Blawgletter thinks we don't go over the line when we say the Fifth Circuit deserves its rep as the court of appeals least likely to abide a class action.
Fresh proof came last week. The court upheld the denial of class treatment in a securities fraud case against Halliburton. It said, in a footnote:
Plaintiff contends that our precedent, specifically the requirement of Oscar Private Equity Investments v. Allegiance Telecom, Inc., 487 F.3d 261, 269 (5th Cir. 2007), that class plaintiffs prove loss causation at the class certification stage, is contrary to Supreme Court and sister circuit precedent. Plaintiff may not assail Oscar as wrongly decided, as we are bound by the panel decision.
Archdiocese of Milwaukee Supporting Fund, Inc. v. Halliburton Co., No. 08-11195, slip op. at 2 n.2 (5th Cir. Feb. 12, 2010).
We can posit few burdens tougher to carry in a securities fraud case than the one for loss causation. Indeed, the Fifth Circuit's take on loss causation strikes us as the hardest of all. In its view, plaintiffs must show not only that exposure of an untruth coincided with a drop in the stock's price but also that nothing else could explain the fall:
Causation therefore requires the Plaintiff to demonstrate the joinder between an earlier false or deceptive statement, for which the defendant was responsible, and a subsequent corrective disclosure that reveals the truth of the matter, and that the subsequent loss could not otherwise be explained by some additional factors revealed then to the market. This requirement that the corrective disclosure reveal something about the deceptive nature of the original false statement is consistent with liability in a securities fraud action, where it is those who affirmatively misrepresent a material fact affecting the stock price that are held responsible for losses.
Id., slip op. at 6-7.
Proving a negative? Good luck.
Why, you ask, does the court insist that plaintiffs prove loss causation at the class certification stage? The panel said that the Archdiocese "may not assail" the 2007 case in which the court (per the panel) mandated evidence that proved loss causation. That makes sense to the extent it says one panel may not overrule another one.
But one may hope that the full court (or perhaps the Supreme Court), some day, will see that class certification calls for proof not that plaintiffs will win at trial but that the proof they expect to offer could establish the elements of their claim — including loss causation — on a class-wide basis. Their Honors will then overrule Oscar as an unwise effort to fuse class certification with the merits.