Ark. Teacher Ret. Sys. v. Goldman Sachs Grp., Inc.
Citation | 955 F.3d 254 |
Decision Date | 07 April 2020 |
Docket Number | Docket No. 18-3667,August Term 2018 |
Parties | ARKANSAS TEACHER RETIREMENT SYSTEM, West Virginia Investment Management Board, Plumbers and Pipefitters Pension Group, Plaintiffs-Appellees, Pension Funds, Ilene Richman, Individually and on behalf of all others similarly situated, Plaintiffs, Howard Sorkin, Individually and on behalf of all others similarly situated, Tikva Bochner, On behalf of herself and all others similarly situated, Dr. Ehsan Afshani, Louis Gold, Individually and on behalf of all others similarly situated, Thomas Draft, individually and on behalf of all others similarly situated, Consolidated Plaintiffs, v. GOLDMAN SACHS GROUP, INC., Lloyd C. Blankfein, David A. Viniar, Gary D. Cohn, Defendants-Appellants, Sarah E. Smith, Consolidated Defendant. |
Court | United States Courts of Appeals. United States Court of Appeals (2nd Circuit) |
ROBERT J. GIUFFRA, JR. (Richard H. Klapper, David M.J. Rein, Benjamin R. Walker, Jacob E. Cohen, on the brief), Sullivan & Cromwell LLP, New York, NY, for Defendants-Appellants.
THOMAS C. GOLDSTEIN, Goldstein & Russell, P.C., Bethesda, MD (Kevin K. Russell, Goldstein & Russell, P.C., Bethesda, MD; Spencer A. Burkholz, Joseph D. Daley, Robbins Geller Rudman & Dowd LLP, San Diego, CA; Thomas A. Dubbs, James W. Johnson, Michael H. Rogers, Irina Vasilchenko, Labatow Sucharow LLP, New York, NY, on the brief), for Plaintiffs-Appellees.
Lewis J. Liman, Cleary Gottlieb Steen & Hamilton LLP, New York, NY (Jared M. Gerber, Lina Bensman, Cleary Gottlieb Steen & Hamilton LLP, New York, NY; Steven P. Lehotsky, U.S. Chamber Litigation Center, Washington, D.C., on the brief), for Amicus Curiae Chamber of Commerce of the United States of America in Support of Defendants-Appellants.
Todd G. Cosenza (Maxwell A. Bryer, on the brief), Willkie Farr & Gallagher LLP, New York, NY, for Amici Curiae Former United States Securities and Exchange Commission Officials and Securities Scholars in Support of Defendants-Appellants.
Michael C. Keats, Fried, Frank, Harris, Shriver & Jacobson LLP, New York, NY, for Amici Curiae Economic Scholars in Support of Defendants-Appellants.
Jonathan K. Youngwood, Simpson Thacher & Bartlett LLP, New York, NY (Craig S. Waldman, Joshua C. Polster, Daniel H. Owsley, Simpson Thacher & Bartlett LLP, New York, NY; Ira D. Hammerman, Kevin M. Carroll, Securities Industry and Financial Markets Association, Washington, D.C.; Gregg Rozansky, Bank Policy Institute, Washington, D.C., on the brief), for Amici Curiae Securities Industry and Financial Markets Association and Bank Policy Institute in Support of Defendants-Appellants.
Deepak Gupta, Gupta Wessler PLLC, Washington, D.C. (Gregory A. Beck, Gupta Wessler PLLC, Washington, D.C.; Salvatore J. Graziano, Jai K. Chandrasekhar, Bernstein Litowitz Berger & Grossmann LLP, New York, NY, on the brief), for Amici Curiae Securities Law Scholars in Support of Plaintiffs-Appellees.
Marc I. Gross, Pomerantz LLP, New York, NY (Jeremy A. Lieberman, Pomerantz LLP, New York, NY; Ernest A. Young, Apex, NC, on the brief), for Amici Curiae Procedure Scholars in Support of Plaintiffs-Appellees.
J. Carl Cecere, Cecere PC, Dallas, TX (David Kessler, Darren Check, Kessler Topaz Meltzer & Check LLP, Radnor, PA, on the brief), for Amicus Curiae National Conference on Public Employee Retirement Systems in Support of Plaintiffs-Appellees.
Before: WESLEY, CHIN, and SULLIVAN, Circuit Judges.
This is the second time this securities class action has arrived at our doorstep on a Rule 23(f) appeal. The first time we took the case, the United States District Court for the Southern District of New York (Crotty, J. ) had certified under Rule 23(b)(3) a shareholder class suing Goldman Sachs Group, Inc. and a handful of its executives (collectively, "Goldman") for securities fraud. We vacated the class certification order, holding that the district court did not apply the "preponderance of the evidence" standard for determining whether Goldman had rebutted a legal presumption, known as the Basic presumption, that the shareholders relied on Goldman’s allegedly material misstatements in choosing to purchase its stock at the market price. See Ark. Teachers Ret. Sys. v. Goldman Sachs Grp., Inc. (ATRS I ), 879 F.3d 474, 484–85 (2d Cir. 2018) ; see also Basic Inc. v. Levinson , 485 U.S. 224, 245–48, 108 S.Ct. 978, 99 L.Ed.2d 194 (1988). We also held that the court erroneously declined to consider some of Goldman’s evidence of "price impact"—that is, the question of whether the revelation that Goldman’s statements were false affected its share price. See ATRS I , 879 F.3d at 485–86.
On remand, the district court ordered additional briefing and held an evidentiary hearing. After concluding that Goldman failed to rebut the Basic presumption by a preponderance of the evidence, the court certified the class once more. See In re Goldman Sachs Grp., Inc. Sec. Litig. , No. 10 Civ. 3461 (PAC), 2018 WL 3854757 (S.D.N.Y. Aug. 14, 2018). We again granted Goldman’s petition for permission to appeal under Rule 23(f).
The question before us is whether the district court abused its discretion by certifying the shareholder class, either on legal grounds or in its application of the Basic presumption. For the following reasons, we hold that it did not.
The facts giving rise to this lawsuit are discussed at length in our prior opinion. See ATRS I , 879 F.3d at 478–82. All that is required here is an abridged version.
Between 2006 and 2010, Goldman made the following statements about its business practices:
J.A. 87–88, 93 (alterations omitted). The Plaintiffs-Appellees ("shareholders")—individuals and institutions holding shares of Goldman’s common stock—allege that these statements were false because Goldman made them while knowing that it was riddled with undisclosed conflicts of interest.
The conflicts at issue here surround several collateralized debt obligation ("CDO") transactions involving subprime mortgages. Chief among them is the Abacus 2007 AC-1 ("Abacus") transaction. Publicly, Goldman marketed Abacus as an ordinary asset-backed security, through which investors could buy shares in bundles of mortgages that the investors, and presumably Goldman, hoped would succeed. But behind the scenes, Goldman purportedly allowed the hedge fund Paulson & Co. to play an active role in selecting the mortgages that constituted the CDO. And Paulson, which bet against the success of the Abacus investment through short sales, chose risky mortgages that it "believed would perform poorly or fail." Id. at 59. The alleged plan worked, and Paulson made roughly $1 billion at the expense of the CDO investors (who are not the plaintiffs here). Goldman ultimately admitted that it failed to disclose Paulson’s role in the portfolio selection, and it reached a $550 million settlement with the SEC—the largest-ever penalty paid by a Wall Street firm at the time. See generally Press Release, SEC, Goldman Sachs to Pay Record $550 Million to Settle SEC Charges Related to Subprime Mortgage CDO (July 15, 2010), https://www.sec.gov/news/press/2010/2010-123.htm. Goldman allegedly engaged in similar conduct with respect to three other CDOs. At times, Goldman allegedly represented to its investors that it was aligned with them when it was in fact short selling against their positions.
In 2011, the named plaintiffs filed a class action complaint in the United States District Court for the Southern District of New York, seeking under Federal Rule of Civil Procedure 23(b)(3) to represent a class of all individuals and entities that acquired shares of Goldman’s common stock between February 5, 2007 and June 10, 2010. They alleged that Goldman and several of its directors violated § 10(b) of the Securities Exchange Act of 1934 and Rule 10b–5 promulgated thereunder. See 15 U.S.C. § 78j(b) ; 17 C.F.R. § 240.10b–5. The crux of their claim is that Goldman’s representations about being conflict free artificially maintained an inflated stock price and that the revelations of Goldman’s conflicts, such as those presented by the SEC in its complaint against Goldman concerning the Abacus deal, were "corrective disclosures" that caused the market to devalue their Goldman shares.1 They noted, for example, that Goldman’s share price dropped 13% when the SEC filed a securities-fraud complaint against Goldman in connection with the Abacus transaction, and that it dropped even further on two later dates when news broke that several federal agencies were investigating Goldman for its role in the other conflicted transactions. In the shareholders’ view, these announcements revealed to the market that Goldman had created "clear conflicts of interest with its own clients" by "intentionally packag[ing] and s[elling] ... securities that were designed to fail, while at the same time reaping billions for itself or its favored clients by taking massive short positions" in the same transactions. J.A. 49. They...
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