Duane Morris Class Action Review - 2023 - Report - Page 310
Basic presumption. As a result, the court granted the plaintiffs’ motion for class
certification.
The defendant in Allegheny County Employees’ Retirement System, et al. v. Energy
Transfer LP, 2022 U.S. Dist. LEXIS 150826 (E.D. Penn. Aug. 23, 2022), allegedly made
several misrepresentations about the timeline and capacity for three new natural gas
pipelines. The complaint also alleged non-compliance with government safety orders,
ethical violations, and general non-compliance with the law. In opposition to the
plaintiffs’ motion for certification, the defendant attempted to rebut the Basic
presumption by pushing the ruling in Goldman Sachs a step further, and claiming that
the burden had been modified and must shift back to the plaintiff once evidence of a
lack of price impact is introduced. The court noted that Goldman Sachs had reiterated
the standard set forth in Basic and subsequent Supreme Court decisions, which held
that a preponderance of the evidence, rather than the mere existence of evidence, is
required to rebut the presumption. The court opined that to hold otherwise would require
a plaintiff to prove price impact in nearly every case, a burden that had been expressly
rejected by the Supreme Court. The plaintiffs and the defendant submitted event studies
conducted by expert witnesses in support of their opposing arguments on price impact.
In securities litigation, event studies are used to distinguish between normal market
price fluctuations and fluctuations that occur after a particular event (such as a
corrective disclosure) that is not attributable to any other cause. The defendant argued
that the window between the corrective disclosure and price impact, which is measured
for statistical significance, should be limited to the day of the corrective disclosure or the
day after because, in an efficient market, prices move instantaneously. A survey of
decisions from the Third Circuit and other circuits showed the window that is typically
applied can range anywhere from two to five days. The reason for this variance is that
markets and market analysts can often take several days to digest corrective
disclosures. The court concluded that no single factor (e.g., statistical significance) was
determinative and the appropriate window after a corrective disclosure is a fact-specific
inquiry. In its determination of price impact, the court considered the nature of the
corrective disclosures and whether the price had demonstrated a statistically significant
drop. For example, an August 2019 disclosure concerning the arrest of two security
guards was alleged to have created a price impact. The plaintiffs argued that a threeday window to determine price impact should apply. The court observed that this
disclosure was unlike others in the complaint in that it concerned an ethical matter that
did not generate much news interest beyond the local media. Moreover, the price drop
on the third day was not sufficiently connected to the specific disclosures cited by the
plaintiffs. Based on the qualitative evidence presented, the court refused to apply a
three-day window to consider price impact and denied class certification for the August
2019 disclosure. The court also denied the plaintiffs’ motion for class certification
relative to the December 2019 corrective disclosure because it too failed to generate
news interest and did not result in a statistically significant price impact. The remaining
corrective disclosures were the subject of much broader national news coverage or
reports by securities analysts. Here, the court applied a larger window and found that
the defendant had not sufficiently met its burden to rebut the price impact for these
disclosures.
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Duane Morris Class Action Review – 2023
