Complex Litigation: Presumptions of Reliance

Abstract

Commentary and analysis of the Fifth Circuit Court of Appeals decision in Regents of the University of California v. Credit Suisse First Boston (USA) Inc., 2007 WL 816518 (5th Cir. March 19, 2007), reversing class certification against the banking defendants in the Enron litigation. By reversing class certification against the banking defendants, the Fifth Circuit foreclosed classwide recovery against another set of potential actors involved in the Enron collapse. The article discusses the Fifth Circuit’s circumscribed reading in this decision of the doctrine of presumed reliance in securities fraud class actions, which presumption permits claimants to satisfy the Rule 23(b)(3) predominance requirement for class certification, without having to show individual reliance by each class member. The Fifth Circuit narrowly construed the prevailing fraud-on-the-market presumption articulated by the U.S. Supreme Court in Basic v. Levinson, 485 U.S. 224 (188) and Affiliated Ute Citizens v. U.S., 406 U.S. 128 (1972). In applying the narrower construction of presumed reliance, the Fifth Circuit rejected the possibility for class certification in this litigation. In addition the article discusses the conflict among the circuit courts with respect to the scope of primary liability for secondary actors in schemes to defraud consumers under the securities laws.

Keywords: Fraud-on-the-market presumption, securities fraud class actions, Rule 23(b)(3) predominance, Enron litigation, Basic v. Levinson, Affiliated Ute Citizens v. U.S.