SCOTUS Decision Endorses Pomerantz Evidence Standard
On Monday, June 21, the United States Supreme Court, in a 6-3 decision, handed down its decision in the closely watched Goldman Sachs Group Inc. et al v. Arkansas Teachers Retirement System, et al. (No. 20-222). The Supreme Court ruling on the issue of evidence was in accord with arguments presented by Pomerantz LLP, which had submitted the sole amicus brief on the hotly contested issue: whether, in order to rebut the presumption of reliance originated by the Court in the landmark Basic v. Levinson decision, defendants bear the burden of persuasion, or whether they bear only the much lower burden of production.
Pomerantz Managing Partner Jeremy A. Lieberman stated, “We are pleased with the Supreme Court’s decision, which upheld the Second Circuit’s ruling in Waggoner v. Barclays PLC, holding that defendants had to prove by a preponderance of the evidence that there was no price impact in order to rebut Basic’s presumption of reliance. Pomerantz served as lead counsel in the Barclays action, and with the Supreme Court’s endorsement of that standard, its holding will remain the law for generations to come.”
The original putative securities class action, filed in 2011, alleged that Goldman artificially inflated its share price before, during and after the 2007-09 financial crisis. Allegations included that the firm falsely claimed that it was complying with ethical rules when in fact it hid a multitude of undisclosed conflicts of interest in its packaging and selling of mortgage-backed securities.
As for the issue of evidence, Goldman had argued that under Federal Rule of Evidence 301, while “the party against whom a presumption is directed has the burden of producing evidence to rebut the presumption,” the rule “does not shift the burden of persuasion, which remains on the party who had it originally.” Therefore, Goldman argued, defendants need only produce some evidence of no price impact, leaving plaintiffs with the ultimate burden of persuasion.
Pomerantz’s amicus brief argued, on the other hand:
[I]nvoking the Basic presumption is no easy feat. Plaintiffs must make a considerable showing that often entails submitting expert analyses to establish market reliance. If they can succeed in meeting the several requirements (and numerous factors for assessing those requirements) to trigger the presumption, it should not vanish just because defendants put forth some evidence creating a dispute as to price impact. Such a lack of proportion—demanding that plaintiffs perform the equivalent of rolling a boulder up a hill but allowing defendants to give it a little nudge to roll it back down—is both unfair and inconsistent with the reason for creating the presumption in the first place. It is therefore entirely appropriate to impose upon defendants a burden of persuasion, rather than a simple burden of production, to overcome plaintiffs’ hard-won presumption.
The Court rejected Goldman’s argument, ruling:
Defendants bear the burden of persuasion to prove a lack of price impact by a preponderance of the evidence at class certification. … The Court concludes that Basic and Halliburton II did allocate to defendants the burden of persuasion to prove a lack of price impact.
Pomerantz submitted the amicus brief on behalf of twenty-seven of the foremost U.S. scholars in the field of evidence. When interpreting statutes, the Supreme Court and the circuit courts sometimes create presumptions to best effectuate congressional intent. That is exactly how the Basic presumption came to be. The Court determined that the congressional policy embodied in the Securities Act of 1934 called for the full and accurate disclosure of information related to securities to promote the integrity of the market and the setting of “just” prices. The Court reasoned that advancing that goal would best be achieved through a presumption of class-wide reliance if plaintiffs show, among other things, that a defendant made material misrepresentations that affected a security’s price.
Partner Emma Gilmore, who spearheaded Pomerantz’s amicus brief, stated, “The Supreme Court decision is a significant victory to plaintiffs and against defendants seeking to demolish the presumption of reliance that has allowed aggrieved investors to pursue securities act violations as a class. Twenty-seven leading evidence scholars in the United States backed our position, and not a single one backed defendants’. Today’s precedential win paves the ground for more victories on behalf of defrauded investors.”