(Reuters) - A once-promising securities class action against Best Buy came to a whimpering end on Friday, when U.S. District Judge Donovan Frank of St. Paul, Minnesota, granted summary judgment to the electronics chain, which had been accused of misrepresenting its projected earnings in a conference call with analysts way back in 2010.
Judge Frank’s ruling is obviously great news for Best Buy and its lawyers at Simpson Thacher & Bartlett, who changed the course of the case when the 8th U.S. Circuit Court of Appeals — in the first appellate interpretation of the U.S. Supreme Court’s 2014 ruling in Halliburton v. Erica P. John Fund (134 S.Ct. 2398) — decertified (818 F.3d 775) a Best Buy shareholder class in 2016. There’s a lesson for other securities class action defendants from Best Buy’s tenacity: It’s expensive to litigate shareholder class actions to the circuit courts and back but sometimes the cost-benefit analysis cuts against settling when you first lose a class certification decision.
The more important message from the Best Buy case, though, may be the relatively limited impact of the 8th Circuit’s analysis of Halliburton. As you know, the Supreme Court held in Halliburton that although shareholders are entitled to a presumption that investors relied on corporate misstatements, defendants can rebut that presumption. In practice, the Supreme Court’s ruling meant that securities class action defendants could attempt to block class certification by showing that alleged misrepresentations didn’t impact the price of shares. The justices left considerable ambiguity about the burden and standard of proof to show a lack of price impact. The 8th Circuit’s ruling in Best Buy, which said defendants need only to show some evidence in order to shift the burden to shareholders to prove price impact, buoyed defense hopes that Halliburton would turn out to be a powerful weapon.
But the ruling hasn’t gotten much traction. Based on Westlaw’s tally of decisions citing the 8th Circuit’s Best Buy decision, only a couple of trial courts have adopted the appellate court’s reasoning on how defendants can rebut the presumption. Other trial courts have disagreed with the 8th Circuit’s view of which side bears the burden of proof. Most significantly, in a pair of 2017 rulings in class actions against Petrobras and Barclays, the 2nd Circuit adopted a much tougher rebuttal standard, shunting aside the 8th Circuit’s Best Buy analysis as dicta. The 8th Circuit’s ruling, in other words, meant everything for Best Buy but not much for anyone else.
That said, Judge Frank’s handling of the Best Buy case after remand from the 8th Circuit is worth recounting because future securities defendants will surely try to replicate arguments that worked so well for Simpson Thacher and its client. Based on the docket, shareholders’ lawyers from Robbins Geller Rudman & Dowd did not consider the 8th Circuit’s class decertification decision to be a death blow for their case. In 2017, citing Judge Frank’s previous class certification decision, they asked for leave to file a renewed motion for class certification.
Their key argument was that although the 8th Circuit had held that Best Buy’s share price did not rise in response to that 2010 conference call with analysts, the appeals court did not address shareholders’ “price maintenance” theory. Robbins Geller said it had engaged an expert witness who would testify that the alleged conference call misrepresentations kept Best Buy shares trading at an artificially inflated price.
Judge Frank, however, read the 8th Circuit decision as the final word on price impact. In June 2017, he refused (2017 WL 2728399) even to allow Robbins Geller to file its renewed motion for class certification. Shareholders’ own original expert witness, Judge Frank said, opined that the conference call statement didn’t impact Best Buy share prices, as the 8th Circuit noted in its decertification decision. So price maintenance arguments by a new expert, the judge said, are foreclosed by the conclusions of shareholders’ previous expert.
“The 8th Circuit was clear that plaintiffs had failed to show price impact,” Frank wrote. “The court is bound by that determination.”
The case still wasn’t over, though: Robbins Geller moved to amend the shareholders’ complaint, arguing for the revival of previously dismissed claims that Best Buy issued a misleading press release two hours before the allegedly misleading conference call. The company’s share price did rise significantly between the press release and the analyst call, so if shareholders were permitted to bring claims based on the public announcement, they’d have a better shot at establishing price impact and winning class certification.
But Judge Frank adopted a magistrate judge’s recommendation against allowing shareholders to file an amended complaint, paving the way for Best Buy’s motion for summary judgment on claims by the individual named plaintiff. Simpson Thacher argued that the lead shareholder testified he did not rely on, or even listen to, the conference call in which corporate officials allegedly misrepresented the company’s prospects. Robbins Geller countered that Judge Frank had effectively prevented shareholders from litigating as a class, but did not contest that the lead investor didn’t rely on the alleged misrepresentations. Judge Frank said in Friday’s ruling that without reliance, the case is over.
It’s hard to imagine another case with precisely parallel facts but not so hard to foresee defendants arguing, especially in trial courts in the 8th Circuit, that under Best Buy, they need only provide some evidence casting doubt on price impact to block class certification irreversibly.
Shareholders’ lawyer Shawn Williams of Robbins Geller said investors are weighing their options after Friday’s decision.