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Monday, March 4, 2013

Amgen v. Connecticut Retirement: SCOTUS Holds That Plaintiff Need Not Prove Materiality of Misrepresentation to Win Cerification Of Securities Class Action

The Supreme Court of the United States on February 27 issued its decision in Amgen, Inc. v. Connecticut Retirement Plans and Trust Funds (Case No. 11-1085).  In an opinion written by Justice Ruth Bader Ginsburg, a six-member majority held that a plaintiff in a securities class action need not prove at the time of certification that the defendant's alleged misrepresentations were material.  Justice Ginsburg wrote: 
Seeking class-action certification under Federal Rule of Civil Procedure 23, Connecticut Retirement invoked the "fraud-on-the-market" presumption endorsed by this Court in Basic Inc. v. Levinson, 485 U. S. 224 (1988), and recognized most recently in Erica P. John Fund, Inc. v. Halliburton Co., 563 U. S. ___ (2011). The fraud-on-the-market premise is that the price of a security traded in an efficient market will reflect all publicly available information about a company; accordingly, a buyer of the security may be presumed to have relied on that information in purchasing the security.

The issue presented concerns the requirement stated in Rule 23(b)(3) that "the questions of law or fact common to class members predominate over any questions affecting only individual members." Amgen contends that to meet the predominance requirement, Connecticut Retirement must do more than plausibly plead that Amgen's alleged misrepresentations and misleading omissions materially affected Amgen's stock price. According to Amgen, certification must be denied unless Connecticut Retirement proves materiality, for immaterial misrepresentations or omissions, by definition, would have no impact on Amgen's stock price in an efficient market.  
While Connecticut Retirement certainly must prove materiality to prevail on the merits, we hold that such proof is not a prerequisite to class certification. Rule 23(b)(3) requires a showing that questions common to the class predominate, not that those questions will be answered, on the merits, in favor of the class. Because materiality is judged according to an objective standard, the materiality of Amgen's alleged misrepresentations and omissions is a question common to all members of the class Connecticut Retirement would represent. The alleged misrepresentations and omissions, whether material or immaterial, would be so equally for all investors composing the class. As vital, the plaintiff class's inability to prove materiality would not result in individual questions predominating. Instead, a failure of proof on the issue of materiality would end the case, given that materiality is an essential element of the class members' securities-fraud claims. As to materiality, therefore, the class is entirely cohesive: It will prevail or fail in unison. In no event will the individual circumstances of particular class members bear on the inquiry.
Slip op. at 1-2.  

Chief Justice Roberts and Justices Breyer, Alito, Sotomayor, and Kagan joined. Justices Scalia, Thomas, and Kennedy dissented, arguing in part that a plaintiff may not rely on the fraud-on-the market presumption until it has shown materiality.   

Amgen was argued on the same day as Comcast Corp. v. Behrend (Case No. 11-864), which raises the following issue: 
Whether a district court may certify a class action without resolving whether the plaintiff class has introduced admissible evidence, including expert testimony, to show that the case is susceptible to awarding damages on a class-wide basis.
I had thought that the Court would announce its decisions in the two cases together, but it obviously has not done so.  In any case, we will present a Watch List program on Comcast shortly after it comes down, and we will include a discussion of Amgen.  Please watch this space for additional information.  

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