Caryl Boies first got involved in a securities class action against the oilfield giant Halliburton back in 2006, after the lead plaintiff in the case, a Milwaukee pension fund, got wind that lawyers for the class were negotiating a settlement without the fund’s consent. Class counsel proposed a $6 million deal to end the case. The Milwaukee fund proposed ditching class counsel William Lerach. In 2007, U.S. District Judge Barbara Lynn of Dallas granted the motion to substitute Boies Schiller & Flexner – where Caryl Boies was a partner alongside her father, firm founder David Boies - as lead counsel in the Halliburton securities class action.
The case was already five years old when Boies Schiller took over. But that was only the beginning. Over the next nine-and-a-half years, the Halliburton securities class action went through three oral arguments to the 5th U.S. Circuit Court of Appeals and two hair-raising trips to the U.S. Supreme Court, which used the case first as a vehicle to decide whether investors must prove loss causation to be certified as a class and then, critically, to reconsider the essential fraud-on-the-market presumption that underlies most securities fraud class actions.
The Halliburton case finally settled Friday, as my colleague Nate Raymond was quick to report. The deal was for $100 million – a number that had special significance for David Boies. He told me in a phone interview on Monday that Halliburton has made settlement offers a few times over the years, including a $10 million offer soon after Boies Schiller came in. Caryl Boies, according to her father, said then that investors would never settle for less than $100 million. “She said that a number of times,” Boies said.
When Caryl died of lung cancer in 2011, the Halliburton class action was at a low ebb. The 5th Circuit had affirmed Judge Lynn’s initial denial of class certification, citing its own 2007 holding in Oscar Private Equity v. Allegiance, which said investors cannot be certified as a class unless they can prove a defendant’s alleged misrepresentation moved the market. (Halliburton shareholders chiefly claimed the company deceived them about the scope of its asbestos exposure, though they also alleged misstatements about construction and engineering revenue and the benefits of an acquisition.) After Caryl Boies’ death, the Supreme Court took the case and rejected the 5th Circuit’s Oscar precedent. The ruling came as a relief for the securities class action bar, which had been worried that the court’s conservative majority would uphold the 5th Circuit, erecting another obstacle for shareholders.
Investors dodged an even more lethal bullet when the Halliburton case returned to the Supreme Court in 2014. This time around, it was the company’s lawyers at Baker Botts who sought the justices’ review, after Judge Lynn certified a shareholder class under the Supreme Court’s first Halliburton decision. Baker Botts asked the court to reexamine its 1988 holding in Basic v. Levinson, which codified the concept of fraud on the market; established that shareholders need not prove individual reliance in order to be certified as a class; and brought about the modern era of securities class actions. Justices Antonin Scalia, Samuel Alito and Clarence Thomas had been looking for a case that would allow the court to reconsider Basic. Halliburton gave them that chance.
Happily for the class action bar, the Supreme Court left Basic intact, although the majority held defendants can oppose class certification by rebutting Basic’s presumption that alleged misrepresentations impacted the market. At the time, Boies said that most defendants wouldn’t even try to oppose class certification based on price impact after they weighed the strategic and practical costs of those arguments against the slim odds of success.
Halliburton, of course, was not most defendants. When the case returned to Judge Lynn yet again, the company brought in experts to argue that the class should not be certified because Halliburton’s alleged misstatements did not impact the price of its shares. Judge Lynn mostly agreed with the company, knocking out five of the six supposed misrepresentations in the case. But she certified a class to proceed with the claim that a $30 million jury verdict against a Halliburton subsidiary led to a 40 percent drop in share price.
Last August, when the Halliburton case went to the 5th Circuit for a third time, Boies and Halliburton counsel Aaron Streett of Baker Botts sparred over whether the trial verdict was a corrective disclosure or just bad news the company had warned investors to anticipate. They also offered the appellate panel – Judges Eugene Davis, Jennifer Elrod and Stephen Higginson – different views about whether trial judges should decide at the class certification stage whether disclosures are corrective.
The appellate panel didn’t lean decisively toward either side, but Boies told me it seemed clear the panel was not going to kill the shareholders’ case outright. The appeals judges asked several times whether the case might have to go back to Judge Lynn for a fourth round, with clarification from the 5th Circuit on how to interpret the Supreme Court’s second Halliburton decision. Neither Streett nor Boies seemed excited about that prospect.
According to Boies, serious settlement talks with Halliburton began after the inconclusive oral argument at the 5th Circuit. Judge Lynn had allowed discovery and briefing to move ahead while the appeal was under way, so summary judgment motions were pending in the trial court. If the 5th Circuit and Judge Lynn had allowed the case to go to trial, Boies himself would have led the shareholders’ team, which would have claimed damages of between $300 million and $750 million. Halliburton and Baker Botts would surely have asserted the company made no misrepresentations and owed the plaintiffs nothing. (I emailed Aaron Streett for comment but didn’t hear back.)
In the end, Boies said, he was gratified to get $100 million – Caryl’s minimum – for Halliburton investors and to have assured the future of shareholder class actions. “We got Oscar overruled and Basic affirmed,” Boies said. “Those were very, very important principles. For securities plaintiffs and their lawyers, Boies said, Halliburton was the disaster that didn’t happen.
The Halliburton settlement did not address attorneys’ fees for Boies Schiller and other plaintiffs’ lawyers, including Kahn Swick & Foti. According to Boies, the firm has put about $20 million of time and as much as $3 million in expenses into the case.