Today, the United States Supreme Court decided Halliburton Co. v. Erica P. John Fund, Inc., No 13-317 (U.S. June 23, 2014). Here’s a link to the
opinion. As we mentioned in our prior post, one of the questions the Supreme Court took the case to decide was whether to abolish altogether the so-called “fraud on the market” presumption of reliance in securities cases that the Court had recognized, 4-3, in Basic, Inc. v. Levinson, 485 U. S. 224 (1988).
The Court didn’t do that. The vote on that point was six-to-three. A combination of stare decisis (slip op. at 4, 7-8, 11), that Congress could have abolished the presumption itself but hadn’t (id. at 12-13, 15-16), and the Court’s emphasis on the rebuttable nature of the presumption – its “modest premise” (id.
at 10, see id. at 7, 10, 14-15) preserved it in cases where the evidence supported the existence of an “efficient” securities market.
We’re not securities lawyers here. We’re interested in Halliburton primarily for its effect in keeping “fraud on the market” presumptions out of our sandbox – the manifestly non-“efficient” market for prescription medical products, where patients cannot even buy these products without a learned intermediary physician first prescribing them. As we laid out at some length in a prior post (one of our 50-state surveys) back in 2010, the fraud on the market theory has been roundly rejected by courts applying state law, even in securities cases. Our chief concern at present isn’t state law, but rather the abominable RICO-based liability theories that the First Circuit embraced in its Neurontin trilogy. We discussed at length here how that court had allowed expert testimony that didn’t just presume reliance in a RICO case claiming off-label promotion, but allowed expert testimony amounting to a conclusive presumption of reliance – a presumption that that court held overcame the testimony of every prescribing physician who testified that they had not relied on the promotion. What’s more, the First Circuit in Neurontin even allowed that expert to impugn the credibility of the physician witnesses before the jury.
What happened in Neurontin was unprecedented, and we hope that, after what we gleaned from today’s Supreme Court decision, it remains that way. There’s a chance of that because the Supreme Court today had a lot to say about rebuttable presumptions of reliance, even in the sometimes “efficient” securities market.