Justice Barrett confronts Conservatives on burden in Goldman Sachs case


Associate Justice Amy Coney Barrett during a Supreme Court justices group photo in Washington, DC on April 23, 2021.

The United States Supreme Court on Monday overturned an appeals court ruling advancing a class action lawsuit against Goldman Sachs during the 2008 financial crisis, giving the bank another opportunity to argue that generic selfish statements did not constitute securities fraud.

Separating from three of his conservative peers, Justice Amy Coney Barrett was the main author of the majority opinion that could make Goldman’s victory short-lived. The onus will always be on the bank to show that the blisters in their business practices have not moved the market significantly.

“We are pleased that the Supreme Court has overturned the grant of collective certification and we will continue to defend ourselves vigorously as the matter returns to the lower courts,” Goldman Sachs spokesperson. Maeve duvally Law & Crime said in an email.

Counsel for the proposed shareholder class did not immediately respond to an email seeking comment.

A relatively brief and orderly opinion, the decision is marred by a series of agreements and dissent that divide the decision along ideological lines and their real-world implications.

Stylized as Goldman Sachs Group v. Arkansas Teacher Retirement System, the initial lawsuit here was brought by various teachers, other state employees, plumbers, pension funds, and individual shareholders who lost money during the Great Recession after the stock price fell. from the Manhattan-based investment bank.

Far from ordinary disgruntled investors, however, shareholders have claimed that Goldman Sachs has made many laudatory and misleading public statements about the bank’s business practices. In retrospect, these statements artificially inflated the bank’s share price at the time the investments in question were made, claimants claimed.

Various lower courts have advanced the shareholder suit.

“Sometimes Goldman would have claimed to his investors that he was aligned with them when he was actually selling short against their positions,” the United States Court of Appeals for the Second Circuit explained.

The facts of the case are neither new nor controversial.

Goldman Sachs has often made deals that directly undermine the position of their own clients by betting that many of their clients would fail. During the financial crisis of 2008 – and the directly resulting crisis of the subprime mortgage scandal – that is exactly what happened, the lawsuits.

“The plaintiffs allege here that between 2006 and 2010, Goldman maintained an inflated stock price by repeatedly making false statements about its conflict of interest policies and business practices,” notes Barrett. “The alleged misrepresentations are generic statements taken from Goldman’s documents and annual reports to the SEC. “

Playing on both sides of the real estate market contrasted sharply with statements such as the following highlighted in Monday’s opinion:

  • “We have extensive procedures and controls which are designed to identify and resolve conflicts of interest.”
  • “The interests of our clients always come first.
  • “Integrity and honesty are at the heart of our business. “

“According to the plaintiffs, these statements were false or misleading – and caused Goldman’s shares to trade at artificially inflated levels – because Goldman had in fact engaged in several allegedly conflicting transactions without disclosing the conflicts,” continues the majority decision. “The plaintiffs further allege that once the market learned the truth about Goldman’s conflicts from coercive government action and subsequent reporting, Goldman’s stock price inflation subsided. dissipated, resulting in a drop in price and losses for shareholders. “

Writing for a very divided majority, Judge Barrett remained agnostic about the level of guilt the bank should be responsible for because of the above statements and many others like them.

In fact, deciding this issue was not really the task of the tribunal. The main open question is whether the “generic nature” of these misleading statements should be taken into account and whether the appeals court took into account the nature of the statements when allowing the plaintiffs to certify their class action. against the bank. A secondary question is who is responsible for proving the importance of this information for class certification purposes.

The country’s High Court has made a narrow ruling that goes both ways: give the bank a victory by dismissing and telling the Second Circuit to consider evidence of a “generic nature” and put shareholders in a favorable position to the future by putting the onus on Goldman Sachs to prove that this evidence is in fact sufficient to deny class certification.

“On the first issue, the parties now agree, as we do, that the generic nature of a misrepresentation is often important evidence of the price impact that the courts should take into account when certifying the group.” , indicates the notice. “Because we conclude that Circuit 2 may not have properly considered the generic nature of Goldman’s alleged misrepresentation, we set aside and remand the Court of Appeal to reassess the pricing impact determination of the district court. “

On the second question, Barrett determined that Goldman Sachs bears the burden of showing whether or not evidence of a “generic nature” may or may not prevent aggrieved investors from suing collectively.

But, and this is quite notable, the most recent justice also said that this investigation may not end up deciding things differently. Justice Barrett explains:

Although the defendant bears the burden of persuasion, the distribution of the burden is unlikely to make much of a difference on the court. In most securities fraud class actions, like this one, plaintiffs and defendants submit competing expert evidence on the impact on pricing. The task of the district court is simply to assess all the evidence of the impact on prices – direct and indirect – and to determine whether it is more likely than not that the alleged misrepresentation had an impact on the prices. . The defendant’s burden of persuasion will only be strong when the court finds the evidence in balance, a situation which should rarely occur.

A trio of Conservative judges were partly dissenting and partly in agreement, as was the left-most member of the court.

Ruled by justice Neil gorsuch, judges Samuel alito and Clarence thomas agreed with the remand order for further inquiry into the evidence of a “generic nature”, but disagreed with the majority point of law that the defendants in this case bear the burden.

I join all except Part II-B of the opinion of the Court. In that case, the Court held that the defendant, rather than the plaintiff, “bears[s] the burden of persuasion on the impact on prices. Ante, at 9. Respectfully, I disagree.

Goldman Sachs supported, and dissent approved, a very complicated method that would shift the burden here.

But Barrett and the majority were not interested in any of this – arguing that understanding dissent would break a precedent in a weird way.

“If, as they ask, the accused could win [the longstanding] presumption by introducing any competent evidence of a lack of price impact – including, for example, the generic nature of the alleged misrepresentation – then the complainant would be left with the burden of directly proving the price impact in almost all cases, ”explained the majority.

Justice Sonia sotomayor, for his part, wrote his own opinion staking out precisely the reverse of the complaint by the right flank of the court.

Sotomayor agrees with all the legal points the case has ruled on, but does not agree to the case being referred – coming out strongly in favor of pension funds.

“I think the Second Circuit” correctly took into account the generic nature of Goldman’s alleged misrepresentation, “” she wrote.

Defending the Second Circuit decision, Sotomayor is a former New York-based federal appeals court.

[image via ERIN SCHAFF/POOL/AFP via Getty Images]

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