Waggoner v. Barclays PLC

• Decision Date: 06 November 2017
• Docket Number: No. 16-1912-cv,16-1912-cv
• Citation: 875 F.3d 79
• Parties: Joseph WAGGONER, Mohit Sahni, Barbara Strougo, individually and on behalf of all others similarly situated, Plaintiffs–Appellees, v. BARCLAYS PLC, Robert Diamond, Antony Jenkins, Barclays Capital Inc., William White, Defendants–Appellants, Chris Lucas, Tushar Morzaria, Defendants.
• Court: U.S. Court of Appeals — Second Circuit

875 F.3d 79

Joseph WAGGONER, Mohit Sahni, Barbara Strougo, individually and on behalf of all others similarly situated, Plaintiffs–Appellees,

v. BARCLAYS PLC, Robert Diamond, Antony Jenkins, Barclays Capital Inc., William White, Defendants–Appellants,Chris Lucas, Tushar Morzaria, Defendants.^*

No. 16-1912-cv

United States Court of Appeals, Second Circuit.

Argued: November 15, 2016

Decided: November 6, 2017

Jeremy Alan Lieberman , Pomerantz LLP, New York, NY (Tamar Weinrib, Pomerantz LLP, New York, NY; Patrick V. Dahlstrom, Pomerantz LLP, Chicago, IL, on the brief), for Plaintiffs–Appellees.

Jeffrey T. Scott , Sullivan & Cromwell LLP, New York, NY (Matthew A. Schwartz and Andrew H. Reynard, Sullivan & Cromwell LLP, New York, NY; Brent J. McIntosh, Sullivan & Cromwell LLP, Washington, DC, on the brief), for Defendants–Appellants.

Max W. Berger, Bernstein Litowitz Berger & Grossmann LLP, New York, NY (Salvatore J. Graziano, Bernstein Litowitz Berger & Grossmann LLP, New York, NY; Blair Nicholas, Bernstein Litowitz Berger & Grossmann LLP, San Diego, CA; Robert D. Klausner, Klausner, Kaufman, Jensen & Levinson, Plantation, FL, on the brief), for the National Conference on Public Employee Retirement Systems as amicus curiae in support of Plaintiffs–Appellees.

Daniel P. Chiplock, Lieff Cabraser Heimann & Bernstein, LLP, New York, NY, for the National Association of Shareholder and Consumer Attorneys as amicus curiae in support of Plaintiffs–Appellees.

Jeffrey W. Golan, Barrack, Rodos & Bacine, Philadelphia, PA (James J. Sabella, Grant & Eisenhofer P.A., New York, NY, of counsel; Daniel S. Sommers, Cohen Milstein Sellers & Toll PLLC, Washington, DC, of counsel; James A. Feldman, Washington, DC, on the brief), for Evidence Scholars as amicus curiae in support of Plaintiffs–Appellees.

Robert V. Prongay, Glancy Prongay & Murray LLP, Los Angeles, CA, for Securities Law Professors as amicus curiae in support of Plaintiffs–Appellees.

Charles E. Davidow, Paul, Weiss Rifkind, Wharton & Garrison LLP, Washington, DC (Marc Falcone & Robyn Tarnofsky, Paul, Weiss, Rifkind, Wharton & Garrison LLP, New York, NY; Ira D. Hammerman and Kevin M. Carroll, Securities Industry and Financial Markets Association, Washington, DC, on the brief), for the Securities Industry and Financial Markets Association as amicus curiae in support of Defendants–Appellants.

David S. Lesser (Fraser L. Hunter, Jr., Colin T. Reardon, John Paredes, on the brief), Wilmer Cutler Pickering Hale and Dorr LLP, New York, NY, for Paul S. Atkins, Elizabeth Cosenza, Daniel M. Gallagher, Joseph A. Grundfest, Paul G. Mahoney, Richard W. Painter, and Andrew N. Vollmer as amicus curiae in support of Defendants–Appellants.

Michael H. Park, Consovoy McCarthy Park PLLC, New York, NY (J. Michael Connolly, Consovoy McCarthy Park PLLC, Arlington, VA; Kate Comerford Todd and Warren Postman, U.S. Chamber Litigation Center, Washington, DC, on the brief), for the Chamber of Commerce of the United States of America as amicus curiae in support of Defendants–Appellants.

Before: Kearse, Lohier, and Droney, Circuit Judges.

Droney, Circuit Judge:

Barclays PLC, its American subsidiary Barclays Capital Inc. (collectively, "Barclays"), and three senior officers of those companies¹ appeal from an order of the United States District Court for the Southern District of New York (Scheindlin, J. ) granting a motion for class certification filed by the Plaintiffs–Appellees ("Plaintiffs"), three individuals² who purchased Barclays' American Depository Shares ("Barclays' ADS")³ during the class period. The Plaintiffs brought this suit alleging violations of § 10(b) of the Securities Exchange Act of 1934, 15 U.S.C. § 78j(b), and the Securities and Exchange Commission's Rule 10b–5.⁴

The Defendants–Appellants ("Defendants") contend that the district court erred in granting class certification by: (1) concluding that the Affiliated Ute presumption of reliance applied, see Affiliated Ute Citizens of Utah v. United States , 406 U.S. 128, 92 S.Ct. 1456, 31 L.Ed.2d 741 (1972) ; (2) determining, alternatively, that the Basic presumption, see Basic Inc. v. Levinson , 485 U.S. 224, 108 S.Ct. 978, 99 L.Ed.2d 194 (1988), applied without considering direct evidence of price impact when it found that Barclays' ADS traded in an efficient market; (3) requiring the Defendants to rebut the Basic presumption by a preponderance of the evidence (and concluding that the Defendants had failed to satisfy that standard); and (4) concluding that the Plaintiffs' proposed method for calculating classwide damages was appropriate.

We agree with the Defendants that the district court erred in applying the Affiliated Ute presumption, but reject the remainder of their arguments and conclude that the district court did not err in granting the Plaintiffs' motion for class certification. Specifically, we hold that: (1) the Affiliated Ute presumption does not apply because the Plaintiffs' claims are primarily based on misstatements, not omissions; (2) direct evidence of price impact is not always necessary to demonstrate market efficiency, as required to invoke the Basic presumption of reliance, and was not required here; (3) defendants seeking to rebut the Basic presumption must do so by a preponderance of the evidence, which the Defendants in this case failed to do; and (4) the district court's conclusion regarding the Plaintiffs' classwide damages methodology was not erroneous. We therefore AFFIRM the order of the district court.

BACKGROUND

I. Barclays' Recent Involvement in the LIBOR Scandal and Its Investigations

Barclays is a London–based international financial services provider involved in banking, credit cards, wealth management, and investment management services in more than fifty countries.⁵ Barclays was the subject of a number of investigations and suits involving the misrepresentation of its borrowing data submitted for the calculation of the London Interbank Offered Rate ("LIBOR").⁶ Barclays and other financial institutions manipulated LIBOR, an important set of benchmarks for international interest rates. In June 2012, Barclays was fined more than $450,000,000 as a result of its involvement. As a result of the LIBOR investigation, Barclays' corporate leadership undertook significant measures to change the company's culture and develop more integrity in its operations.⁷

II. LX, Dark Pools, and High-Frequency Traders

From the time it was involved in the LIBOR investigations to the present, Barclays, through its American subsidiary Barclays Capital Inc., has operated an alternate trading system—essentially a private venue for trading securities⁸ —known as Barclays' Liquidity Cross, or, more simply, as Barclays' LX ("LX"). LX belongs to a particular subset of alternate trading systems known as "dark pools." Dark pools permit investors to trade securities in a largely anonymous manner. Neither "information regarding the orders placed into the pool for execution [n]or the identities of subscribers that are trading in the pool" are displayed at the time of the trade.⁹

The anonymous nature of dark pools makes them popular with institutional investors, who seek to avoid victimization at the hands of high–frequency traders.^{10 11} High–frequency traders often engage in "front running" or "trading ahead" of the market, meaning that they detect patterns involving large incoming trades, and then execute their own trades before those incoming trades are completed.¹² Front running results in the incoming trades being more costly or less lucrative for the individuals or institutions making them.¹³ Thus, many investors prefer to avoid high–frequency traders, and utilize dark pools to do so. Some literature nevertheless suggests that dark pools are also popular with high–frequency traders, who similarly prefer them because they are anonymous.¹⁴

III. Barclays' Statements Regarding LX and Liquidity Profiling

To address concerns that high–frequency traders may have been front running in LX, Barclays' officers made numerous statements asserting that LX was safe from such practices, and that Barclays was taking steps to protect traders in LX.

For example, Barclays' Head of Equities Electronic Trading (and a Defendant in this action) William White told Traders Magazine that Barclays monitored activity in LX and would remove traders who engaged in conduct that disadvantaged LX clients. On a different occasion, White publicly stated that LX was "built on transparency" and had "safeguards to manage toxicity, and to help [its] institutional clients understand how to manage their interactions with high–frequency traders." J.A. 237. Other examples of purported misstatements made by Barclays include the following allegations:

• Touting LX as encompassing a "sophisticated surveillance framework that protects clients from predatory trading activity." J.A. 240.

• Representing that "LX underscores Barclays' belief that transparency is not only important, but that it benefits both our clients and the market overall." J.A. 246.

• Stating that Barclays' algorithm and scoring methodology enabled it "to restrict [high–frequency traders] interacting with our clients." J.A. 247.

Barclays also created a service for its LX customers entitled "Liquidity Profiling." First marketed in 2011, Liquidity Profiling purportedly allowed Barclays' personnel to monitor high–frequency trading in LX more closely and permitted traders to avoid entities that engaged in such trading. For example, Barclays issued a press release stating that Liquidity Profiling enabled "Barclays to evaluate each client's trading in LX based on quantitative factors, thereby providing more accurate assessments of aggressive, neutral and passive trading strategies." J.A. 246. Based on a numerical ranking system that categorized traders, LX users could, according to Barclays, avoid trading with high–frequency traders. Barclays made numerous other alleged misstatements regarding Liquidity Profiling, such as:

• Claiming in a

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