The Supreme Court agreed Friday to hear a case that could make it harder for investors to win class-action lawsuits for securities fraud. The court also agreed to consider when police officers could be sued for using excessive force to stop fleeing suspects.
The securities fraud case will revisit and perhaps revise one of the foundational decisions in the area. That 1988 decision, Basic v. Levinson, ruled that investors claiming they were defrauded by false statements in securities filings need not show they relied on the statements.
Instead, the court said, they could rely on a presumption that all publicly available information about a company is reflected in its stock price. That presumption is known as the “fraud on the market” theory.
In February, four justices seemed to invite a challenge to the 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 the new case, the plaintiffs, who bought Halliburton stock from 1999 to 2001, said the company had made false statements intended to inflate its stock price on three topics: its financial exposure to asbestos claims; prospective earnings from its engineering and construction business; and expected benefits of a merger.
In urging the court not to hear the case, Halliburton v. Erica P. John Fund, No. 13-317, the plaintiffs said a ruling disavowing the “fraud on the market” presumption would “eliminate or hamstring the ability of private parties to bring securities fraud actions.”
The court also agreed to take another look at how far the police may go to end car chases. In 2007, in Scott v. Harris, the court ruled against a Georgia man who was paralyzed when his car was rammed by the police during a chase.
In the new case, Plumhoff v. Rickard, No. 12-1117, police officers from West Memphis, Ark., pursued a driver and passenger to Tennessee, where they shot them to death. The United States Court of Appeals for the Sixth Circuit, in Cincinnati, allowed the case to move forward notwithstanding the Supreme Court decision.
“Although the police in Scott used a maneuver to stop the fleeing car that might very well cause a crash and injury,” Judge Ralph B. Guy wrote for a unanimous three-judge panel, “the police here fired 15 shots at close range, all but two of which apparently hit the subjects and 12 of which hit the driver.” He added that the vehicle was “essentially stopped and surrounded by police officers” at the time, and “the police knew there was a passenger in the fleeing vehicle thus doubling the risk of death.”
The police officers argued that their actions were justified, given the dangers they faced and the threat to public safety. Courts,they said in urging the Supreme Court to hear their case, “should be loath to second guess split-second decisions made with respect to force.”