This morning the United States Supreme Court affirmed class certification in Amgen, Inc. v. Connecticut Retirement Plans and Trust Funds , a securities fraud case. The question presented was whether plaintiffs seeking class certification under Fed. R. Civ. P. Rule 23(b)(3) of a claim for securities fraud and relying on a “fraud - on - the - market” presumption must prove the materiality of the alleged misstatements and omissions as a prerequisite to class certification. The Court held that materiality need not be proved at that stage.
The Amgen plaintiffs brought claims for securities fraud based on alleged misstatements and omissions by Amgen and several of its officers. To establish the required reliance , the plaintiffs invoked the “fraud - on - the - market” presumption endorsed by the Supreme Court in Basic, Inc. v. Levinson , 485 U.S. 224 (1988). In Basic , the Court had held that it was not inappropriate to apply a rebuttable presumption “that persons who traded Basic shares had done so in reliance on the integrity of the price set by the market, but because of petitioners’ material misstatements that price had been fraudulently depressed.” Basic , 485 U.S. at 245. The question presented in Amgen was whether “materiality” had to be proven (or rebutted) at the class - certification stage in a putative class action under § 10(b) and Rule 10b - 5.
In a majority opinion written by Justice Ginsburg, the Court held that materiality need not be proven as a prerequisite to class certification. Key to the holding was the fact that “materiality” would be decided by an objective standard: “Because materiality is judged according to an objective standard, the materiality of Amgen’s alleged misrepresentations and omissions, whether material or immaterial, would be so equally for all investors composing the class.” (Slip Op. at 2.) If the alleged misrepresentations w ere material, they would by definition have affected the open market price, establishing reliance for all class members. Conversely, if the alleged misrepresentations were not material, they would not have affected the open market price, dooming a claim of reliance by any class member. And so there could not be individualized answers to the question whether the alleged misrepresentations were material, because an objective standard of materiality would be applied in any case. Slip Op. at 11 (“there is n o risk whatever that a failure of proof on the common question of materiality will result in individual questions predominating”). Therefore, the Court held, “materiality” is always a common question within the meaning of Rule 23(b)(3) in a securities fraud case involving an alleged “fraud on the market.” For essentially the same reasons, the Court rejected Amgen’s argument that evidence rebutting the presumption of reliance should be allowed at the class - certification stage. (Slip Op. at 25 (“just as a plaintiff class’s inability to prove materiality creates no risk that individual questions will predominate, so even a definitive rebuttal on the issue of materiality would not undermine the predominance of questions common to the class”).
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