Law Case Study

1. Halliburton Co. v. Erica P.
John Fund, Inc.
Mohammad Safi
David Sondergaard

2. Overview
“In this particular case Halliburton repeatedly said to analysts that their
insurance and other reserves would cover Asbestos Exposure, those
assertions proved to be not accurate the day it was clear that they were not
accurate, December 7, 2001 the stock price dropped 42 percent There were
no confounding factors. Their expert says December 7, was all about
Asbestos.”

3. Overall Question
May Halliburton challenge the class certification of
its former shareholders by introducing evidence
that the alleged fraud did not impact the price of
the stock?

4. Halliburton Co. Arguments
Halliburton Defence was to prove that there was no loss causation due to price
distortion which was common to the entire class if there is no loss causation than there
are not individual issues to adjudicate, If there are no individual issues to adjudicate
than the the class can be dismissed.
Non susceptibility clause in Basic - it's not just enough to allege the operative facts and
presume wise you must plead and prove them. If not that you can’t certify because it is
not reasonable to infer the misrepresentation was translated into the stock price.
Threshold condition - materiality must be proven on the class certification level.

5. Erica P. John Fund, Inc. Arguments
Between June 3, 1999 and December 7, 2001 Halliburton:
● Represented merger with Dresser Industries as win-win
○ Didn’t disclose Dresser Industries asbestos liabilities
● Overstated revenues from construction contracts
● Inflated its stock price
● Stock price declined after disclosures which led to financial loss

6. Legal Theories and Precedence
Basic Inc. v Levinson
● Supreme Court held that investors could satisfy the reliance requirement by
invoking a rebuttable presumption of classwide reliance
Fraud-on-the-market theory
1. The price of a security traded in an efficient market reflects all material public
information
2. The buyer of a security may be presumed to have relied on the integrity of the
market price

7. Decision
I
● Court did not overturn Basic's fraud-on-the-market theory
● Ruled that Halliburton could present evidence concerning price impact
● Case remanded for proceedings consistent with new opinion