Eleventh Circuit Upholds the Certified Class in Misrepresentation Claims Against Regions Under the Basic Presumption

In Local 703, I.B. of T. Grocery & Food Employees Welfare Fund v. Regions Financial Corp., No. 12-14168 (Aug. 6, 2014), the Eleventh Circuit upheld the district court’s application of the Basic presumption, its finding that the lead Plaintiffs met the typicality requirement, and its determination of the correct start date for the class period; however, the Court did remand the case for the district court to consider Regions evidence rebutting a presumption of class-wide reliance and to review the proper end date of the class period. Basic Inc. v. Levinson, 485 U.S. 224, 245 (1988).

In 2008 Regions made, according to the Plaintiffs, multiple misrepresentations about their financial situation by manipulating the books and failing to report losses, which resulted in higher stock prices that were not a true reflection of the firm’s financial stability. These misrepresentations were only finally corrected on January 20, 2009 when Regions made a disclosure of $5.6 billion in losses. This report resulted in a substantial drop in the stock price.

The district court certified the class as comprising “all investors who purchased Regions stock from February 27, 2008, when Regions filed its first allegedly misleading financial disclosure, through January 19, 2009, the last trading day before the corrective disclosure.” In certifying the class, the Eleventh Circuit agreed with the District Court that pursuant to Federal Rule of Civil Procedure 23(b)(3), “the questions of law or fact common to class members predominate[d] over any questions affecting only individual members.” Fed. R. Civ. P. 23(b)(3). Because this was a securities fraud action, the Court focused on class-wide reliance and invoked the Basic presumption to justify its occurrence. The presumption gives plaintiffs a rebuttable presumption of class-wide reliance “based on…the fraud-on-the-market theory…” which allows courts to assume that when investors purchase or sell stock on a market, they rely on the misrepresentations. Erica P. John Fund, Inc. v. Halliburton Co., 131 S. Ct. 2179, 2185 (2011).

In order to justify the presumption, the Court still needed to find that Regions stock traded on an efficient market. In doing so, the Eleventh Circuit rejected Regions’ argument that this Circuit should adopt a mandatory framework for deciding whether stock was on an efficient market and instead stated that it should be determined on a case-by-case basis with district courts being an apt body for deciding market efficiency. In addition, the Court refused to require “proof that the alleged misrepresentations had an immediate effect on the stock price” in order to find market efficiency. By not adopting a framework for requirements, the Circuit expressed its desire to refrain from setting an evidentiary burden upon plaintiffs.

While the Eleventh Circuit upheld most of the district court findings, including Regions’ assertion that the lead Plaintiffs were not proper representatives of the class, it did remand the case back to the district court to review whether Regions rebutted the Basic presumption by presenting sufficient evidence that their misrepresentations did not change the stock price. Also, the district court was directed to move the end date of the class period back one day because Regions’ disclosure was made before the market opened on the day the Plaintiffs originally alleged the end date occurred.

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