Basic Inc. v. Levinson (1987)
- Docket
- 86-279
- Decided
- 1987-01-01
Summary
Question: (1) Did the statements in question meet the standard for materiality defined by Section 10(b) of the Securities and Exchange Act of 1934? (2) Did the district court use the proper standard to certify the class? Conclusion: Yes, yes. Justice Harry A. Blackmun delivered the opinion of the 4-2 plurality. The Supreme Court held that there was no reason to artificially exclude merger conversations from the definition of materiality simply because they do not include specific prices. Instead, the materiality of a fact depends on its significance to “the reasonable investor.” The Court also held that it was impractical to require individuals to show a specific reliance on misleading information within an impersonal market. Therefore, it is reasonable for courts to use a presumption of reliance for the purpose of adjudicating such cases, though the presumption can be rebutted. Justice Byron R. White wrote an opinion concurring in part and dissenting in part in which he argued that the majority opinion’s support for the presumption of reliance, or “fraud-on-the-market” theory, represented the Court taking a stance on economic policies that were beyond its purview. He also argued that, because Congress has not addressed the issue, the majority opinion should have refrained from doing so. Additionally, the facts of the case in question make it a poor candidate for such analysis because they indicate that the plaintiffs did not believe the supposedly misleading statements. Justice Sandra Day O’Connor joined in the opinion concurring in part and dissenting in part. Chief Justice William H. Rehnquist, Justice Antonin Scalia, and Justice Anthony Kennedy did not participate in the discussion or decision of the case.