Second Circuit Adopts Position of Amicus Brief for WLF Prepared by Shearman’s Litigation Practice

Shearman & Sterling’s Litigation practice represented the Washington Legal Foundation (WLF) in connection with an amicus brief in support of appellants in Goldman Sachs Group, Inc. et al. v. Arkansas Teacher Retirement System et al., before the U.S. Court of Appeals for the Second Circuit. In that case, appellants challenged the district court’s certification of a class in a putative securities fraud class action. The district court certified the class on remand of the case after the U.S. Supreme Court issued its opinion in Goldman Sachs Group, Inc. v. Arkansas Teacher Retirement System, 141 S. Ct. 1951 (2021). In Goldman, the Court reaffirmed that class certification is inappropriate in a securities fraud class action if an alleged misrepresentation had no impact on the price of the security. The U.S. Supreme Court further stated that an inference of price impact “starts to break down when there is a mismatch between the contents of the misrepresentation and the corrective disclosure.” The district court interpreted this “mismatch” test to require only a finding that the purported corrective disclosures generally “implicate” the same subject matter as the alleged misrepresentations.

The WLF brief urged reversal of the district court’s class certification order, arguing, among other things, that the district court did not properly apply Goldman’s “mismatch” test because the district court endorsed an unreasonably loose connection between generic, front-end statements and purported back-end corrective disclosures. In an important decision for all corporate securities defendants, the Second Circuit agreed with WLF’s position, holding that “a searching review of the record leaves us with the firm conviction that there is an insufficient link between the corrective disclosures and the alleged misrepresentations” and denying class certification.

WLF is a nonprofit public-interest law firm and policy center with supporters in the U.S. Founded in 1977, WLF promotes and defends free enterprise, individual rights, limited government and the rule of law.