Rare Fifth Circuit Securities Case Reversal
On June 19, 2009, the Fifth Circuit, in a per curiam opinion (here) written by a panel that included retired Supreme Court Justice Sandra Day O’Connor sitting by designation, reversed and remanded the district court’s denial of class certification and entry of summary judgment in defendants’ favor in the Flowserve securities class action lawsuit.
CORRECTION: The original version of this post suggested that Justice O'Connor herself had written the June 18 opinion. In light of reader comments (please see below) I have revised this post to reflect the fact that the Fifth Circui's decision was in the form of a per curiam opinion that does not indicate which member of the panel authored the opinion. The entire staff here at The D&O Diary apologizes for any confusion our original post may have caused.
With respect to the class certification issue, the Fifth Circuit vacated the district court’s refusal to certify the class based on what the Fifth Circuit found was the district court’s application of an erroneous standard on the loss causation issue, and remanded the case for further proceedings. In addition, the Fifth Circuit reversed the district court’s entry of summary judgment, essentially on the ground that the district court’s analysis on the loss causation issue for class certification purposes was not in any event dispositive of the loss causation issue on the merits, and therefore was not the appropriate basis for entry of summary judgment.
The Fifth Circuit’s opinion is noteworthy for a number of reasons. First, it represents a rare occasion where securities class action plaintiffs have succeeded, even if only provisionally and for the time being, in a circuit that is generally perceived as heavily defense oriented. It should be noted that there is nothing in the Fifth Circuit’s opinion that precludes the district court from ruling against the plaintiffs on either issue on remand; even with application of what the Fifth Circuit described as the correct legal standard, the district court could nonetheless again rule in the defendants’ favor.
Second, the Flowserve case represents the latest example of the Fifth Circuit’s struggles with the question of the proper consideration of loss causation issues at the class certification stage. These same or similar issues are presented in both the Belo securities case (about which refer here) and the Halliburton securities case (here), both of which are now also pending before the Fifth Circuit. Given the continuing controversy on these issues, it seems increasingly likely that these issues could wind up before the U.S. Supreme Court.
Finally, the opinion is perhaps most interesting for the final commentary provided in the opinion's concluding paragraph:
To be successful, a securities class-action plaintiff must thread the eye of a needle made
smaller and smaller over the years by judicial decree and congressional action. Those ever higher hurdles are not, however, intended to prevent viable securities actions from being brought.
Whether or not these remarks perhaps represent an expression of concern with how far the pendulum had swung in the Fifth Circuit in these kinds of cases, these words undoubtedly will be repeated by plaintiffs’ counsel in future filings, both inside and outside the Fifth Circuit, in support of the claims.
Very special thanks to a loyal reader for providing a copy of the Fifth Circuit’s Flowserve opinion.
Speakers’ Corner: During the period June 21-23, 2009, I will be in Palo Alto, California, where I will be participating as a faculty member at the Stanford Law School Directors’ College. A summary agenda for the event can be found here.
Her name is O'Connor, not O'Conner.
I see no evidence anywhere that Justice O'Connor wrote this opinion. It was a per curiam opinion speaking jointly for Justice O'Connor and Judges Wiener and Stewart. Courts don't usually reveal the authors of per curiam opinions, and nothing on the face of this opinion reveals its author.
I agree with the previous comment. Indeed, from my experience clerking on a U.S. Court of Appeals (albeit a long time ago), per curiam opinions are typically drafted by the presiding judge, who would be the most senior active circuit judge on the panel -- here, Judge Wiener. Still, Justice O'Connor joined the opinion, which counts for something.
By the way, Justice O'Connor's name is still misspelled in the title of the post.
Unfortunately, I am stuck with the misspelling in the post title, because if I correct the spelling, the URL for the blog post will not longer work. I guess I will just have to fire my copy editor.
As for the authorship of the opinion, I was informed by a reliable source that O'Connor wrote the opinion.
For two reasons, it is highly unlikely that your "reliable source" is as reliable as you think. First, divulging authorship of the opinion would be an ethical breach. Second, drafting an unsigned opinion for a court of appeals would generally be considered beneath the dignity of a retired Supreme Court Justice. It's not impossible that Justice O'Connor wrote the opinion, but it's sufficiently unlikely to call into serious question the reliability of your source.
Actually, if you look at the metadata on the court-created pdf of the opinion, you will find the last name of O'Connor's law clerk, Lidsky. So although I too was skeptical of the "reliable source", the source is probably right.