From “Newly Public” to “Newly Significant” – The Third Circuit Refines Price-Impact Rebuttal Under the Inflation-Maintenance Theory

1. Introduction

In San Diego County Employees Retirement Association v. Johnson & Johnson (“SDCERA”), the United States Court of Appeals for the Third Circuit affirmed class certification in a securities-fraud action alleging that Johnson & Johnson (J&J) concealed the presence of asbestos in its talc products. The opinion, designated “not precedential” yet rich in doctrinal detail, confronts the most hotly litigated element at the class-certification stage of Rule 23(b)(3) securities cases: reliance. Specifically, it elaborates how defendants may (or may not) rebut the Basic fraud-on-the-market presumption of reliance when plaintiffs proceed under the inflation-maintenance theory.

The decision is notable for two reasons. First, it synthesises the Supreme Court’s trilogy—Basic, Halliburton I & II, and Goldman Sachs—into a workable test for district courts faced with competing “price-impact” expert reports. Second, it clarifies that information which is technically “in the public domain” can, through republication or expert synthesis, still qualify as a corrective disclosure capable of moving an efficient market if the new presentation confers greater credibility, visibility, or analytical coherence. In other words, “newly significant” information may matter as much as “newly public” information.

(Court of Appeals for the Third Circuit, No. 24-1409, filed 30 July 2025; opinion by Judge Shwartz, joined by Judge Restrepo; concurrence/dissent by Judge Chung.)

2. Background of the Case

2.1 Parties

• Plaintiff: San Diego County Employees Retirement Association (SDCERA) and Frank Hall, representing purchasers of J&J stock between February 2013 and December 2018.
• Defendants/Appellants: Johnson & Johnson and four senior officers (Alex Gorsky, Joan Casalvieri, Tara Glasgow, Carol Goodrich).

2.2 Core Allegations

Between 2013 and 2018 J&J allegedly issued repeated assurances that its talc was “asbestos-free,” “safe,” and subject to rigorous internal testing. Plaintiffs claim these statements maintained artificial inflation in J&J’s share price. Six partial disclosures—ranging from boutique-law-firm press releases and legal-trade-press articles to a multibillion-dollar jury verdict and a Reuters investigative report—gradually revealed the supposed truth, triggering statistically (and economically) significant price declines.

2.3 Procedural Posture

• District Court (D.N.J., Judge Zahid N. Quraishi) certified a Rule 23(b)(3) class after finding that common issues—especially reliance—predominate.
• J&J petitioned under Rule 23(f), arguing it had rebutted the Basic presumption by showing no price impact.
• The Third Circuit granted interlocutory review and now affirms.

3. Summary of the Judgment

1. The Court accepted that Plaintiffs established the four Basic prerequisites (publicity, materiality, market efficiency, and purchase timing).
2. It held that Defendants failed to meet their burden, under Goldman Sachs, of showing by a preponderance of evidence that the challenged statements had zero price impact.
3. Key findings:
   • Even disclosures derived from public materials may convey new, value-relevant signals to the market.
   • Statistical significance at exactly the 95 % level is not a sine qua non; economic logic and totality of evidence matter.
   • No “mismatch” existed between the subjects of the misstatements (talc safety) and the disclosures (asbestos presence/liability).
4. Accordingly, reliance remains a common issue; class certification stands.

4. Detailed Analysis

4.1 Precedents Cited and Their Influence

• Basic Inc. v. Levinson, 485 U.S. 224 (1988) – Established the rebuttable presumption that investors rely on the integrity of market price in an efficient market.
• Amgen Inc. v. Connecticut Retirement Plans, 568 U.S. 455 (2013) – Materiality need not be proven at class certification.
• Halliburton I, 563 U.S. 804 (2011) – Loss causation not a prerequisite for class certification.
• Halliburton II, 573 U.S. 258 (2014) – Defendants may rebut Basic by proving no price impact; burden of persuasion lies on defendants.
• Goldman Sachs Group Inc. v. Arkansas Teacher Retirement System, 594 U.S. 113 (2021) – Emphasised court’s obligation to weigh all “probative evidence—qualitative as well as quantitative” and to look for a “mismatch” between misstatements and alleged corrective disclosures.
• Other influential circuits: Vivendi (2d Cir.), Glickenhouse (7th Cir.), Omnicom (2d Cir.) – all on inflation-maintenance and correctiveness.

Judge Shwartz interlaces these cases into a coherent template:

To defeat class certification, a defendant must sever the link between misrepresentation and price. Evidence that a disclosure was already fully absorbed, or bore no substantive connection to the alleged misstatement, could do so. Otherwise, the Basic presumption survives.

4.2 The Court’s Legal Reasoning

1. Framework for Price-Impact Inquiry
   The opinion restates the four Basic prerequisites and adopts Goldman’s instruction that the first three are proxies for price impact. Where plaintiffs rely on an inflation-maintenance theory, courts compare the counterfactual price (“truthful substitute”) with the actual price.
2. Defendants’ Two-Pronged Attack
   J&J argued: (a) the six disclosures contained no “new” information (mere re-hash of public data); (b) any price moves were driven by non-fraud factors such as generic litigation-risk or reputational loss.
3. Court’s Rebuttal
   a) Publicly accessible ≠ publicly understood. A disclosure can newly inform the market where it:
   • Is republished by a more credible source (e.g., Reuters investigative series).
   • Packages disparate public fragments into a coherent narrative (expert synthesis).
   • Signals heightened litigation peril (first asbestos-ovarian-cancer verdict).
   b) Market Reaction Evidence. Five of six disclosures were followed by statistically significant declines; the remaining one (Sept 2017) still plausibly transmitted negative information. Defendants produced no competing econometric evidence isolating alternative causes.
4. No Mismatch
   Unlike Goldman (generic “we have strong controls” vs. LIBOR manipulation), here both misstatements and disclosures concern the safety of talc with respect to asbestos contamination. Therefore, price drops are reasonably attributable to correction of the alleged misrepresentation.
5. Standard of Proof
   Under Halliburton II, defendants carry the burden of persuasion. The panel found J&J’s qualitative showings insufficient to prove zero impact by preponderance.

4.3 Potential Impact on Future Litigation

• Broader Definition of “Corrective” – Courts in the Third Circuit may treat repackaged or expertly curated information as corrective if it alters market perception, even if raw data were already on a website or court docket.
• Statistical Significance Flexibility – Rigid 95 % thresholds give way to an evidence-in-the-round approach; 90–94 % confidence intervals, plus qualitative context, can sustain a finding of price impact.
• Increased Difficulty of Rebuttal – Defendants now need richer econometric analyses (event-study isolating confounding factors) and perhaps affirmative proof of non-movement when misstatements were first made.
• Guidance to District Courts – Although labelled “not precedential,” the opinion offers a step-by-step template for class-certification orders in fraud-on-the-market cases.
• Split Highlighted – Judge Chung’s partial dissent echoes concerns from the Fifth and Eleventh Circuits about requiring “new” information. Future en-banc or Supreme Court clarification may be sought.

5. Complex Concepts Simplified

5.1 Fraud-on-the-Market Presumption

If a security trades in an efficient market, all public information—including misstatements—is reflected in its price. An investor who buys at that price is presumed to have indirectly relied on the misstatement.

5.2 Inflation-Maintenance Theory

Unlike “inflation-creation” (stock shoots up after a lie), inflation-maintenance posits that the lie kept an already elevated price from falling. The price impact equals the drop that would have occurred had the truth been told earlier.

5.3 Corrective Disclosure

A public statement or event revealing the falsity of prior representations. It need not be a single “truth bomb.” A series of partial disclosures can cumulatively drain inflation.

5.4 Price-Impact Rebuttal

Under Halliburton II, defendants may defeat class certification by proving the misstatement had no effect on price—commonly via event studies or proof that alleged disclosures were already known/immaterial.

6. Conclusion

SDCERA v. Johnson & Johnson solidifies the Third Circuit’s place among jurisdictions adopting a pragmatic, market-focused view of “new” information in securities litigation. By upholding class certification, the panel stresses that defendants must do more than show information existed somewhere in the public record; they must demonstrate that the market had already internalised it, or that the alleged corrective events bore no substantive connection to the challenged statements.

For practitioners, two lessons loom large: (1) When crafting disclosures or analysing them for litigation, consider how information is communicated—medium, credibility, synthesis—not merely whether it is technically public. (2) Defendants resisting class certification must marshal robust econometrics and narrative evidence to satisfy the demanding burden of showing zero price impact, especially in inflation-maintenance cases.

The judgment’s nuanced articulation of “newly significant” information may influence courts far beyond the Third Circuit, nudging securities jurisprudence toward a more realistic appraisal of how markets absorb complex, piecemeal data in an age of information overload.