(Slip Opinion)
`
`OCTOBER TERM, 2010
`
`1
`
`Syllabus
`
`NOTE: Where it is feasible, a syllabus (headnote) will be released, as is
`being done in connection with this case, at the time the opinion is issued.
`The syllabus constitutes no part of the opinion of the Court but has been
`prepared by the Reporter of Decisions for the convenience of the reader.
`See United States v. Detroit Timber & Lumber Co., 200 U. S. 321, 337.
`SUPREME COURT OF THE UNITED STATES
`
`Syllabus
`
`ERICA P. JOHN FUND, INC., FKA ARCHDIOCESE OF
`
`MILWAUKEE SUPPORTING FUND, INC. v.
`
`HALLIBURTON CO. ET AL.
`
`CERTIORARI TO THE UNITED STATES COURT OF APPEALS FOR
`THE FIFTH CIRCUIT
`No. 09–1403. Argued April 25, 2011—Decided June 6, 2011
`Petitioner Erica P. John Fund, Inc. (EPJ Fund), is the lead plaintiff in a
`putative securities fraud class action filed against Halliburton Co.
`and one of its executives (collectively Halliburton). EPJ Fund alleges
`that Halliburton made various misrepresentations designed to inflate
`the company’s stock price, in violation of §10(b) of the Securities Ex-
`change Act of 1934 and Securities and Exchange Commission Rule
`10b–5. EPJ Fund also contends that Halliburton later made a num-
`ber of corrective disclosures that caused the stock price to drop and,
`consequently, investors to lose money. EPJ Fund sought to have its
`proposed class certified pursuant to Federal Rule of Civil Procedure
`23. The District Court found that the suit could proceed as a class
`action under Rule 23(b)(3), but for one problem: Fifth Circuit prece-
`dent required securities fraud plaintiffs to prove “loss causation”—
`i.e., that the defendant’s deceptive conduct caused the investors’
`claimed economic loss—in order to obtain class certification. The
`District Court concluded that EPJ Fund had failed to satisfy that re-
`quirement. The Court of Appeals agreed and affirmed the denial of
`class certification.
`Held: Securities fraud plaintiffs need not prove loss causation in order
`to obtain class certification. Pp. 3–10.
`(a) In order to certify a class under Rule 23(b)(3), a court must find
`“that the questions of law or fact common to class members predomi-
`nate over any questions affecting only individual members, and that
`a class action is superior to other available methods for fairly and ef-
`ficiently adjudicating the controversy.” Considering whether “ques-
`
`

`
`2
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`ERICA P. JOHN FUND, INC. v. HALLIBURTON CO.
`
`Syllabus
`tions of law or fact common to class members predominate” begins, of
`course, with the elements of the underlying cause of action. The ele-
`ments of a private securities fraud claim based on violations of §10(b)
`and Rule 10b–5 are: “(1) a material misrepresentation or omission by
`the defendant; (2) scienter; (3) a connection between the misrepresen-
`tation or omission and the purchase or sale of a security; (4) reliance
`upon the misrepresentation or omission; (5) economic loss; and (6)
`loss causation.” Matrixx Initiatives, Inc. v. Siracusano, 563 U. S. ___,
`___.
`Whether common questions of law or fact predominate in such an
`action often turns on the element of reliance. The traditional way a
`plaintiff can demonstrate reliance is by showing that he was aware of
`a company’s statement and engaged in a relevant transaction—e.g.,
`purchasing common stock—based on that specific misrepresentation.
`The Court recognized in Basic Inc. v. Levinson, 485 U. S. 224, how-
`ever, that “[r]equiring proof of individualized reliance from each
`member of the proposed plaintiff class effectively would” prevent such
`plaintiffs “from proceeding with a class action, since individual is-
`sues” would “overwhelm[ ] the common ones.” Id., at 242. The Court
`in Basic sought to alleviate that concern by permitting plaintiffs to
`invoke a rebuttable presumption of reliance based on what is known
`as the “fraud-on-the-market” theory. According to that theory, “the
`market price of shares traded on well-developed markets reflects all
`publicly available information, and, hence, any material misrepre-
`sentations.” Id., at 246. Under that doctrine, the Court explained,
`one can assume an investor relies on public misstatements whenever
`he “buys or sells stock at the price set by the market.” Id., at 247.
`The Court also made clear that the presumption could be rebutted by
`appropriate evidence. Pp. 3–5.
`(b) It is undisputed that securities fraud plaintiffs must prove cer-
`tain things in order to invoke Basic’s rebuttable presumption of reli-
`ance. According to the Court of Appeals, EPJ Fund had to prove the
`separate element of loss causation in order to trigger the presump-
`tion. That requirement is not justified by Basic or its logic. This
`Court has never mentioned loss causation as a precondition for invok-
`ing Basic’s rebuttable presumption. Loss causation addresses a mat-
`ter different from whether an investor relied on a misrepresentation,
`presumptively or otherwise, when buying or selling a stock.
`The Court has referred to the element of reliance in a private Rule
`10b–5 action as “transaction causation,” not loss causation. Dura
`Pharmaceuticals, Inc. v. Broudo, 544 U. S. 336, 341–342. Consistent
`with that description, when considering whether a plaintiff has relied
`on a misrepresentation, the Court has typically focused on facts sur-
`rounding the investor’s decision to engage in the transaction. Loss
`
`

`
`Cite as: 563 U. S. ____ (2011)
`
`3
`
`Syllabus
`causation, by contrast, requires a plaintiff to show that the misrepre-
`sentation caused a subsequent economic loss. That has nothing to do
`with whether an investor relied on that misrepresentation in the first
`place, either directly or through the fraud-on-the-market theory. The
`Court of Appeals’ rule contravenes Basic’s fundamental premise—
`that an investor presumptively relies on a misrepresentation so long
`as it was reflected in the market price at the time of his transaction.
`Pp. 5–8.
`(c) Halliburton concedes that securities fraud plaintiffs should not
`be required to prove loss causation in order to invoke Basic’s pre-
`sumption of reliance. Halliburton nonetheless defends the judgment
`below on the ground that the Court of Appeals did not actually re-
`quire EPJ Fund to prove “loss causation” as the Court has used that
`term. According to Halliburton, “loss causation” was shorthand for a
`different analysis. The lower court’s actual inquiry, Halliburton in-
`sists, was whether EPJ Fund had demonstrated “price impact”—that
`is, whether the alleged misrepresentations affected the market price
`in the first place.
`The Court does not accept Halliburton’s interpretation of the Court
`of Appeals’ opinion. Loss causation is a familiar and distinct concept
`in securities law; it is not price impact. Whatever Halliburton thinks
`the Court of Appeals meant to say, what it said was loss causation.
`The Court takes the Court of Appeals at its word. Based on those
`words, the decision below cannot stand. Pp. 8–9.
`597 F. 3d 330, vacated and remanded.
`ROBERTS, C. J., delivered the opinion for a unanimous Court.
`
`

`
`Cite as: 563 U. S. ____ (2011)
`
`1
`
`Opinion of the Court
`
`NOTICE: This opinion is subject to formal revision before publication in the
`preliminary print of the United States Reports. Readers are requested to
`notify the Reporter of Decisions, Supreme Court of the United States, Wash-
`ington, D. C. 20543, of any typographical or other formal errors, in order
`that corrections may be made before the preliminary print goes to press.
`SUPREME COURT OF THE UNITED STATES
`
`_________________
`No. 09–1403
`_________________
`ERICA P. JOHN FUND, INC., FKA ARCHDIOCESE
`
` OF MILWAUKEE SUPPORTING FUND, INC.,
`
`PETITIONER v. HALLIBURTON CO. ET AL.
`
`ON WRIT OF CERTIORARI TO THE UNITED STATES COURT OF
`
`APPEALS FOR THE FIFTH CIRCUIT
`
`[June 6, 2011]
`
` CHIEF JUSTICE ROBERTS delivered the opinion of the
`Court.
`To prevail on the merits in a private securities fraud
`action, investors must demonstrate that the defendant’s
`deceptive conduct caused their claimed economic loss.
`This requirement is commonly referred to as “loss causa-
`tion.” The question presented in this case is whether
`securities fraud plaintiffs must also prove loss causation
`in order to obtain class certification. We hold that they
`need not.
`
`I
`Petitioner Erica P. John Fund, Inc. (EPJ Fund), is the
`lead plaintiff in a putative securities fraud class action
`filed against Halliburton Co. and one of its executives
`(collectively Halliburton). The suit was brought on behalf
`of all investors who purchased Halliburton common stock
`between June 3, 1999, and December 7, 2001.
`EPJ Fund alleges that Halliburton made various mis-
`representations designed to inflate its stock price, in viola-
`tion of §10(b) of the Securities Exchange Act of 1934 and
`
`

`
`2
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`ERICA P. JOHN FUND, INC. v. HALLIBURTON CO.
`
`Opinion of the Court
`Securities and Exchange Commission Rule 10b–5. See 48
`Stat. 891, 15 U. S. C. §78j(b); 17 CFR §240.10b–5 (2010).
`The complaint asserts that Halliburton deliberately made
`false statements about (1) the scope of its potential liabil-
`ity in asbestos litigation, (2) its expected revenue from
`certain construction contracts, and (3) the benefits of its
`merger with another company. EPJ Fund contends that
`Halliburton later made a number of corrective disclosures
`that caused its stock price to drop and, consequently,
`investors to lose money.
`After defeating a motion to dismiss, EPJ Fund sought to
`have its proposed class certified pursuant to Federal Rule
`of Civil Procedure 23. The parties agreed, and the District
`Court held, that EPJ Fund satisfied the general require-
`ments for class actions set out in Rule 23(a): The class was
`sufficiently numerous, there were common questions of
`law or fact, the claims of the representative parties were
`typical, and the representative parties would fairly and
`adequately protect the interests of the class. See App. to
`Pet. for Cert. 3a.
`The District Court also found that the action could
`proceed as a class action under Rule 23(b)(3), but for one
`problem: Circuit precedent required securities fraud plain-
`tiffs to prove “loss causation” in order to obtain class certi-
`fication. Id., at 4a, and n. 2 (citing Oscar Private Equity
`Invs. v. Allegiance Telecom, Inc., 487 F. 3d 261, 269 (CA5
`2007)). As the District Court explained, loss causation is
`the “‘causal connection between the material misrepresen-
`tation and the [economic] loss’” suffered by investors.
`App. to Pet. for Cert. 5a, and n. 3 (quoting Dura Pharma-
`ceuticals, Inc. v. Broudo, 544 U. S. 336, 342 (2005)). After
`reviewing the alleged misrepresentations and corrective
`disclosures, the District Court concluded that it could not
`certify the class in this case because EPJ Fund had “failed
`to establish loss causation with respect to any” of its
`claims. App. to Pet. for Cert. 54a. The court made clear,
`
`

`
`Cite as: 563 U. S. ____ (2011)
`
`3
`
`Opinion of the Court
`however, that absent “this stringent loss causation re-
`quirement,” it would have granted the Fund’s certification
`request. Ibid.
`The Court of Appeals affirmed the denial of class certifi-
`cation. See 597 F. 3d 330 (CA5 2010). It confirmed that,
`“[i]n order to obtain class certification on its claims, [EPJ
`Fund] was required to prove loss causation, i.e., that the
`corrected truth of the former falsehoods actually caused
`the stock price to fall and resulted in the losses.” Id., at
`334. Like the District Court, the Court of Appeals con-
`cluded that EPJ Fund had failed to meet the “require-
`ments for proving loss causation at the class certification
`stage.” Id., at 344.
`We granted the Fund’s petition for certiorari, 562 U. S.
`___ (2011), to resolve a conflict among the Circuits as to
`whether securities fraud plaintiffs must prove loss causa-
`tion in order to obtain class certification. Compare 597
`F. 3d, at 334 (case below), with In re Salomon Analyst
`Metromedia Litigation, 544 F. 3d 474, 483 (CA2 2008) (not
`requiring investors to prove loss causation at class certifi-
`cation stage); Schleicher v. Wendt, 618 F. 3d 679, 687 (CA7
`2010) (same); In re DVI, Inc. Securities Litigation, No. 08–
`8033 etc., 2011 WL 1125926, *7 (CA3, Mar. 29, 2011)
`(same; decided after certiorari was granted).
`II
`EPJ Fund contends that the Court of Appeals erred by
`requiring proof of loss causation for class certification. We
`agree.
`
`A
`As noted, the sole dispute here is whether EPJ Fund
`satisfied the prerequisites of Rule 23(b)(3). In order to
`certify a class under that Rule, a court must find “that the
`questions of law or fact common to class members pre-
`dominate over any questions affecting only individual
`
`

`
`4
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`ERICA P. JOHN FUND, INC. v. HALLIBURTON CO.
`
`Opinion of the Court
`members, and that a class action is superior to other
`available methods for fairly and efficiently adjudicating
`the controversy.” Fed. Rule Civ. Proc. 23(b)(3). Consider-
`ing whether “questions of law or fact common to class
`members predominate” begins, of course, with the ele-
`ments of the underlying cause of action. The elements of a
`private securities fraud claim based on violations of §10(b)
`and Rule 10b–5 are: “‘(1) a material misrepresentation or
`omission by the defendant; (2) scienter; (3) a connection
`between the misrepresentation or omission and the pur-
`chase or sale of a security; (4) reliance upon the misre-
`presentation or omission; (5) economic loss; and (6) loss
`causation.’” Matrixx Initiatives, Inc. v. Siracusano, 563
`U. S. ___, ___ (2011) (slip op., at 9) (quoting Stoneridge
`Investment Partners, LLC v. Scientific-Atlanta, Inc., 552
`U. S. 148, 157 (2008)).
`Whether common questions of law or fact predominate
`in a securities fraud action often turns on the element of
`reliance. The courts below determined that EPJ Fund had
`to prove the separate element of loss causation in order to
`establish that reliance was capable of resolution on a
`common, classwide basis.
`“Reliance by the plaintiff upon the defendant’s deceptive
`acts is an essential element of the §10(b) private cause of
`action.” Stoneridge, supra, at 159. This is because proof of
`reliance ensures that there is a proper “connection be-
`tween a defendant’s misrepresentation and a plaintiff’s
`injury.” Basic Inc. v. Levinson, 485 U. S. 224, 243 (1988).
`The traditional (and most direct) way a plaintiff can
`demonstrate reliance is by showing that he was aware
`of a company’s statement and engaged in a relevant
`transaction—e.g., purchasing common stock—based on
`that specific misrepresentation.
`In that situation, the
`plaintiff plainly would have relied on the company’s decep-
`tive conduct. A plaintiff unaware of the relevant state-
`ment, on the other hand, could not establish reliance on
`
`

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`Cite as: 563 U. S. ____ (2011)
`
`5
`
`Opinion of the Court
`
`that basis.
`We recognized in Basic, however, that limiting proof of
`reliance in such a way “would place an unnecessarily
`unrealistic evidentiary burden on the Rule 10b–5 plaintiff
`who has traded on an impersonal market.” Id., at 245.
`We also observed that “[r]equiring proof of individualized
`reliance from each member of the proposed plaintiff class
`effectively would” prevent such plaintiffs “from proceeding
`with a class action, since individual issues” would “over-
`whelm[ ] the common ones.” Id., at 242.
`The Court in Basic sought to alleviate those related
`concerns by permitting plaintiffs to invoke a rebuttable
`presumption of reliance based on what is known as the
`“fraud-on-the-market” theory. According to that theory,
`“the market price of shares traded on well-developed
`markets reflects all publicly available information, and,
`hence, any material misrepresentations.”
`Id., at 246.
`Because the market “transmits information to the investor
`in the processed form of a market price,” we can assume,
`the Court explained, that an investor relies on public
`misstatements whenever he “buys or sells stock at the
`price set by the market.” Id., at 244, 247 (internal quota-
`tion marks omitted); see also Stoneridge, supra, at 159;
`Dura Pharmaceuticals, 544 U. S., at 341–342. The Court
`also made clear that the presumption was just that, and
`could be rebutted by appropriate evidence.
` See Basic,
`supra, at 248.
`
`B
`It is undisputed that securities fraud plaintiffs must
`prove certain things in order to invoke Basic’s rebuttable
`presumption of reliance. It is common ground, for exam-
`ple, that plaintiffs must demonstrate that the alleged
`misrepresentations were publicly known (else how would
`the market take them into account?), that the stock traded
`in an efficient market, and that the relevant transaction
`
`

`
`6
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`ERICA P. JOHN FUND, INC. v. HALLIBURTON CO.
`
`Opinion of the Court
`took place “between the time the misrepresentations were
`made and the time the truth was revealed.” Basic, 485
`U. S., at 248, n. 27; id., at 241–247; see also Stoneridge,
`supra, at 159.
`According to the Court of Appeals, EPJ Fund also had to
`establish loss causation at the certification stage to “trig-
`ger the fraud-on-the-market presumption.” 597 F. 3d, at
`335 (internal quotation marks omitted); see ibid. (EPJ
`Fund must “establish a causal link between the alleged
`falsehoods and its losses in order to invoke the fraud-on-
`the-market presumption”). The court determined that, in
`order to invoke a rebuttable presumption of reliance, EPJ
`Fund needed to prove that the decline in Halliburton’s
`stock was “because of the correction to a prior misleading
`statement” and “that the subsequent loss could not other-
`wise be explained by some additional factors revealed then
`to the market.” Id., at 336 (emphasis deleted). This is the
`loss causation requirement as we have described it. See
`Dura Pharmaceuticals, supra, at 342; see also 15 U. S. C.
`§78u–4(b)(4).
`The Court of Appeals’ requirement is not justified by
`Basic or its logic. To begin, we have never before men-
`tioned loss causation as a precondition for invoking Basic’s
`rebuttable presumption of reliance. The term “loss causa-
`tion” does not even appear in our Basic opinion. And for
`good reason: Loss causation addresses a matter different
`from whether an investor relied on a misrepresentation,
`presumptively or otherwise, when buying or selling a
`stock.
`We have referred to the element of reliance in a pri-
`vate Rule 10b–5 action as “transaction causation,” not loss
`causation. Dura Pharmaceuticals, supra, at 341–342
`(citing Basic, supra, at 248–249). Consistent with that
`description, when considering whether a plaintiff has
`relied on a misrepresentation, we have typically focused
`on facts surrounding the investor’s decision to engage in
`
`

`
`Cite as: 563 U. S. ____ (2011)
`
`7
`
`Opinion of the Court
`the transaction. See Dura Pharmaceuticals, supra, at
`342. Under Basic’s fraud-on-the-market doctrine, an in-
`vestor presumptively relies on a defendant’s misrepre-
`sentation if that “information is reflected in [the] market
`price” of the stock at the time of the relevant transaction.
`See Basic, 485 U. S., at 247.
`Loss causation, by contrast, requires a plaintiff to show
`that a misrepresentation that affected the integrity of the
`market price also caused a subsequent economic loss. As
`we made clear in Dura Pharmaceuticals, the fact that a
`stock’s “price on the date of purchase was inflated because
`of [a] misrepresentation” does not necessarily mean that
`the misstatement is the cause of a later decline in value.
`544 U. S., at 342 (emphasis deleted; internal quotation
`marks omitted). We observed that the drop could instead
`be the result of other intervening causes, such as “changed
`economic circumstances, changed investor expectations,
`new industry-specific or firm-specific facts, conditions, or
`other events.” Id., at 342–343. If one of those factors were
`responsible for the loss or part of it, a plaintiff would not
`be able to prove loss causation to that extent. This is true
`even if the investor purchased the stock at a distorted
`price, and thereby presumptively relied on the misrepre-
`sentation reflected in that price.
`According to the Court of Appeals, however, an inability
`to prove loss causation would prevent a plaintiff from
`invoking the rebuttable presumption of reliance. Such a
`rule contravenes Basic’s fundamental premise—that an
`investor presumptively relies on a misrepresentation so
`long as it was reflected in the market price at the time of
`his transaction. The fact that a subsequent loss may have
`been caused by factors other than the revelation of a mis-
`representation has nothing to do with whether an investor
`relied on the misrepresentation in the first place, either
`directly or presumptively through the fraud-on-the-market
`theory. Loss causation has no logical connection to the
`
`

`
`8
`
`ERICA P. JOHN FUND, INC. v. HALLIBURTON CO.
`
`Opinion of the Court
`facts necessary to establish the efficient market predicate
`to the fraud-on-the-market theory.
`The Court of Appeals erred by requiring EPJ Fund
`to show loss causation as a condition of obtaining class
`certification.
`
`C
`Halliburton concedes that securities fraud plaintiffs
`should not be required to prove loss causation in order to
`invoke Basic’s presumption of reliance or otherwise
`achieve class certification. See Tr. of Oral Arg. 26–29.
`Halliburton nonetheless defends the judgment below on
`the ground that the Court of Appeals did not actually
`require plaintiffs to prove “loss causation” as we have used
`that term. See id., at 27 (“it’s not loss causation as this
`Court knows it in Dura”). According to Halliburton, “loss
`causation” was merely “shorthand” for a different analysis.
`Brief for Respondents 18. The lower court’s actual in-
`quiry, Halliburton insists, was whether EPJ Fund had
`demonstrated “price impact”—that is, whether the alleged
`misrepresentations affected the market price in the first
`place. See, e.g., id., at 16–19, 24–27, 50–51; see also Tr. of
`Oral Arg. 27 (stating that the Court of Appeals’ “test is
`simply price impact” and that EPJ Fund’s “only burden
`under the Fifth Circuit case law was to show price
`impact”).*
`“Price impact” simply refers to the effect of a misrepre-
`sentation on a stock price. Halliburton’s theory is that if a
`——————
`*Halliburton further concedes that, even if its conception of what the
`Court of Appeals meant by “loss causation” is correct, the Court of
`Appeals erred by placing the initial burden on EPJ Fund. See Tr. of
`Oral Arg. 29 (“We agree . . . that the Fifth Circuit put the initial burden
`of production on the plaintiff, and that’s contrary to Basic”). According
`to Halliburton, a plaintiff must prove price impact only after Basic’s
`presumption has been successfully rebutted by the defendant. Tr. of
`Oral Arg. 28, 38–40. We express no views on the merits of such a
`framework.
`
`

`
`Cite as: 563 U. S. ____ (2011)
`
`9
`
`Opinion of the Court
`misrepresentation does not affect market price, an inves-
`tor cannot be said to have relied on the misrepresentation
`merely because he purchased stock at that price. If the
`price is unaffected by the fraud, the price does not reflect
`the fraud.
`We do not accept Halliburton’s wishful interpretation of
`the Court of Appeals’ opinion. As we have explained, loss
`causation is a familiar and distinct concept in securities
`law; it is not price impact. While the opinion below may
`include some language consistent with a “price impact”
`approach, see, e.g., 597 F. 3d, at 336, we simply cannot
`ignore the Court of Appeals’ repeated and explicit refer-
`ences to “loss causation,” see id., at 334 (three times), 334
`n. 2, 335, 335 n. 10 (twice), 335 n. 11, 336, 336 n. 19, 336
`n. 20, 337, 338, 341 (twice), 341 n. 46, 342 n. 47, 343, 344
`(three times).
`Whatever Halliburton thinks the Court of Appeals
`meant to say, what it said was loss causation: “[EPJ Fund]
`was required to prove loss causation, i.e., that the cor-
`rected truth of the former falsehoods actually caused the
`stock price to fall and resulted in the losses.” 597 F. 3d, at
`334; see id., at 335 (“we require plaintiffs to establish loss
`causation in order to trigger the fraud-on-the-market
`presumption” (internal quotation marks omitted)). We
`take the Court of Appeals at its word. Based on those
`words, the decision below cannot stand.
`
`
`*
`*
`*
`Because we conclude the Court of Appeals erred by
`requiring EPJ Fund to prove loss causation at the certifi-
`cation stage, we need not, and do not, address any other
`question about Basic, its presumption, or how and when it
`may be rebutted. To the extent Halliburton has preserved
`any further arguments against class certification, they
`may be addressed in the first instance by the Court of
`Appeals on remand.
`
`

`
`10
`
`ERICA P. JOHN FUND, INC. v. HALLIBURTON CO.
`
`Opinion of the Court
`The judgment of the Court of Appeals is vacated, and
`the case is remanded for further proceedings consistent
`with this opinion.
`
`It is so ordered.