Articles Posted in Class Actions

Rotten WoodThe defendants in Halliburton Co. v. Erica P. John Fund, Inc. failed to show the US Supreme Court the “special justification” necessary to overturn settled precedent.

As we explained in a previous post, the Supreme Court in this case agreed to reconsider its 1988 decision in Basic v. Levinson, which allowed a shareholder class in a securities fraud lawsuit to satisfy statutory “reliance” requirements by invoking a presumption that stock prices traded in “efficient” markets incorporate all material information, including alleged misrepresentations.

But between then and now, academics, economists, and commentators chipped away at the economic theory underlying this presumption, which is based upon “the efficient capital markets hypothesis.”

So if a legal precedent depends upon an economic theory that now appears less valid than it did before, do you overrule it or keep it in place because it has ingrained itself into a larger legal structure?

Here is a similar question from real estate: If part of the wood in a load-bearing wall has started to rot, do you replace it? The Supreme Court held that you do, if you can show a “special justification.”

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Antitrust lawsuit costsIf you ask this question to an antitrust lawyer, you will receive some form of “it depends” in response. That’s true. It does depend. And you will inevitably follow up with, “What does it depend upon?” Let’s see if we can begin to answer that question.

What we are discussing here is not a class-action antitrust lawsuit, but an antitrust claim by one business or individual against another. Class-action antitrust cases usually incorporate some contingency-fee approach and are lawyer-centered rather than client-centered cases. That is, the plaintiff law firms act as “private-attorney generals” to enforce the antitrust laws through the class-action vehicle. Those cases are very different than the typical case brought by a company against its competitor, supplier, or customer. You can read our article on defending against class certification in antitrust cases here.

Antitrust cases are expensive. Usually. But if managed effectively, they don’t need to cost nearly as much as they did when big law firms held a virtually monopoly on the cases by convincing clients that only they had the requisite resources to file such a massive claim.

With the combination of technological advancements and third-party providers, I believe that, in many instances, hiring a big law firm to run your antitrust case is a costly mistake. We’ll get into that more below.

I am not going to get into actual numbers here because fees and other costs vary and will change over time. But if you are considering antitrust litigation, studying the components of an antitrust lawsuit will help you (1) understand what you are paying for and (2) figure out how to reduce your costs.

Below are the primary-cost drivers of an antitrust case. Of course, every case is different and a lot can come up in litigation that is unexpected and unusual. That keeps it interesting, but also increases cost variances. The list below doesn’t hit everything, but I hope it helps you.

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Employees and antitrustThat’s right, the antitrust laws care so much about competition that they even prohibit agreements among competitors to not steal. In a society that morally condemns stealing, this is counter-intuitive (and a good reason to learn a little bit about antitrust).

You might wonder now whether I will engage in some philosophy gymnastics to convince you that stealing is okay. No, but I will provide a concrete example, then offer some advice. Not as fun, but perhaps more useful.

So California is abuzz with recently released documents in an antitrust class action by employees against giant Silicon Valley employers like Google, Inc., Apple Inc., Intel Corp and Adobe Systems Inc. The case is scheduled for trial soon and news reports suggest a settlement is likely.

Update: As expected, the parties have reportedly agreed to settle the antitrust case.

What happened? The class-action employees accused major Silicon Valley employers of agreeing not to steal each other’s employees. If true, that’s kind of a big deal under the antitrust laws.

It doesn’t sound so bad, right? How can anyone get any work done if everyone is trying to steal everyone’s employees? And it just seems impolite. Competitors are so tough on each other—can’t we have just a little bit of dignity and not try to hire away your competitor’s employees? The sort of war that can ensue among competing employers for a scarce resource—quality technology employees—can make a truce very tempting.

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Illinois BrickWhile waiting for my flight to leave San Diego on my way to Washington, DC for the ABA Antitrust Spring Meeting, I saw on Twitter—the best source for immediate Supreme Court news—that the Supreme Court had decided Lexmark International, Inc. v. Static Control Components, Inc. 

The Supreme Court in that case clarified standing requirements for Lanham Act claims, which create liability for false association and false advertising. The Lanham Act often comes up in legal battles between competitors, as competition often devolves into allegedly false statements about each other’s products or services.

The case is significant for standing in general, but I wonder if it may have some antitrust implications down the road as the lower courts grapple with its broader implications.

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Supreme Court BuildingOn March 5, the Supreme Court will hear arguments on whether the fraud-on-the-market presumption in securities class actions should survive. The case is Halliburton v. Erica P. John Fund and it could be groundbreaking. If the Supreme Court jettisons the presumption, it will close a major avenue for securities class-action lawsuits.

Update: The US Supreme Court issued its decision on June 23, 2014.

But what does this mean for antitrust lawsuits? We’ll get to that in a moment.

First, some background: In 1988, the Supreme Court held in Basic v. Levinson that when a shareholder class sues a company under Rule 10b-5 (for misrepresentation, etc.), it need not show that the individual class members relied on the misrepresentations because the stock market is “efficient” and such statements are quickly incorporated into the stock price.

So if you purchased a share of stock after a management official said that the company increased revenue twenty-percent year-over-year even though the manager knew that the revenue numbers were not accurate, you purchased stock that was already inflated from the statements because the market incorporated those statements immediately into the stock price.

Remember the classic book, A Random Walk Down Wall Street? It is all about efficient-market theory. Great book, by the way.

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