Supreme Court Ruling Lowers Class Action Hurdle for Securities Fraud Cases


On February 27, the Supreme Court upheld a lower court’s determination that proof of materiality is not required before certifying a securities fraud class action.

Connecticut Retirement Plans and Trust Funds sought class certification against Amgen Inc. alleging that Amgen made material misrepresentations about two of its flagship drugs, subsequently affecting Amgen’s stock price. Amgen asserted that materiality must be proven before certifying the class under Rule 23(b)(3) of the Federal Rules of Civil Procedure, which requires common questions of law or fact to predominate in class actions.

By a 6-3 vote, the Supreme Court held that challenges to materiality were not appropriate at the class certification stage. Justice Ginsberg, writing the opinion for the Court, noted: “Rule 23 grants courts no license to engage in free-ranging merits inquiries at the certification stage.” Rather, the initial stages of a class action are designed to select the best method to litigate fairly and efficiently and Amgen’s position would “put the cart before the horse.” According to the Court, the “pivotal inquiry is whether proof of materiality is needed to ensure that the questions of law or fact common to the class will ‘predominate over any questions affecting only individual members’ as the litigation progresses.” The Court reasoned that because materiality is judged according to an objective standard, it can be proven through evidence common to the class. In dissent, Justice Thomas criticized the majority for “all but eliminating materiality as one of the predicates of the fraud-on-the market theory….”

Amgen, Inc. v. Connecticut Retirement Plans and Trust Funds, No. 11-1085 (2012).


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