## Facts

- A charitable fund sought to represent a class of investors who purchased Halliburton common stock between June 3, 1999, and December 7, 2001.
- The complaint alleged Halliburton made public misstatements that inflated its stock price, including statements about asbestos litigation exposure, expected revenue from construction contracts, and the benefits of a corporate merger.
- The fund alleged that later disclosures corrected the misstatements, caused stock-price declines, and generated investor losses.
- The action asserted claims under § 10(b) of the Securities Exchange Act of 1934 and SEC Rule 10b-5 and sought class certification under Federal Rule of Civil Procedure 23(b)(3).
- The district court found Rule 23(a) satisfied and predominance otherwise met, but denied certification because circuit precedent required proof of loss causation at the class-certification stage.
- The court of appeals affirmed, treating loss causation as a prerequisite to invoking the fraud-on-the-market presumption of reliance.

## Issues

1. Whether plaintiffs seeking class certification in a Rule 10b-5 securities-fraud action must prove loss causation to invoke the fraud-on-the-market presumption of reliance.
2. Whether requiring loss-causation proof at class certification is consistent with Rule 23(b)(3) predominance and the fraud-on-the-market framework.

## Decision

- The Supreme Court unanimously vacated the judgment and remanded.
- The Court held that securities-fraud plaintiffs need not prove loss causation to obtain class certification.
- The Court rejected the view that loss causation is a prerequisite for invoking the fraud-on-the-market presumption at the certification stage.
- The Court explained that loss causation concerns a merits element (linking the misrepresentation to the economic loss) rather than a Rule 23 predominance requirement.
- The Court distinguished loss causation from whether a misstatement affected the stock’s market price at the time of the transaction, which is the reliance-related concept implicated by the fraud-on-the-market presumption.

## Legal Principles

- Loss causation is a merits element in a private Rule 10b-5 action and is not a condition for class certification under Rule 23(b)(3).
- Reliance (transaction causation) and loss causation are distinct; the fraud-on-the-market presumption addresses reliance, while loss causation addresses whether the fraud caused the investor’s economic loss.
- Rule 23(b)(3) predominance asks whether common issues predominate, not whether plaintiffs have proved elements that will be common on the merits.
- A requirement that plaintiffs prove loss causation at class certification conflicts with the fraud-on-the-market framework by adding a condition not required to trigger the reliance presumption.

## Conclusion

The Court ruled that plaintiffs pursuing a securities-fraud class action may seek Rule 23(b)(3) certification without proving loss causation, because loss causation is a separate merits element and does not determine whether common issues of reliance can be addressed on a classwide basis.


Erica P. John Fund, Inc. v. Halliburton Co., 563 U.S. 804 (2011)