[JURIST] The US Supreme Court [official website, JURIST news archive] heard oral arguments [day call, PDF; merit briefs] Monday in Erica P John Fund v. Halliburton [oral argument transcript, PDF; JURIST report]. The court will determine whether investor losses need to be proven by a preponderance of the evidence at the class certification stage prior to full discovery in order for the class action lawsuit to proceed. The US Court of Appeals for the Fifth Circuit held [opinion, PDF] that this was procedurally proper. The Fifth Circuit also determined that a plaintiff must establish loss causation to invoke the fraud-on-the-market presumption laid out in Basic v. Levinson [opinion]. Counsel for the petitioner argued that when a court holds at the class certification stage that there is no efficient market, and the issue of efficient market goes to the presumption of reliance, the basis for assuming class-wide reliance is impacted. Further that the Basic reliance presumption can be rebutted at the certification stage. Counsel also explained that loss causation is tested at the pleadings, summary judgment, and trial stages—and “the question is whether a fourth test should be interposed at the class certification stage.” Counsel argued that loss causation is a class-wide issue and an element of the merits case, and must be proven at all three stages, but “because it is something that is common for all of the class members, Rule 23 [text] says that is something for trial, not for class certification.” Amicus curiae for the government argued that:
The Fifth Circuit erred in requiring proof of loss causation at class certification for three reasons: First, it’s conducting a merits inquiry that’s not tethered to the Rule 23 requirements; second, it’s not taking a presumption and requiring plaintiffs to prove it; and third, it’s confusing the distinct elements of reliance and loss causation. … [The Fifth Circuit] is not talking about rebutting the presumption of reliance, giving the defendants an opportunity to do that at class certification. It is putting an affirmative burden on plaintiffs that they have to meet in every single case, even if the defendants do not come to court with any evidence. And that is a very heavy burden, as the district court in this case realized … the question is do common issues predominate over individual ones. What you’re trying to answer is can this group of people proceed together, not can this group of people make out their case.
Counsel for the respondent argued that according to Basic, “absent the class-wide presumption of fraud on the market reliance, individual issues of reliance predominate.” Thus, when a district court finds “that the presumption is unavailable or rebutted, reliance ceases to be a class-wide issue.” Further, that Basic sets forth a special rule and is an exception to the rule of nonsusceptibility in class actions to class treatment of fraud cases. According to Basic, it is not just enough to allege operative facts, but you have to plead and prove them and they are subject to common proof. “[U]nless those facts are proven at the class certification stage, the presumption of class-wide reliance doesn’t apply and individual issues of reliance predominate.”
In McNeill v. United States [oral argument transcript, PDF; JURIST report], the court will determine how retroactive sentencing laws affect the definition of a “serious drug offense” under the Armed Career Criminal Act (ACCA) [18 USC § 924]. Clifton McNeill was arrested in 2007 after police discovered a firearm and 3.1 grams of cocaine during a search incident to arrest for eluding a traffic stop. In light of previous drug convictions in 1992 and 1995, McNeill was convicted under the ACCA. The previous convictions and sentencing structure met the definitions of a “serious drug offense” at the time they were committed, but the statutory sentences for those offenses were reduced in later years and do not currently meet the ACCA definition. The US Court of Appeals for the Fourth Circuit held [opinion, PDF] that the ACCA still applied regardless of the subsequent statutory changes. Counsel for the petitioner argued:
When Congress defined in the Armed Career Criminal Act a “serious” drug offense as one for which a State penalty of 10 years or more is prescribed by law, it meant for Federal courts to look to the law presently in effect in that State. This is the most natural reading of the statute, and words matter. It is also consistent with ACCA’s purpose, which is [to] punish the Federal firearms offense … [but] not to enhance a sentence because of the prior conviction. … [W]hen the defendant commits the offense, what his status is at that time under the law we think makes sense and is consonant with the purpose of what ACCA is trying to do. ACCA is not trying to punish the State offense at the time. … The question is, in a statute that defers to the judgment of the States to determine seriousness, are we going to defer to the current State assessment of what seriousness is or are we going to look back to repeal the discarded judgments?
Counsel for the government argued that when sentencing, the court should “consider the offense and the punishment as they were defined by the body of law under which the defendant was convicted and sentenced.” Further that the government’s reading does not require the court to recharacterize the old offense at all. “[R]equiring the court to look to the time of the underlying conviction and sentencing unifies the inquiry across both components of the definition of serious drug offense and the definition of violent felony. … And if the State actually thinks that the previous offenses that were committed were less serious, then it could make the decreased maximum term of imprisonment retroactively applicable if it wanted to demonstrate that it really thought that those were mistakes.”