Zillow Group, Inc., et al. v. Jeremy Jaeger, Individually and on Behalf of All Others Similarly Situated

In Basic Inc. v. Levinson, 485 U.S. 224, 246-47 (1988), the Court held that securities fraud plaintiffs can obtain class certification by proving prerequisites tending to show that the defendant’s alleged misrepresentations affected the “market price” of the defendant’s stock. The defendant may then rebut that showing with evidence that its statements did not in fact affect the stock price. Goldman Sachs Group, Inc. v. Arkansas Teacher Retirement System, 594 U.S. 113, 123 (2021). Most plaintiffs claim that the defendant’s alleged “front-end” misstatements affected stock price by concealing a material business risk, thus preventing the stock price from declining. Plaintiffs here point to a stock price decline that occurred after the “backend” disclosure of bad news, and argue that the decline would have happened earlier if the defendant’s front-end statements had been truthful. In Goldman, the Court held defendants must have a meaningful opportunity to rebut this “inflation maintenance” theory of price impact by showing that the back-end disclosures didn’t “actually correct[]” the defendant’s front-end statements. Id. But the Ninth Circuit here held that investors may invoke the theory if the front- and back-end statements address the same general subject matter, even absent correction. The question presented is whether a defendant can rebut the inflation maintenance theory by showing that back-end disclosures didn’t actually correct its alleged misstatements, as the Second Circuit has held, or whether the inflation maintenance theory is functionally immune from challenge if the disclosures are about the same general subject as the prior statements, as the Third and Ninth Circuits have held.