# United States Court of Appeals **for the Fifth Circuit**

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No. 23-20424

____________ Georgia Firefighters’ Pension Fund,
Plaintiff—Appellee ,
Norfolk City Council as Ad ministering Authority of the Norfolk Pension Fund; Iron Workers Local 580 Joint Funds; Building Trad es United Pension Trust Fund,
Movants—Appellees , versus
Anadarko Petroleum Corporation; Robert G. Gwin; Robert P. Daniels; Ernest A. Leyendecker, III; R. A. Walker,
Defendants—Appellants

.

______________________________ Appeal from the United States District Court for the Southern District of Texas USDC No. 4:20-CV-576

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Before King, Ho, and Engelhardt, Circuit Judges

. James C. Ho, Circuit Judge : Our adversarial system of justice requir es that we give both sides full and fair opportunity to present their strongest possible arguments to the United States Court of Appeals Fifth Circuit 

### FILED April 25, 2024 Lyle W. Cayce Clerk Case: 23-20424 Document: 43-1 Page: 1 Date Filed: 04/25/2024No. 23-20424

2 court. See , e.g. , Penson v. Ohio , 488 U.S. 75, 84 (1988); Lefebure v. D’Aquilla , 15 F.4th 670, 674–75 (5th Cir. 2021). It is through that clash of ideas that we ensure that justice is done pursuant to the laws that govern the dispute in question. That clash of ideas was missing here . A class of stock purchasers allege that Anadarko Petroleum Corp oration fraudulently misrepresented the potential value of its Shenandoah oil field project in the Gulf of Mexico, in violation of federal securities l aw. During the class certification proceedings below, Plaintiffs presented new evidence for the first time in a reply brief. As a result, Anadarko di d not have fair opportunity to address that new evidence at an earlier stage in the briefing. So the district court should have permitted Anadarko to f ile a sur-reply responding to that new evidence contained in Plaintiffs’ reply. Accordingly, we vacate the district court’s order certifying the class and remand for further proceedings.

I.

Plaintiffs sue on behalf of the clas s of stock purchase rs who acquired Anadarko common stock between February 20, 2015, and May 2, 2017. They allege that Anadarko, along with th e individual Defendants, fraudulently misrepresented the value of th e Shenandoah oil field. Specifically, Plaintiffs contend that a decline in Anadarko’s stock price on May 3, 2017, resulted from An adarko’s May 2 after-hours disclosure that the Shen-6 sidetrack well was dry, that Anadarko was taking a $902 million write-off for the Shenandoah project, and that Anadarko was suspending further appraisal. In securities fraud class actions, plaintiffs may show reliance on a defendant’s misrepresentations—and th erefore satisfy Federal Rule of Civil Case: 23-20424 Document: 43-1 Page: 2 Date Filed: 04/25/2024No. 23-20424

3 Procedure 23(b)(3)’s predominance requirement—by invoking the Basic presumption, a rebuttable presumption that allows courts to presume “an investor’s reliance on an y public material misrepresentations” if certain requirements are met. Basic Inc. v. Levinson , 485 U.S. 224, 247 (1988). Plaintiffs must prove “(1) that the a lleged misrepresentation was publicly known; (2) that it was material; (3) that the stock traded in an efficient market; and (4) that the plaintiff tr aded the stock between the time the misrepresentation was made and wh en the truth was revealed.” Goldman Sachs Grp., Inc. v. Ark. Tchr. Ret. Sys. , 594 U.S. 113, 118 (2021). The defendant may rebut the presumption by demonstrating that the “alleged misrepresentation did not actually affe ct the market price of the stock.” Id. at 119 (internal quotation omitted). Here, Plaintiffs invoked the Basic presumption in their motion to certify the class, and submitted an ex pert report to demonstrate market efficiency. In response , Anadarko contended that its May 3 stock price decline was caused, not by its Shenando ah disclosure, but by an entirely separate and distinct event—news linking Anadarko to a fatal Colorado home explosion, and announcing related regula tory requirements estimated to cost Anadarko $140 million. Plaintiffs’ reply brief included a re buttal report from their expert, Bjorn Steinholt. Most impo rtantly for this appeal, Steinholt’s report pointed to (1) evidence that Anadarko’s stock price fell 4.1% in after-market trading on May 2 after the Shenandoah disclosure at 4:16 p.m. but before a news article about the Colorado announcemen t was published at 4:51 p.m., and (2) a new event study that controlled for the Colorado news but still found a Case: 23-20424 Document: 43-1 Page: 3 Date Filed: 04/25/2024No. 23-20424

4 statistically significant price decline as sociated with Anadarko’s Shenandoah disclosure. 1

Anadarko moved for leave to file a su r-reply. It argued that Plaintiffs’ reply brief contained new evidence to which Anadarko was entitled to respond. The district court denied le ave, stating that Anadarko “chose not to provide an event study.” The co urt concluded that Plaintiffs’ reply “squarely responded to arguments in [Anadarko’s] response” and “didn’t introduce new arguments or evidence.” Anadarko subsequently moved to ex clude Steinholt’s rebuttal report under Daubert . The district court denied this motion as well, and proceeded to certify the class.

The class certification order cited evidence from Steinholt’s rebuttal report, stating that “the Anadarko stock price dropped 4.1 percent during after-hours trading between the time Anad arko made its Shen disclosures and the time the [Colorado] news broke,” and that the “event study concluded that the price drop on May 3rd remained statistically significant even when controlling for the [Colorado] news.” The district court denied Anadarko’s motion for reconsideration. Anadarko appealed, arguing that the district court abused its discretion by relying on new evidence in Plaintiffs’ reply without allowing Defendants an opportunity to respond. Anadarko also argued that the district court failed to conduct a proper Daubert analysis, and that Defendants sufficiently rebutted the Basic presumption.

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1 An event study “is a statistical regression analysis that examines the effect of an event . . . on a dependent variable, such as a corporation’s stock price.” Ludlow v. BP, P.L.C. , 800 F.3d 674, 683 (5th Cir. 2015) (internal quotation omitted). Case: 23-20424 Document: 43-1 Page: 4 Date Filed: 04/25/2024No. 23-20424

5 II. We agree with Anadarko that the di strict court should have allowed a sur-reply. Ordinarily, sur-replies are “heavily disfavored,” and th e decision to allow a sur-reply lies within the district court’s discretion. Butler v. S. Porter , 999 F.3d 287, 297 (5th Cir. 2021) (internal quotation omitted). But when a party raises new argumen ts or evidence for the first time in a reply, the district court must eith er give the other party an opportunity to respond or decline to rely on the new arguments and evidence. See Residents of Gordon Plaza, Inc. v. Cantrell , 25 F.4th 288, 296 (5th Cir. 2022) (“[A] district court abuses its discre tion when it considers new arguments raised for the first time in a reply brie f without providing the non-movant an adequate opportunity to respond prio r to a ruling.”) (internal quotation omitted); RedHawk Holdings Corp. v. Schreiber , 836 F. App’x 232, 235 (5th Cir. 2020) (“[A] district court may co nsider arguments an d evidence raised for the first time in a reply brief withou t abusing its discretion so long as it gives the non-movant an adequate opportunity to respond prior to a ruling.”) (internal quotations omitted). Plaintiffs’ reply brief presented new evidence. As Steinholt himself noted, “the primary focus” of his origin al report was market efficiency—not price impact. Steinholt did not discuss or introduce evidence of the May 2 after-hours trading until his rebuttal report. The district court itself described Steinholt’s event study as “new.” As Plaintiffs’ counsel acknowledged at oral argument, this ma terial was not in the record prior to the reply brief. Yet the district court “considered” the rebuttal report “where pertinent,” and referred both to the after-hours trading and to the new event study in its predominance analysis. The after-hours trading and the event study constituted key new evid ence directly related to the central Case: 23-20424 Document: 43-1 Page: 5 Date Filed: 04/25/2024No. 23-20424

6 class certification dispute: whether Anadarko’s stock price decline was caused by the Colorado news or the Shenandoah disclosure.

The district court therefore abused it s discretion by denying Anadarko leave to file a sur-reply.

III. Anadarko also challenges the admi ssibility of Steinholt’s rebuttal report under Daubert , arguing that the district court failed to conduct a sufficiently rigorous Daubert analysis and that th e rebuttal report is unreliable. Class actions may only be certifie d “based on adequate admissible evidence to justify cl ass certification.” Prantil v. Arkema Inc. , 986 F.3d 570, 575 (5th Cir. 2021) (inter nal quotation omitted). Daubert therefore applies with the same rigor at the class ce rtification stage as at trial. See id. Anadarko argues that the district court failed to conduct a rigorous Daubert analysis, because it considered Anadarko’s Daubert challenge as “little more than an attempt to re-urg e Defendants’ recently denied motion for leave to file a surreply,” and noted that “[t]he new event study certainly won’t be immune from criticism.” Specifically, Anadarko argues that Steinholt’s after-hours trading evidence is unreliable, because Steinho lt failed to establish that the afterhours market was efficient, failed to co nduct an event study specifically for after-hours trading to determine whether the stoc k movement was statistically significant, and erroneou sly identified the time the Colorado news became public as 4:51 p.m., not 4:03 p.m. Anadarko additionally argues that the event study is unreliable because it added Colorado comparators but removed the industry index. Case: 23-20424 Document: 43-1 Page: 6 Date Filed: 04/25/2024No. 23-20424

7 We agree with Anadarko that the di strict court failed to perform a full Daubert analysis. The record indicates th at the district court conducted a Daubert inquiry to some extent—the class certification order noted Steinholt’s credentials, stated that the rebuttal report was reliable, and concluded that the rebuttal report woul d be “considered where pertinent.” But it is not clear that the district court “appl[ied] Daubert ’s reliability standard with full force.” Prantil , 986 F.3d at 576. Inst ead, the district court appears to have denied Anadarko’s Daubert motion at least in part on the basis that “[i]t has already been determ ined that class certification will rise or fall with what is fairly briefed in the papers under the Local Rules of the Southern District”—not Anadarko’s su r-reply arguments that the district court stated were “re-urge[d]” in Anadarko’s Daubert motion.

The district court’s denial of Anad arko’s motion for reconsideration of class certification also seems to indi cate that the district court may not have fully considered Anadarko’s Daubert arguments. It stated that “[m]any” of Anadarko’s arguments in its motion for reconsideration “derive from information presented in the Daubert briefing, with express determination that such would not be properly considered.” On remand, the district court sh ould fully consider Anadarko’s Daubert challenge.

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We vacate the class certification or der entered by the district court, and remand for proceedings cons istent with this opinion. Case: 23-20424 Document: 43-1 Page: 7 Date Filed: 04/25/2024