Shearman & Sterling LLP | Securities Litigation Blog | Best Buy Shareholders File Motion For Rehearing In Eighth Circuit; Argue Ruling Overturning Class Certification Conflicts With Halliburton.<br >  
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  • Best Buy Shareholders File Motion For Rehearing In Eighth Circuit; Argue Ruling Overturning Class Certification Conflicts With Halliburton.
     
    05/16/2016
    On May 10, 2016, Best Buy shareholder plaintiffs filed a motion for rehearing in the United States Court of Appeals for the Eighth Circuit, seeking en banc review of the first circuit court ruling to apply the United States Supreme Court’s seminal decision in Halliburton II, and hold that a defendant had rebutted the fraud-on-the-market presumption of reliance by showing lack of price impact.  IBEW Local 98 Pension Fund et al. v. Best Buy Co. Inc. et al., case number 14-3178, in the U.S. Court of Appeals for the Eighth Circuit.  Plaintiffs seek rehearing of the Court’s 2-1 decision in April, which relied on Halliburton II in overturning the class certification order of the United States District Court for the District of Minnesota, after finding that the District Court had ignored evidence presented by defendants demonstrating that the alleged misstatements did not impact the share price.  In seeking rehearing, Plaintiffs are attempting to align the Eighth Circuit with the United States Court of Appeals for the Seventh and Eleventh Circuits, which have held that for purposes of invoking the fraud-on-the-market presumption, a plaintiff may point to evidence that a false statement maintained an inflated price until the price dropped as a result of a corrective disclosure.

    Plaintiffs’ motion is primarily premised on four arguments.  They contend that: (1) the Court’s decision conflicts with other circuits; (2) the decision conflicts with Eighth Circuit precedent; (3) the decision conflicts with Halliburton II (Halliburton Co. v. Erica P. John Fund, 134 S. Ct. 2398 (2014)); and (4) the issue is of great import and requires resolution.  As to the first point, Plaintiffs argue that the Court’s decision allows defendants to defeat the presumption of reliance under Basic Inc. v. Levinson, 485 U.S. 224 (1988), “simply by showing the absence of any stock price increase following a false or misleading statement,” whereas both the Seventh and Eleventh Circuits have upheld “price maintenance” theories of liability. As to the second point, Plaintiffs contend that the ruling departs from Gebhardt v. ConAgra Foods, Inc., 335 F.3d 824, 831-32 (8th Cir. 2003), where the Eighth Circuit “recognized that securities fraud can have a price impact even without a correlated price movement.” (emphasis in original).  In Gebhardt, the Court wrote that “[i]f a stock does not appreciate as it would have absent the fraudulent conduct, investors have suffered a harm.” Id. at 831-32.  As to the third point, Plaintiffs argue that the Court’s ruling is inconsistent with Halliburton II, because it allegedly conflated the question of whether there was a price impact with whether there was a price increase.  Finally, Plaintiffs contend the Court should review its decision to cure the apparent circuit split created, which, according to Plaintiffs, has created uncertainty as to an important question in securities law.

    As with the previous developments in this case, this motion for rehearing will be closely followed by practitioners.  For now, the price maintenance theory remains in flux.

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