Tuesday, June 07, 2016

Best Buy price impact rebuttal ruling won’t get second look by panel, full court

By Mark S. Nelson, J.D.

The Eighth Circuit panel that recently held that a district court erred in handling Best Buy’s attempt to rebut evidence of price impact per Halliburton II in a securities fraud class action suit opted not to rehear its decision. The full court likewise declined to rehear the matter. That leaves in place the first circuit court decision seemingly to drop from its lexicon the price maintenance theory, although the theory may persist in other circuits (IBEW Local 98 Pension Fund v. Best Buy Co., Inc., June 1, 2016, per curiam).

After the Supreme Court in Halliburton II upheld its prior Basic reliance presumption and granted securities fraud defendants the opportunity to rebut this presumption before class certification, the district court in the Best Buy case certified a class that included all buyers of the company’s stock between September 14 and December 14, 2010. The case focused on two statements made by Best Buy executives during a conference call in which they tried to persuade analysts and investors that the company’s forecast announced earlier the same day via press release had roots in the company’s present performance (the district court found the press release itself was protected by the PSLRA’s safe harbor).

At oral argument before the Eighth Circuit panel (argument No. 4, October 22, 2015), Best Buy asserted that the two alleged misrepresentations had no price impact. A lawyer for the company also claimed the district judge’s decision to certify the class was not only contrary to Halliburton II, but also missed the mark regarding Federal Rule of Civil Procedure 23 for class certification and a federal evidentiary rule on presumptions in civil cases. By contrast, the plaintiffs’ lawyer noted that the Eighth Circuit was the first federal appeals court to mull a factual scenario in which an allegedly false statement maintained an already inflated stock price such that price impact was not observable until the end of the class period.

In its petition for panel and en banc rehearing, plaintiffs’ counsel sought uniformity with other circuits and emphasized that Halliburton II referred to the ordinary meaning of “impact,” which includes “any” impact, and not just the question of whether there was a font-end price impact. The petition also posited that the district court’s ruling cut against another Eighth Circuit decision that recognized price impact can occur even if a stock’s price does not move in the expected direction. Moreover, the plaintiffs noted that the Seventh and Eleventh Circuits still recognize the price maintenance theory, which would be discarded under the panel decision’s theory that a defendant need only show there was no price increase.

The two-judge Eighth Circuit panel majority opinion in Best Buy concluded that the district court abused its discretion by failing to do a rigorous enough analysis under FRCP 23. The majority pointed to the plaintiffs’ and defendants’ experts’ event studies, which it said both showed a broken link between the Best Buy conference call statements and the price paid by the plaintiffs for their stock. A dissenting judge emphasized the validity of the price maintenance theory, even though the Supreme Court (or any appellate court) has not explained how a defendant could rebut this theory of price impact.

The case is No. 14-3178.

No comments: