On February 27, 2013, the Supreme Court handed down its decision in Amgen Inc. v. Connecticut Retirement Plans & Trust Funds, No. 11-1085 (U.S. Feb. 27, 2013). In a six to three decision, the Court held that plaintiffs asserting claims for violations of Section 10(b) of the Securities Exchange Act of 1934 need not, at the class certification stage of a proceeding, prove that alleged misrepresentations were material in order to avail themselves of the fraud-on-the-market presumption in establishing predominance under Federal Rule of Civil Procedure 23(b)(3). The Court further held that defendants could not rebut the fraud-on-the-market presumption at the class certification stage solely by establishing that such misrepresentations were immaterial (e.g., through the “truth-on-the-market” defense).
The decision further clarifies the requirements for obtaining class certification in securities fraud cases and resolves a split among the circuits, including by setting aside governing precedent in the Second Circuit, among others. In Amgen, the Supreme Court held that so long as plaintiffs establish that alleged misrepresentations were public statements made in an efficient market, they may rely on the fraud-on-the-market presumption and need not separately establish materiality to fulfill the predominance requirement for class certification. The question of materiality can require complicated expert testimony, and this decision narrows the instances in which materiality can be addressed in purported class actions and eases the burden on plaintiffs seeking to proceed as a class.
Securities Fraud Class Actions and the Fraud-On-The-Market Presumption Of Reliance -
To bring a viable claim under Section 10(b), a plaintiff must plead and prove “(1) a material misrepresentation or omission by the defendant; (2) scienter; (3) a connection between the misrepresentation or omission and the purchase or sale of a security; (4) reliance upon the misrepresentation or omission; (5) economic loss; and (6) loss causation.” Amgen, slip op. at 3-4 (citing Matrixx Initiatives, Inc. v. Siracusano, 131 S. Ct. 1309, 1317 (2011)). To certify a class seeking damages for alleged violations of Section 10(b), plaintiffs must also establish that the purported class meets the requirements of Rule 23(a) and (b)(3), including the requirement under Rule 23(b)(3) that “questions of law or fact common to class members predominate over any questions affecting only individual members.” Id. (emphasis added).
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