The investment bank Goldman Sachs had billed its U.S. Supreme Court case, which challenges the certification of a class of investors suing over the bank's alleged misrepresentations about its business principles, as the most important securities case to come before the justices in nearly a decade.
That appears, after oral arguments on Monday, to have been an overstatement.
I doubt that the Supreme Court will ultimately issue an opinion in Goldman that sets new limits on investors’ ability to win class certification in securities fraud suits.
Two justices considered to be from opposite sides of the ideological spectrum – Stephen Breyer and Amy Coney Barrett – suggested that however the case comes out, it’s not going to make a big difference in the broader context of shareholder class actions. The shareholder plaintiffs bar, as I’ve reported, made a show of force in amicus briefing in the Goldman case. I’d say after Monday’s argument that its business is not in danger.
In part, that’s because – as Barrett pointedly noted - both sides in the case have moderated their positions. In its petition for Supreme Court review, Goldman contended that anodyne, generic statements such as its promises to put investor interests ahead of its own, cannot, as a matter of law, serve as the basis of a shareholder class action. In merits briefing and at oral argument, Goldman instead asked the Supreme Court only to clarify that lower courts can consider the nature of alleged misrepresentations in weighing whether the statements affected a defendant’s share price.
The lead shareholder suing Goldman, the Arkansas Teacher Retirement System, meanwhile, conceded in its brief to the Supreme Court that courts can take into account that generic statements are less likely to affect share price than specific misrepresentations, but argued that such consideration should be rooted in expert witness assessments of price impact, not just on judges’ intuition.
There’s not actually much daylight between Goldman and the pension fund, Barrett told Goldman counsel Kannon Shanmugam of Paul, Weiss, Rifkind, Wharton & Garrison. The only remaining dispute, she said, now appears to be “the method of proof” for courts considering the price impact of generic statements: Must judges look only at expert evidence or can they rely on their own common sense?
Neither option, Barrett said, will dramatically change securities litigation. “How does a ruling on that narrow issue” make it easier for defendants to defeat class certification? she asked Shanmugam. “What does it really accomplish?” (Shanmugam said the court would send a message by reversing certification of the class rather than vacating the decision of the 2nd U.S. Circuit Court of Appeals and remanding the case.)
In a question to the Arkansas pension fund’s counsel, Thomas Goldstein of Goldstein & Russell, Breyer picked up on Goldstein’s argument that the bank and the pension fund now broadly agree that courts may consider the generic nature of alleged misstatements and part ways only on how to frame that consideration.
“These are very peripheral issues,” Breyer said. “You’re so much in agreement, what do you think of us not answering the question?” (Goldstein, as you would expect of a lawyer representing the side that won below, said it would be just fine with him if the Supreme Court dismissed the case.)
Shanmugam and Goldstein both declined to provide statements in response to my email queries on Monday’s argument.
Justices Samuel Alito and Brett Kavanaugh seemed to be searching for language to describe the middle ground now occupied by both Goldman and the pension fund (and, for that matter, the Justice Department, represented at Monday’s oral argument by Sopan Joshi, assistant to the solicitor general.)
The trick, as I’ve been saying since Goldman filed its Supreme Court petition, is that lower courts must reconcile the Supreme Court’s 2013 decision in Amgen Inc v. Connecticut Retirement Plans, in which the court held that shareholders are not required to prove the materiality of a defendant’s alleged misrepresentations in order to be certified as a class, with the justices’ 2014 ruling in Halliburton Co v. Erica P. John Fund Inc, which held that defendants can rebut the presumption that investors relied on their misrepresentations by showing that the misstatements did not affect the share price.
Lower courts, as Shanmugam told the justices on Monday, have strived so mightily to comply with Amgen’s prohibition on considering materiality that Halliburton has become almost useless to defendants. Since the court’s 2014 decision, he said, only five shareholder class action defendants have successfully defeated class certification by rebutting the presumption that investors relied on misrepresentations.
Alito and Kavanaugh suggested that the court could simply clarify the relationship between Amgen and Halliburton to say, in Alito’s words, “There is no reason to disregard evidence that goes to price impact ... just because it would also go to the issue of materiality.”
There’s still a wildcard in the Goldman case. The bank presented a back-up argument that shareholders must bear the burden of proving price impact once defendants introduce rebuttal evidence. Justices Neil Gorsuch and, to a lesser extent, Alito, seemed interested in that argument, even though DOJ’s Joshi argued that the burden lies with defendants.
I don't want to suggest Goldman is going to lose its case. The court may still vacate the 2nd Circuit's class certification decision, adopting DOJ's amicus brief argument that the appeals court wasn't sufficiently clear that it considered the generic nature of Goldman's statements. Pension fund counsel Goldstein, however, appeared confident during Monday's oral argument that if the case were remanded, investors would once again win certification at the 2nd Circuit.
For the rest of the shareholder bar, the takeaway from oral argument seems to be that the court’s eventual ruling will probably not be a disaster for investors. Despite Goldman’s hype, the case seems unlikely to be wreak revolutionary change in securities litigation.
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