New York Times

WASHINGTON — The Supreme Court on Monday made it harder for investors to band together to pursue claims that they were misled when they bought or sold securities. But the justices did not accept a broader challenge, one that could have put an end to most class actions for securities fraud.

Business groups expressed tempered enthusiasm for the decision, calling it a small step.

“While today’s decision inches toward bringing securities law back in line with the ordinary rules for proving fraud cases, much more can and should be done,” said Lily Claffee, general counsel of the United States Chamber of Commerce.

Chief Justice John G. Roberts Jr., writing for the majority in a unanimous decision that split 6 to 3 on its rationales, said that defendants facing class actions might try to show at an early stage that their statements did not affect their securities’ market price.

The decision, in a case involving the oil services company Halliburton, will cut back on suits that can involve enormous sums. Settlements involving companies and investors over the last decade have totaled about $62 billion, with about $10.5 billion of that amount going to plaintiffs’ lawyers, according to a report from NERA, an economic consulting firm.

Companies facing class actions prefer to address as many issues as they can before judges decide whether to certify a class. Once a class is certified, they say, the damages sought are often so enormous that the only rational calculation is to settle even if the chances of losing at trial are small.

Chief Justice Roberts acknowledged those concerns. Briefs in the case, he said, had recited the possibilities that class actions “allow plaintiffs to extort large settlements from defendants for meritless claims; punish innocent shareholders, who end up having to pay settlements and judgments; impose excessive costs on businesses; and consume a disproportionately large share of judicial resources.”

But “those concerns are more appropriately addressed to Congress,” the chief justice wrote, adding that Congress had already responded to some of the concerns in laws enacted in 1995 and 1998.

The decision on Monday arose from statements made by Halliburton on three topics: its financial exposure to asbestos claims, expected earnings from its engineering and construction business, and the anticipated benefits of a merger.

The plaintiffs said the statements were false and were intended to inflate the price of the company’s stock.

In requiring early consideration of whether the contested statements affected the company’s price, the Supreme Court erected a new but often surmountable hurdle in securities fraud cases. A version of the requirement was proposed in a supporting brief filed by two law professors, Adam C. Pritchard of the University of Michigan and M. Todd Henderson of the University of Chicago.

By accepting the proposal, the court gave corporate defendants a minor victory, one that will allow them to defeat some securities fraud claims at the outset.

But business groups had hoped for more. Halliburton had asked the justices to overrule a 1988 decision,Basic v. Levinson, which endorsed the “fraud on the market” theory. That theory, derived from the efficient-market hypothesis, says stock prices of major public companies promptly reflect significant public information.

The theory allowed investors to skip a step required in ordinary fraud suits: direct proof that they relied on the contested statement. It also allowed investors to avoid a requirement for class actions: proof that their claims had enough in common to allow them to band together.

Without the presumption established in the 1988 decision, investors would each have to prove reliance individually, making class certification difficult or impossible. Many individual securities fraud cases would be thwarted, too, because investors would not be able to show that they actually relied on given misstatements.

Halliburton had asked that the 1988 decision be overruled, saying economic research in the intervening decades had undermined the presumption it had established. Markets are not always efficient in incorporating public information into prices, the company said. And investors do not always rely on the integrity of market prices in making investment decisions.

Chief Justice Roberts said neither contention was sufficient to justify overruling the 1988 decision. “Even the foremost critics of the efficient-capital-markets hypothesis acknowledge that public information generally affects stock prices,” he wrote. And even a “value investor” — one who buys stock in companies the investor considers undervalued by the market — “implicitly relies on the fact that the stock’s market price will eventually reflect material information,” he added.

In all, Chief Justice Roberts said, Halliburton’s arguments were not enough. “Before overturning long-settled precedent,” he said, “we require special justification, not just an argument that the precedent was wrongly decided.”

He said the principle of “stare decisis” — Latin for “to stand by things decided” — has special force in cases involving the interpretation of statutes. Here, if Congress is dissatisfied with the Supreme Court’s interpretation of the Securities Exchange Act, he said, it can address the matter with new legislation.

Justices Anthony M. Kennedy, Ruth Bader Ginsburg, Stephen G. Breyer, Sonia Sotomayor and Elena Kagan joined the majority opinion, which returned the case to the lower courts to allow Halliburton to try to show that its statements had not affected its stock price.

In 2013, several justices seemed to invite a challenge to the “fraud on the market” theory.

“Recent evidence suggests that the presumption may rest on a faulty economic premise,” Justice Samuel A. Alito Jr. wrote in a concurrence in the case, Amgen v. Connecticut Retirement Plans and Trust Funds. “In light of this development, reconsideration of the basic presumption may be appropriate.”

In Monday’s decision, only three members of the court — Justices Alito, Antonin Scalia and Clarence Thomas — said they were prepared to overrule the 1988 decision. In a concurring opinion that agreed with the majority’s bottom line but declined to adopt its rationale, Justice Thomas wrote that “logic, economic realities and our subsequent jurisprudence have undermined the foundations of the basic presumption, and stare decisis cannot prop up the facade that remains.”

The new limits the court announced were similar to earlier ones in cases making it harder for workers and consumers to pursue class actions. The general trend has been toward requiring more proof early in the case that the plaintiffs deserve to win, and the new decision, Halliburton v. Erica P. John Fund, No. 13-317, adhered to that approach.