Johnson & Johnson, et al. v. San Diego County Employees Retirement Association, et al.

Securities-fraud class actions overwhelmingly rely on the “inflation-maintenance” theory, which posits that misrepresentations maintain an inflated stock price until “corrective disclosures” reveal their falsity and cause the price to drop. Plaintiffs in these cases pursue class certification by invoking the efficientmarket hypothesis adopted in Basic Inc. v. Levinson, 485 U.S. 224 (1988). They argue that reliance can be presumed classwide because stock prices in efficient markets incorporate all publicly available information, including misstatements. Based on this presumption, lower courts grant 90% of class-certification motions. This Court’s decision in Goldman Sachs Group, Inc. v. Arkansas Teacher Retirement System, 594 U.S. 113 (2021), installed guardrails on these cases. It required courts to evaluate the match between the “contents of the misrepresentation and the corrective disclosure,” to ensure the disclosure “actually corrected” the misrepresentation. Id. at 123. Where a “mismatch” exists, class certification is “inappropriate.” Id. at 119, 123. Here, the Third Circuit concluded that Goldman’s match requirement is satisfied where the misrepresentation and corrective disclosure merely touch the same subject matter, regardless of whether the disclosure actually reveals the misstatement’s falsity. It also concluded that disclosures may have price impact even when they only republish already-public information. The questions presented are: 1. Under Goldman, must the contents of corrective disclosures actually reveal the falsity of misrepresentations, as the Second Circuit requires; or is it sufficient if the misrepresentations and disclosures merely relate to the same general subject, as the Third and Ninth Circuits allow?