February 27, 2013
SCOTUS Decision in Amgen: Class Certification in Securities Fraud Cases
Today the Supreme Court issued its decision in Amgen v. Connecticut Retirement Plans (No. 11-1085), covered earlier here. The basic issue is whether, in a securities fraud case, proof of “materiality” is required in order to certify a class action. The Court splits 6-to-3, with Justice Ginsburg writing the majority opinion (joined by Roberts, Breyer, Alito, Sotomayor, and Kagan). Here’s an excerpt from the first few paragraphs of Justice Ginsburg’s opinion (Slip Op. 2-3):
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’ securitiesfraud 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.
Essentially, Amgen, also the dissenters from today’s decision, would have us put the cart before the horse. To gain certification under Rule 23(b)(3), Amgen and the dissenters urge, Connecticut Retirement must first establish that it will win the fray. But the office of a Rule 23(b)(3) certification ruling is not to adjudicate the case; rather, it is to select the “metho[d]” best suited to adjudication of the controversy “fairly and efficiently.”
Justice Alito writes a concurring opinion. Justice Scalia writes a dissenting opinion. And Justice Thomas writes a dissenting opinion (joined by Kennedy and partially by Scalia).