I haven’t posted about the Supreme Court’s decision in Erica P. John Fund, Inc. v. Halliburton Co. because I viewed it as limited to a narrow issue of securities law that would not affect insurers except to the extent that they are public companies occasionally subject to defending securities class actions like any other public companies.
Erica P. John Fund is a short unanimous opinion, authored by Chief Justice Roberts, holding that loss causation need not be proven by a plaintiff in order to obtain class certification. The opinion is narrow in its focus and does not include any general commentary on class certification law. It discusses Basic, Inc. v. Levinson, 485 U.S. 224 (1988), where the Court held that, for purposes of a Rule 10b-5 securities fraud claim, a plaintiff can use a “fraud on the market” theory to establish a rebuttable presumption of reliance. The idea there is that the market price of a company’s shares reflect the publicly available information, and thus an investor can be presumed to rely on public statements about the company in buying stock at the market price. The separate requirement of loss causation requires a showing that misrepresentations, not other intervening causes, caused the drop in the stock price. The Court held in Erica P. John Fund that this loss causation requirement need not be proven to obtain class certification. Most courts of appeal had taken that view, but the Fifth Circuit had required proof of loss causation.
I don’t see this case as having a significant impact on insurance class actions outside the securities context because attempts to extend the “fraud on the market theory” beyond the securities context have been largely rejected, for example, in cases involving insurance sales practices. Proof of loss causation is really proof of damages and not proof of one of the elements of Rule 23, as the Supreme Court concluded in a rather summary manner.
I was surprised though by a citation to Erica P. John Fund in the Florida Supreme Court’s opinion in Sosa v. Safeway Premium Finance Company (see my blog post on the Sosa case). In the course of discussing commonality, the Florida Supreme Court cited loss causation as an example of the type of “fact question” that did not need to be proven at class certification. (Slip op. at 33.) Oddly, the Florida court did not mention Wal-Mart, which focused extensively on commonality. But that may be because the Florida opinion, issued on July 7, 2011, was largely finalized before Wal-Mart was decided in late June. The Sosa opinion notwithstanding, I still think it is rare we will see Erica P. John Fund cited outside of the securities context, and its impact on non-securities class actions should be minimal.