Supreme Court Rules In Favor Of Plaintiffs In Amgen Securities Class Action

by Pepper Hamilton LLP

Continuing its recent trend of handing down plaintiff-friendly decisions in private securities class actions brought under Section 10(b) of the Securities Exchange Act of 1934, 15 U.S.C. § 78j(b), and SEC Rule 10b-5 (Rule 10b-5 actions), the U.S. Supreme Court held in Amgen, Inc. v. Connecticut Retirement Plans and Trust Funds, No. 11-1085, 568 U.S. ___, slip op. (U.S. Feb. 27, 2013), that plaintiffs need not prove materiality as a prerequisite to class certification. Justice Ruth Bader Ginsburg, writing for the majority, resolved a circuit split over whether, at the class certification stage, a plaintiff must prove materiality to satisfy the predominance requirement of Federal Rule of Civil Procedure 23(b)(3), and whether defendants may present evidence rebutting the element of materiality. The Supreme Court held (1) that proof of materiality is not a prerequisite to class certification because Rule 23(b)(3) only requires a showing that questions predominate, not that the question will be answered in the class’ favor, and (2) that the district court did not err in failing to consider Amgen’s rebuttal evidence as to the materiality of the alleged misrepresentations and omissions. Slip op. at 2, 25. (The Court’s opinion is available at

Plaintiff Connecticut Retirement Plans and Trust Funds (Connecticut Retirement) brought a securities fraud claim against Amgen Inc., a biotechnology company, and several of its officers, for allegedly making material misrepresentations and omissions relating to the safety, efficacy, and marketing of two of Amgen’s flagship drugs. Id. at 6. The district court certified a class of all investors who purchased Amgen stock between the date of the first alleged misrepresentation and the date of the last corrective disclosure, without requiring Connecticut Retirement to prove materiality or allowing Amgen to present evidence rebutting the materiality of the misrepresentations and omissions. Id. at 7. The Ninth Circuit affirmed. In its appeal to the Supreme Court, Amgen argued that the district court and the Ninth Circuit erred in certifying the class because, according to Amgen, materiality was a prerequisite to establish the fraud-on-the-market theory that Connecticut Retirement used at the class certification stage to establish that common questions of reliance predominate over individualized issues of reliance.

In addressing Amgen’s appeal, the Supreme Court confronted the intersection of Rule 23(b)(3)’s class action requirements and the elements necessary to prove a claim for securities fraud under Rule 10b-5. To certify a class for money damages under Rule 23(b)(3), a plaintiff must satisfy Rule 23(a)’s prerequisites of numerosity, commonality, typicality, and adequacy of representation, and also establish that “‘the questions of law or fact common to class members predominate over any questions affecting only individual members.’” Slip. op. at 3. To recover damages in a Rule 10b-5 action, a plaintiff must 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.’” Id. at 3-4 (citation omitted).

The essential element of reliance in a Rule 10b-5 action ensures that there is a proper connection between the defendant’s alleged misrepresentation and the plaintiff’s alleged injury. Id. at 3. Because individualized proof of reliance would be a difficult evidentiary burden for a plaintiff to prove, the Supreme Court in Basic, Inc. v. Levinson, 485 U.S. 224 (1988), adopted the “fraud-on-the-market theory.” Under this theory, “[i]f a market is generally efficient in incorporating publicly available information into a security’s market price, it is reasonable to presume that a particular public, material misrepresentation will be reflected in the security’s price” and, therefore, a court may presume that investors who traded in that security did so in reliance on the misrepresentation. Slip op. at 5. In Amgen, the Court explained that, without this presumption of reliance (which is rebuttable), individualized issues of reliance would “overwhelm questions common to the class.” Id. at 5-6.

Amgen argued that, in order to establish classwide reliance at the class certification stage, a plaintiff must prove the element of materiality as a prerequisite to the fraud-on-the-market theory. The Supreme Court rejected this argument, explaining that, although materiality is an essential element of the fraud-on-the-market theory, the “pivotal” inquiry at the class certification stage 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.” Id. at 10 (emphasis added, quoting Fed. R. Civ. P. 23(b)(3)). The Court answered this question in the negative: First, materiality is judged by an objective standard and can be proved through evidence common to all class members; therefore, the question of materiality is a common question for all class members. Id. at 11. Second, materiality as a common issue predominates over individual issues of reliance because failure of proof on the issue of materiality will end the case for all class members. Id.

Amgen also argued that, because the Court has already held that three other prerequisites for application of the fraud-on-the-market theory – the public nature of the alleged misrepresentations, market efficiency, and the occurrence of the relevant stock transaction between the time of the alleged misrepresentations and the time the truth was revealed – must be proven before a class can be certified, the Court should also require proof of materiality at the class certification stage. Dismissing this argument, the Court explained that the timing of the stock transaction is relevant at the class certification stage because it goes to Rule 23(a)’s typicality and adequacy of representation requirements, not the predominance requirement. Slip op. at 15. Furthermore, unlike materiality, the public nature of the misrepresentations and the efficiency of the market are not indispensable elements of a Rule 10b-5 claim and, therefore, failure of proof on these two issues may result in individualized proof of reliance. Id. at 16-17.

The Court rejected Amgen’s public policy reasons as well. First, Amgen argued that if plaintiffs were not required to prove materiality at the class certification stage, defendants would be more likely to settle once a case was certified. The Court found this argument unpersuasive in part because the Private Securities Litigation Reform Act of 1995 already addressed the issue of settlement pressure and created certain protections including a heightened pleading standard. Slip op. at 18-20. The Court also rebuffed Amgen’s contention that requiring proof of materiality at the class certification stage would conserve judicial resources. Id. at 21. The Court explained that requiring proof of materiality at the class certification stage would have the opposite effect because courts would be forced to conduct mini-trials on the issue of materiality at the class certification stage. Id.

Lastly, the Court held that the district court did not err in failing to consider Amgen’s rebuttal evidence at the class certification stage because the evidence related to whether the alleged misrepresentation and omissions were material, which was solely a merits issue to be decided on summary judgment or at trial. Id. at 24-26.

The Court’s decision in Amgen has serious implications for defendants. In particular, as Amgen asserted in its briefing, the ease of certifying a class based on classwide reliance may cause defendants to settle a case before it reaches the class certification stage so as to avoid the time and expense of a class action lawsuit.

DISCLAIMER: Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.

© Pepper Hamilton LLP | Attorney Advertising

Written by:

Pepper Hamilton LLP

Pepper Hamilton LLP on:

Readers' Choice 2017
Reporters on Deadline

"My best business intelligence, in one easy email…"

Your first step to building a free, personalized, morning email brief covering pertinent authors and topics on JD Supra:
Sign up using*

Already signed up? Log in here

*By using the service, you signify your acceptance of JD Supra's Privacy Policy.
Custom Email Digest
Privacy Policy (Updated: October 8, 2015):

JD Supra provides users with access to its legal industry publishing services (the "Service") through its website (the "Website") as well as through other sources. Our policies with regard to data collection and use of personal information of users of the Service, regardless of the manner in which users access the Service, and visitors to the Website are set forth in this statement ("Policy"). By using the Service, you signify your acceptance of this Policy.

Information Collection and Use by JD Supra

JD Supra collects users' names, companies, titles, e-mail address and industry. JD Supra also tracks the pages that users visit, logs IP addresses and aggregates non-personally identifiable user data and browser type. This data is gathered using cookies and other technologies.

The information and data collected is used to authenticate users and to send notifications relating to the Service, including email alerts to which users have subscribed; to manage the Service and Website, to improve the Service and to customize the user's experience. This information is also provided to the authors of the content to give them insight into their readership and help them to improve their content, so that it is most useful for our users.

JD Supra does not sell, rent or otherwise provide your details to third parties, other than to the authors of the content on JD Supra.

If you prefer not to enable cookies, you may change your browser settings to disable cookies; however, please note that rejecting cookies while visiting the Website may result in certain parts of the Website not operating correctly or as efficiently as if cookies were allowed.

Email Choice/Opt-out

Users who opt in to receive emails may choose to no longer receive e-mail updates and newsletters by selecting the "opt-out of future email" option in the email they receive from JD Supra or in their JD Supra account management screen.


JD Supra takes reasonable precautions to insure that user information is kept private. We restrict access to user information to those individuals who reasonably need access to perform their job functions, such as our third party email service, customer service personnel and technical staff. However, please note that no method of transmitting or storing data is completely secure and we cannot guarantee the security of user information. Unauthorized entry or use, hardware or software failure, and other factors may compromise the security of user information at any time.

If you have reason to believe that your interaction with us is no longer secure, you must immediately notify us of the problem by contacting us at In the unlikely event that we believe that the security of your user information in our possession or control may have been compromised, we may seek to notify you of that development and, if so, will endeavor to do so as promptly as practicable under the circumstances.

Sharing and Disclosure of Information JD Supra Collects

Except as otherwise described in this privacy statement, JD Supra will not disclose personal information to any third party unless we believe that disclosure is necessary to: (1) comply with applicable laws; (2) respond to governmental inquiries or requests; (3) comply with valid legal process; (4) protect the rights, privacy, safety or property of JD Supra, users of the Service, Website visitors or the public; (5) permit us to pursue available remedies or limit the damages that we may sustain; and (6) enforce our Terms & Conditions of Use.

In the event there is a change in the corporate structure of JD Supra such as, but not limited to, merger, consolidation, sale, liquidation or transfer of substantial assets, JD Supra may, in its sole discretion, transfer, sell or assign information collected on and through the Service to one or more affiliated or unaffiliated third parties.

Links to Other Websites

This Website and the Service may contain links to other websites. The operator of such other websites may collect information about you, including through cookies or other technologies. If you are using the Service through the Website and link to another site, you will leave the Website and this Policy will not apply to your use of and activity on those other sites. We encourage you to read the legal notices posted on those sites, including their privacy policies. We shall have no responsibility or liability for your visitation to, and the data collection and use practices of, such other sites. This Policy applies solely to the information collected in connection with your use of this Website and does not apply to any practices conducted offline or in connection with any other websites.

Changes in Our Privacy Policy

We reserve the right to change this Policy at any time. Please refer to the date at the top of this page to determine when this Policy was last revised. Any changes to our privacy policy will become effective upon posting of the revised policy on the Website. By continuing to use the Service or Website following such changes, you will be deemed to have agreed to such changes. If you do not agree with the terms of this Policy, as it may be amended from time to time, in whole or part, please do not continue using the Service or the Website.

Contacting JD Supra

If you have any questions about this privacy statement, the practices of this site, your dealings with this Web site, or if you would like to change any of the information you have provided to us, please contact us at:

- hide
*With LinkedIn, you don't need to create a separate login to manage your free JD Supra account, and we can make suggestions based on your needs and interests. We will not post anything on LinkedIn in your name. Or, sign up using your email address.