In the next several weeks, the Supreme Court is expected to rule on a case involving a shareholders' class action lawsuit against Haliburton (HAL). If it rules in favor of the company, it will set a higher bar for plaintiffs to achieve class certification. Currently, a judge holds a certification hearing to decide whether class status is appropriate. One criterion is that the people must have common issues. If HAL prevails, then the defendants will be able to file a brief with the court demanding that the shareholders have to again seek court approval for class status under a new, tougher standard. If they fail the gain the approval, the case ends.
HAL is trying to overturn a 1988 decision, Basic v. Levinson, which is based on "fraud on the market theory," which postulates that a defendant's material misrepresentation that affects the price of publicly traded securities is assumed to have been relied upon by a buyer who suffered a loss. In HAL's case, shareholders alleged that it understated its asbestos liabilities while overstating revenues and the benefits of its merger with Dresser Industries.