Three justices plainly sided with the position of the investor plaintiffs at oral argument: Justices Breyer, Sotomayor and Kagan. Justices Breyer and Kagan focused on the idea that price impact (justifying the presumption of reliance) was really a common question and thus a certifiable class issue that can be decided at trial (Tr. at 13-15, 22). Justice Sotomayor was so unpersuaded by the defendants’ argument distinguishing loss causation from price impact that she commented that defendants’ position “makes no sense” (Tr. at 12).
Justices Kennedy and Roberts forged the “midway position” (Tr. at 17). Justice Kennedy suggested that plaintiffs should be required to show before a class action is certified that the stock was actually affected by whatever false statements are alleged. He indicated that an “event study” could be used by plaintiffs to make such a showing. Justice Roberts appeared to reject defendants’ argument that economic literature disproves the fraud-on-the-market presumption and suggested that both sides were dealing at the margins (Tr. at 10).
In the end, the decision will likely come down to two issues. First, whose burden will it be to prove price impact: will plaintiffs be required to perform an event study to invoke the presumption, or will defendants be required to rebut the presumption with an event study? Second, the Court will likely determine when that proof must be presented—at class certification, summary judgment, or trial. One issue is certain: when the Supreme Court likely issues its opinion in June, investors and corporations will have to play by the new rules of the securities class certification game.