers apt to
drive the resolution of the litigation,’ ” Wal-Mart Stores,
supra, at ___ (slip op., at 10). See supra, at 8–9; see also
Cox 1736, n. 55 (Basic’s recognition that defendants could
rebut the presumption “by proof the investor would have
traded anyway appears to require individual inquiries into
reliance”).
Basic thus exempts Rule 10b–5 plaintiffs from Rule 23’s
proof requirement. Plaintiffs who invoke the presumption
of reliance are deemed to have shown predominance as a
matter of law, even though the resulting rebuttable pre­
sumption leaves individualized questions of reliance in the
case and predominance still unproved. Needless to say,
that exemption was beyond the Basic Court’s power to
grant.6
——————
6 The majority suggests that Basic squares with Comcast Corp. v.
Behrend, 569 U. S. ___ (2013), and Wal-Mart Stores, Inc. v. Dukes, 564
U. S. ___ (2011), because it does not “relieve plaintiffs of the burden of
Cite as: 573 U. S. ____ (2014) 13
THOMAS, J., concurring in judgment
C
It would be bad enough if Basic merely provided an end­
run around Rule 23. But in practice, the so-called “rebut­
table presumption” is largely irrebuttable.
The Basic Court ostensibly afforded defendants an
opportunity to rebut the presumption by providing evi­
dence that either aspect of a plaintiff ’s fraud-on-the­
market reliance—price impact, or reliance on the integrity
of the market price—is missing. 485 U.S., at 248–249. As
it turns out, however, the realities of class-action proce­
dure make rebuttal based on an individual plaintiff ’s lack
of reliance virtually impossible. At the class-certification
stage, rebuttal is only directed at the class representa­
tives, which means that counsel only needs to find one
class member who can withstand the challenge. See
Grundfest, Damages and Reliance Under Section 10(b) of
the Exchange Act, 69 Bus. Lawyer 307, 362 (2014). After
class certification, courts have refused to allow defendants
to challenge any plaintiff ’s reliance on the integrity of the
market price prior to a determination on classwide liabil­
ity. See Brief for Chamber of Commerce of the United
States of America et al. as Amici Curiae 13–14 (collecting
cases rejecting postcertification attempts to rebut individ­
ual class members’ reliance on price integrity as not perti­
nent to classwide liability). One search for rebuttals on
individual-reliance grounds turned up only six cases out of
the thousands of Rule 10b–5 actions brought since Basic.
Grundfest, supra, at 360.7
——————
proving . . . predominance” but “rather sets forth what they must prove
to demonstrate such predominance.” Ante, at 14–15. This argument
misses the point. Because Basic offers defendants a chance to rebut the
presumption on individualized grounds, the predicates that Basic sets
forth as sufficient to invoke the presumption do not necessarily prove
predominance.
7 The absence of postcertification rebuttal is likely attributable in
part to the substantial in terrorem settlement pressures brought to bear
14 HALLIBURTON CO. v. ERICA P. JOHN FUND, INC.
THOMAS, J., concurring in judgment
The apparent unavailability of this form of rebuttal has
troubling implications. Because the presumption is con­
clusive in practice with respect to investors’ reliance on
price integrity, even Basic’s watered-down reliance re­
quirement has been effectively eliminated. Once the
presumption attaches, the reliance element is no longer an
obstacle to prevailing on the claim, even though many
class members will not have transacted in reliance on
price integrity, see supra, at 8–9. And without a func-
tional reliance requirement, the “essential element” that
ensures the plaintiff has actually been defrauded, see
Stoneridge, 552 U.S., at 159, Rule 10b–5 becomes the very
“ ‘scheme of investor’s insurance’ ” the rebuttable presump­
tion was supposed to prevent. See Basic, supra, at 252
(opinion of White, J.).8
* * *
For these reasons, Basic should be overruled in favor of
the straightforward rule that “[r]eliance by the plaintiff
upon the defendant’s deceptive acts”—actual reliance, not
the fictional “fraud-on-the-market” version—“is an essen­
tial element of the §10(b) private cause of action.” Stone-
ridge, 552 U.S., at 159.
——————
by certification. See, e.g., Nagareda, Class Certification in the Age of
Aggregate Proof, 84 N. Y. U. L. Rev. 97, 99 (2009) (“With vanishingly
rare exception, class certification sets the litigation on a path toward res­
olution by way of settlement, not full-fledged testing of the plaintiffs’ case
by trial”); see also Stoneridge Investment Partners, LLC v. Scientific-
Atlanta, Inc., 552 U.S. 148, 163 (2008) (“[E]xtensive discovery and
the potential for uncertainty and disruption in a lawsuit allow plaintiffs
with weak claims to extort settlements from innocent companies”).
8 Of course, today’s decision makes clear that a defendant may rebut
the presumption by producing evidence that the misstatement at issue
failed to affect the market price of the security, see ante, at 17–22. But
both parts of Basic’s version of reliance are key to its fiction that an
investor has “indirectly” relied on the misstatement; the unavailability
of rebuttal with respect to one of those parts still functionally removes
reliance as an element of proof.
Cite as: 573 U. S. ____ (2014)
15
THOMAS, J., concurring in judgment
III
Principles of stare decisis do not compel us to save
Basic’s muddled logic and armchair economics. We have
not hesitated to overrule decisions when they are “un­
workable or are badly reasoned,” Payne v. Tennessee, 501
U.S. 808, 827 (1991); when “the theoretical underpinnings
of those decisions are called into serious question,” State
Oil Co. v. Khan, 522 U.S. 3, 21 (1997); when the decisions
have become “irreconcilable” with intervening develop­
ments in “competing legal doctrines or policies,” Patterson
v. McLean Credit Union, 491 U.S. 164, 173 (1989); or
when they are otherwise “a positive detriment to coher­
ence and consistency in the law,” ibid. Just one of these
circumstances can justify our correction of bad precedent;
Basic checks all the boxes.
In support of its decision to preserve Basic, the majority
contends that stare decisis “has ‘special force’ ‘in respect to
statutory interpretation’ because ‘Congress remains free to
alter what we have done.’ ” Ante, at 12 (quoting John R.
Sand & Gravel Co. v. United States, 552 U.S. 130, 139
(2008); some internal quotation marks omitted). But
Basic, of course, has nothing to do with statutory interpre­
tation. The case concerned a judge-made evidentiary
presumption for a judge-made element of the implied
10b−5 private cause of action, itself “a judicial construct
that Congress did not enact in the text of the relevant
statutes.” Stoneridge, supra, at 164. We have not afforded
stare decisis “special force” outside the context of statu-
tory interpretation, see Michigan v. Bay Mills Indian
Community, 572 U. S. ___, ___, n. 6 (2014) (THOMAS, J.
dissenting) (slip op., at 15, n. 6 and for good reason. In
statutory cases, it is perhaps plausible that Congress
watches over its enactments and will step in to fix our
mistakes, so we may leave to Congress the judgment
whether the interpretive question is better left “ ‘settled’ ”
or “ ‘settled right,’ ” Square D Co. v. Niagara Frontier
16 HALLIBURTON CO. v. ERICA P. JOHN FUND, INC.
THOMAS, J., concurring in judgment
Tariff Bureau, Inc., 476 U.S. 409, 424 (1986). But this
rationale is untenable when it comes to judge-made law
like “implied” private causes of action, which we retain a
duty to superintend. See, e.g., Exxon Shipping Co. v.
Baker, 554 U.S. 471, 507 (2008) (“[T]he judiciary [cannot]
wash its hands of a problem it created . . . simply by call­
ing [the judicial doctrine] legislative”). Thus, when we err
in areas of judge-made law, we ought to presume that
Congress expects us to correct our own mistakes—not the
other way around. That duty is especially clear in the
Rule 10b–5 context, where we have said that “[t]he federal
courts have accepted and exercised the principal responsi­
bility for the continuing elaboration of the scope of the
10b–5 right and the definition of the duties it imposes.”
Musick, Peeler & Garrett v. Employers Ins. of Wausau, 508
U.S. 286, 292 (1993).
Basic’s presumption of reliance remains our mistake to
correct. Since Basic, Congress has enacted two major
securities laws: the Private Securities Litigation Reform
Act of 1995 (PSLRA), 109 Stat. 737, and the Securities
Litigation Uniform Standards Act of 1998 (SLUSA), 112
Stat. 3227. The PSLRA “sought to combat perceived
abuses in securities litigation,” ante, at 15, and SLUSA
prevented plaintiffs from avoiding the PSLRA’s re­
strictions by bringing class actions in state court, ibid.
Neither of these Acts touched the reliance element of the
implied Rule 10b–5 private cause of action or the Basic
presumption.
Contrary to respondent’s argument (the majority wisely
skips this next line of defense), we cannot draw from
Congress’ silence on this matter an inference that Con­
gress approved of Basic. To begin with, it is inappropriate
to give weight to “Congress’ unenacted opinion” when
construing judge-made doctrines, because doing so allows
the Court to create law and then “effectively codif[y]” it
“based only on Congress’ failure to address it.” Bay Mills,
Cite as: 573 U. S. ____ (2014) 17
THOMAS, J., concurring in judgment
supra, at ___ (THOMAS, J., dissenting) (slip op., at 14).
Our Constitution, however, demands that laws be passed
by Congress and signed by the President. U. S. Const.,
Art. I, §7. Adherence to Basic based on congressional
inaction would invert that requirement by insulating error
from correction merely because Congress failed to pass a
law on the subject. Cf. Patterson, supra, at 175, n. 1
(“Congressional inaction cannot amend a duly enacted
statute”).
At any rate, arguments from legislative inaction are
speculative at best. “[I]t is ‘ “impossible to assert with any
degree of assurance that congressional failure to act rep­
resents” affirmative congressional approval of ’ one of this
Court’s decisions.” Bay Mills, supra, at ___ (THOMAS, J.,
dissenting) (slip op., at 13) (quoting Patterson, supra, at
175, n. 1). “ ‘Congressional inaction lacks persuasive
significance’ ” because it is indeterminate; “ ‘several equally
tenable inferences may be drawn from such inaction.’ ”
Central Bank of Denver, N. A. v. First Interstate Bank of
Denver, N. A., 511 U.S. 164, 187 (1994) (quoting Pension
Benefit Guaranty Corporation v. LTV Corp., 496 U.S. 633,
650 (1990)). Therefore, “[i]t does not follow . . . that Con­
gress’ failure to overturn a . . . precedent is reason for this
Court to adhere to it.” Patterson, supra, at 175, n. 1.
That is especially true here, because Congress passed a
law to tell us not to draw any inference from its inaction.
The PSLRA expressly states that “[n]othing in this Act . . .
shall be deemed to create or ratify any implied private
right of action.” Notes following 15 U.S. C. §78j–1, p. 430.
If the Act did not ratify even the Rule 10b–5 private cause
of action, it cannot be read to ratify sub silentio the pre­
sumption of reliance this Court affixed to that action.
Further, the PSLRA and SLUSA operate to curtail abuses
of various private causes of action under our securities
laws—hardly an indication that Congress approved of
Basic’s expansion of the 10b–5 private cause of action.
18 HALLIBURTON CO. v. ERICA P. JOHN FUND, INC.
THOMAS, J., concurring in judgment
Congress’ failure to overturn Basic does not permit us to
“place on the shoulders of Congress the burden of the
Court’s own error.” Girouard v. United States, 328 U.S.
61, 70 (1946).
* * *
Basic took an implied cause of action and grafted on a
policy-driven presumption of reliance based on nascent
economic theory and personal intuitions about investment
behavior. The result was an unrecognizably broad cause
of action ready made for class certification. Time and
experience have pointed up the error of that decision,
making it all too clear that the Court’s attempt to revise
securities law to fit the alleged “new realities of financial
markets” should have been left to Congress. 485 U.S., at
255 (opinion of White, J.).