Goldman Sachs Wins Second Circuit Appeal Reversing Certification in Securities Class Action

Paul, Weiss won a major Second Circuit victory on behalf of Goldman Sachs in a long-running, high-stakes securities class action, when a Second Circuit panel reversed certification of an investor class and instructed the district court to decertify the class.

By a 3-0 vote, the panel found that the district court had erred in its decision to certify an investor class by misinterpreting the U.S. Supreme Court’s 2021 ruling in Goldman Sachs Group Inc. v. Arkansas Teacher Retirement System.

In the underlying lawsuit, three pension funds claimed that Goldman Sachs violated securities laws by making a series of false and misleading statements about its business principles and management of conflicts of interest, and by so doing, artificially maintained an elevated Goldman share price. They alleged a 2010 enforcement action by the SEC and other events revealed these statements to be false, and that the revelations caused a decline in Goldman’s stock price, claiming $13 billion in losses.

The district court originally certified a class in 2015, and since then, Goldman has fought to overturn that certification. The Second Circuit in Goldman’s first appeal vacated certification and remanded the case; the district court once again certified the class. After a second interlocutory appeal by Goldman was unsuccessful, Paul, Weiss was retained to handle the Supreme Court appeal.

The current appeal stems from the 2021 Supreme Court’s decision vacating the Second Circuit’s affirmance. In an enormously important decision, the Supreme Court directed the lower courts to consider the level of "mismatch" in content and "genericness" between the alleged false and misleading statements and the purported corrective disclosures when determining whether the statements could have impacted Goldman’s share price. On remand, however, U.S. District Judge Paul A. Crotty once again granted class certification to the investor plaintiffs—for a third time.

The Paul, Weiss team requested, and was granted permission to appeal for a third time to the Second Circuit. In briefs and at oral argument in September 2022, we argued that the district court misconstrued the Supreme Court’s mismatch holding and also impermissibly expanded the Second Circuit’s inflation-maintenance theory to presume price impact from the nondisclosure of uncharged misconduct.

The Second Circuit agreed with our client in its decision. “A searching review of the record leaves us with the firm conviction that there is an insufficient link between the corrective disclosures and the alleged misrepresentations,” the court concluded. “Defendants have demonstrated, by a preponderance of the evidence, that the misrepresentations did not impact Goldman’s stock price, and, by doing so, rebutted Basic’s presumption of reliance. The district court clearly erred in concluding otherwise, and therefore abused its discretion in certifying the shareholder class.”

The Paul, Weiss team included litigation partners Kannon Shanmugam, who argued the appeal, and Audra Soloway.