Halliburton Legal Dispute Could Take a Detour to Supreme Court

Oil company Halliburton just requested that the Supreme Court revisit an important past case: Erica P. John Fund v. Halliburton. To clarify, the Erica P. John Fund (the "Fund") is among the oil company's shareholders, and has been embroiled in a years-old legal battle with the oil company predicated upon the allegation that the company "fudged" some very crucial info concerning its shareholder interactions. Particularly, The Fund is accusing Halliburton of exaggerating revenues and reporting fewer possible liabilities. Now, Erica P. John Fund insists on leveling its case against the defense in the form of a class action lawsuit (CAL): a lawsuit which is filed on behalf of a particular group of people suffering from similar injuries/offenses. A class action lawsuit allows Erica P. John Fund to litigate on behalf of all Halliburton shareholders, which would seriously increase the dollars on the table in the suit.New York Times recently published an outstanding analysis of the Halliburton case, mentioning what Halliburton is attemtping to do to deflect some of the legal heat from the case. The NYT publication goes on to illustrate how the majority of these types of lawsuits rely on the legal concept of "reliance", meaning that the shareholders acted in reliance of the company's fraudulent activities. Historically, the US Supreme Court has interpreted reliance broadly - in order to show reliance, a shareholder doesn't need to read a prospectus and the fraudulent statements it contains. Rather, courts takes any deceptive statement(s) made by a corporation (and accepted by the public) that has any bearing on the financial value of the corporation and incorporates them into the total price of the company's securities. Courts justify this decision based on the grounds that markets always price securities with all information that is currently available, something that is widely accepted in the field of finance. Nevertheless, most investors/shareholders don't conduct exhaustive reviews of prospectuses and financial statements made publicly available by the companies in whom they invest; plaintiffs can still prove "reliance" as long as they have bought securities with the corporation. As an increasing number of shareholders come forward and are able to demonstrate reliance, class action suits become easier to take to court.In their court request to reconsider the case, Halliburton Co. made it seem that it will likely contest that the current legal interpretation of reliance is far too expansive. They will contend that the Court should define reliance as requiring shareholders to do more than merely purchase securities; for example, the court could require shareholders to read a financial statement/fraudulent prospectus. Such an argument could get enthusiastic support from the greater business community. As the Times piece mentions, last year in an unrelated case, four justices stated that they would be willing to overrule the traditional, expansive meaning of "reliance". If the Court ultimately hears the Halliburton case, the crucial question will be whether Halliburton can get a much-needed fifth vote to ratify the decision.