Waggoner v. Barclays: Affirmation of Basic Presumption in Class Certification for Securities Fraud

Waggoner v. Barclays: Affirmation of Basic Presumption in Class Certification for Securities Fraud

Introduction

Waggoner v. Barclays Plc et al. is a significant case adjudicated by the United States Court of Appeals for the Second Circuit on November 6, 2017. The plaintiffs, Joseph Waggoner, Mohit Sahni, and Barbara Strougo, filed a class action lawsuit against Barclays PLC and its executives alleging securities fraud under § 10(b) of the Securities Exchange Act of 1934 and SEC Rule 10b-5. The central issue revolved around alleged misrepresentations related to Barclays' Liquidity Cross (LX), a dark pool trading system, and the subsequent impact on the price of Barclays' American Depository Shares (ADS).

The case primarily focused on whether the district court correctly granted class certification by applying the appropriate presumptions of reliance and assessing the plaintiffs' methodology for calculating classwide damages.

Summary of the Judgment

The Second Circuit affirmed the district court's decision to grant class certification to the plaintiffs. The appellate court held that:

  • The Affiliated Ute presumption of reliance does not apply because the plaintiffs' claims were based on affirmative misstatements rather than omissions.
  • The Basic presumption of reliance is applicable and was not rebutted by the defendants. The court found sufficient indirect evidence of market efficiency without requiring direct evidence under Cammer factor 5.
  • The defendants failed to meet their burden to rebut the Basic presumption by a preponderance of the evidence.
  • The plaintiffs' damages model was appropriate and complied with Comcast Corp. v. Behrend, thus not hindering class certification.

Consequently, the appellate court affirmed the order of the district court granting the plaintiffs' motion for class certification.

Analysis

Precedents Cited

The judgment extensively references several key legal precedents:

  • Affiliated Ute Citizens of Utah v. United States (406 U.S. 128, 1972): Established a presumption of reliance in cases involving primarily omissions.
  • BASIC INC. v. LEVINSON (485 U.S. 224, 1988): Introduced the Basic presumption of reliance in securities fraud cases under the fraud-on-the-market theory.
  • Cammer v. Bloom (711 F. Supp. 1264, 1989) and Krogman v. Sterritt (202 F.R.D. 467, 2001): Defined factors to assess market efficiency, essential for invoking the Basic presumption.
  • Halliburton Co. v. Erica P. John Fund, Inc. (134 S.Ct. 2398, 2014): Clarified that defendants must rebut the Basic presumption by showing lack of price impact by a preponderance of the evidence.
  • Comcast Corp. v. Behrend (569 U.S. 27, 2013): Set standards for classwide damages models in class action lawsuits.

Legal Reasoning

The court's legal reasoning can be dissected into several key components:

  1. Applicability of Presumptions:
    • The Affiliated Ute presumption was deemed inapplicable as the plaintiffs' allegations were based on affirmative misstatements, not mere omissions.
    • The Basic presumption was applied due to the efficient market for Barclays' ADS, supported by substantial indirect evidence without necessitating direct evidence of price impact under Cammer factor 5.
  2. Burden of Rebuttal:
    • The defendants were required to rebut the Basic presumption by a preponderance of the evidence, demonstrating that the alleged misstatements did not affect the stock price.
    • They failed to provide sufficient evidence to sever the link between the misrepresentations and the price of ADS, rendering the presumption of reliance intact.
  3. Damages Model:
    • The plaintiffs' damages model, which isolated the stock price decline attributable to the fraudulent statements and subsequent disclosures, was found compliant with the standards set in Comcast Corp.

Impact

This judgment reinforces the robustness of the Basic presumption in class action securities fraud cases, particularly when substantial indirect evidence suggests market efficiency. It underscores the necessity for defendants to provide convincing evidence to rebut such presumptions. Additionally, the affirmation of the plaintiffs' damages model provides clarity on how classwide damages can be appropriately calculated, fostering greater confidence in the adjudication of complex securities class actions.

Complex Concepts Simplified

Affiliated Ute Presumption

Definition: A legal presumption that reliance on an omission can be assumed in securities fraud cases, particularly when proving actual reliance is impractical.

Application: Only applicable in cases where the fraud is primarily based on omissions, not affirmative statements.

Basic Presumption

Definition: A presumption that investors relied on the market price of a security, which reflects all public information, including any misstatements.

Fraud-on-the-Market Theory: Assumes that the market price is efficient and incorporates all publicly available information, thus any misrepresentation affects the stock price.

Cammer and Krogman Factors

Cammer Factors: A set of criteria used to assess the efficiency of a market, which includes average weekly trading volume, analyst coverage, presence of market makers, eligibility for SEC registration forms, and evidence of price movement upon new information.

Krogman Factors: Additional elements such as company capitalization, bid-ask spread, and the proportion of shares available to the public (float).

Rule 23 Class Certification

Federal Rule of Civil Procedure 23: Governs the certification of class actions in federal courts, requiring commonality of legal or factual questions and that a class action is the superior method for resolving the dispute.

Conclusion

The Waggoner v. Barclays decision marks a pivotal affirmation of the Basic presumption in class certification for securities fraud under Rule 23(b)(3). By delineating the boundaries between the Affiliated Ute and Basic presumptions, the court clarified the conditions under which reliance can be presumed, especially emphasizing the role of indirect evidence in establishing market efficiency. The affirmation of the damages model further provides a framework for quantifying investor losses in complex fraud scenarios.

This judgment not only reinforces established securities fraud doctrines but also provides strategic insights for both plaintiffs and defendants in class action litigations. Plaintiffs can leverage robust indirect evidence to satisfy class certification requirements, while defendants must meticulously prepare to rebut such presumption with compelling evidence of market inefficiency.

Overall, Waggoner v. Barclays serves as a cornerstone for future securities class actions, emphasizing the delicate balance between procedural certainties and substantive fairness in the realm of financial litigation.

Case Details

Year: 2017
Court: United States Court of Appeals, Second Circuit.

Judge(s)

Christopher Fitzgerald Droney

Attorney(S)

Jeremy Alan Lieberman, Pomerantz LLP, New York, NY (Tamar Weinrib, Pomerantz LLP, New York, NY; Patrick V. Dahlstrom, Pomerantz LLP, Chicago, IL, on the brief), for Plaintiffs–Appellees. Jeffrey T. Scott, Sullivan & Cromwell LLP, New York, NY (Matthew A. Schwartz and Andrew H. Reynard, Sullivan & Cromwell LLP, New York, NY; Brent J. McIntosh, Sullivan & Cromwell LLP, Washington, DC, on the brief), for Defendants–Appellants. Max W. Berger, Bernstein Litowitz Berger & Grossmann LLP, New York, NY (Salvatore J. Graziano, Bernstein Litowitz Berger & Grossmann LLP, New York, NY; Blair Nicholas, Bernstein Litowitz Berger & Grossmann LLP, San Diego, CA; Robert D. Klausner, Klausner, Kaufman, Jensen & Levinson, Plantation, FL, on the brief), for the National Conference on Public Employee Retirement Systems as amicus curiae in support of Plaintiffs–Appellees. Daniel P. Chiplock, Lieff Cabraser Heimann & Bernstein, LLP, New York, NY, for the National Association of Shareholder and Consumer Attorneys as amicus curiae in support of Plaintiffs–Appellees. Jeffrey W. Golan, Barrack, Rodos & Bacine, Philadelphia, PA (James J. Sabella, Grant & Eisenhofer P.A., New York, NY, of counsel; Daniel S. Sommers, Cohen Milstein Sellers & Toll PLLC, Washington, DC, of counsel; James A. Feldman, Washington, DC, on the brief), for Evidence Scholars as amicus curiae in support of Plaintiffs–Appellees. Robert V. Prongay, Glancy Prongay & Murray LLP, Los Angeles, CA, for Securities Law Professors as amicus curiae in support of Plaintiffs–Appellees. Charles E. Davidow, Paul, Weiss Rifkind, Wharton & Garrison LLP, Washington, DC (Marc Falcone & Robyn Tarnofsky, Paul, Weiss, Rifkind, Wharton & Garrison LLP, New York, NY; Ira D. Hammerman and Kevin M. Carroll, Securities Industry and Financial Markets Association, Washington, DC, on the brief), for the Securities Industry and Financial Markets Association as amicus curiae in support of Defendants–Appellants. David S. Lesser (Fraser L. Hunter, Jr., Colin T. Reardon, John Paredes, on the brief), Wilmer Cutler Pickering Hale and Dorr LLP, New York, NY, for Paul S. Atkins, Elizabeth Cosenza, Daniel M. Gallagher, Joseph A. Grundfest, Paul G. Mahoney, Richard W. Painter, and Andrew N. Vollmer as amicus curiae in support of Defendants–Appellants. Michael H. Park, Consovoy McCarthy Park PLLC, New York, NY (J. Michael Connolly, Consovoy McCarthy Park PLLC, Arlington, VA; Kate Comerford Todd and Warren Postman, U.S. Chamber Litigation Center, Washington, DC, on the brief), for the Chamber of Commerce of the United States of America as amicus curiae in support of Defendants–Appellants.

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