Amgen Inc. v. Connecticut Retirement Plans and Trust Funds
568 U.S. ___ (2013)

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Justia Opinion Summary
To recover damages in a private securities-fraud action under section 10(b) of the Securities Exchange Act of 1934 and Securities and Exchange Commission Rule 10b–5, a plaintiff must prove reliance on a material misrepresentation or omission made by the defendant. The Supreme Court has endorsed a “fraud-on-the-market” theory, which permits plaintiffs to invoke a rebuttable presumption of reliance on public, material misrepresentations regarding securities traded in an efficient market. The theory facilitates the certification of securities-fraud class actions by permitting reliance to be proved on a class-wide basis. Connecticut Retirement sought FRCP 23(b)(3) certification of a securities-fraud class action against a biotechnology company (Amgen). The district court certified the class. The Ninth Circuit affirmed, rejecting an argument that Connecticut Retirement was required to prove materiality before class certification under Rule23(b)(3)’s requirement that “questions of law or fact common to class members predominate over any questions affecting only individual members.” The Supreme Court affirmed. Proof of materiality is not a prerequisite to certification of a securities-fraud class action. Materiality is judged by an objective standard and can be proved through evidence common to the class. Failure of proof of materiality would not result in individual questions predominating, but would end the case. A requirement that putative class representatives establish that they executed trades “between the time the misrepresentations were made and the time the truth was r¬vealed” relates primarily to typicality and adequacy of representation, not to the predominance inquiry. The Court rejected Amgen’s argument that, because of pressure to settle, materiality may never be addressed by a court if it is not evaluated at the class-certification stage. The potential immateriality of Amgen’s alleged misrepresentations and omissions was no barrier to finding that common questions predominate.

NOTE: Where it is feasible, a syllabus (headnote) will be released, as is being done in connection with this case, at the time the opinion is issued. The syllabus constitutes no part of the opinion of the Court but has been prepared by the Reporter of Decisions for the convenience of the reader. See United States v. Detroit Timber & Lumber Co., 200 U. S. 321 .

SUPREME COURT OF THE UNITED STATES

Syllabus

AMGEN INC. et al. v. CONNECTICUT RETIREMENT PLANS AND TRUST FUNDS

certiorari to the united states court of appeals for the ninth circuit

No. 11–1085. Argued November 5, 2012—Decided February 27, 2013

To recover damages in a private securities-fraud action under §10(b) of the Securities Exchange Act of 1934 and Securities and Exchange Commission Rule 10b–5, a plaintiff must prove, among other things, reliance on a material misrepresentation or omission made by the defendant. Matrixx Initiatives, Inc. v. Siracusano, 563 U. S. ___, ___. Requiring proof of direct reliance “would place an unnecessarily unrealistic evidentiary burden on [a] plaintiff who has traded on an impersonal market.” Basic Inc. v. Levinson, 485 U. S. 224 . Thus, this Court has endorsed a “fraud-on-the-market” theory, which permits securities-fraud plaintiffs to invoke a rebuttable presumption of reliance on public, material misrepresentations regarding securities traded in an efficient market. Id., at 241–249. The fraud-on-the-market theory facilitates the certification of securities-fraud class actions by permitting reliance to be proved on a classwide basis.

          Invoking the fraud-on-the-market theory, respondent Connecticut Retirement Plans and Trust Funds (Connecticut Retirement) sought certification of a securities-fraud class action under Federal Rule of Civil Procedure 23(b)(3) against biotechnology company Amgen Inc. and several of its officers (collectively, Amgen). The District Court certified the class, and the Ninth Circuit affirmed. The Ninth Circuit rejected Amgen’s argument that Connecticut Retirement was required to prove the materiality of Amgen’s alleged misrepresentations and omissions before class certification in order to satisfy Rule 23(b)(3)’s requirement that “questions of law or fact common to class members predominate over any questions affecting only individual members.” The Ninth Circuit also held that the District Court did not err in refusing to consider rebuttal evidence that Amgen had presented on the issue of materiality at the class-certification stage.

Held: Proof of materiality is not a prerequisite to certification of a securities-fraud class action seeking money damages for alleged violations of §10(b) and Rule 10b–5. Pp. 9–26.

     (a) The pivotal inquiry in this case 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. For two reasons, the answer to this question is “no.” First, because materiality is judged according to an objective standard, it can be proved through evidence common to the class. TSC Industries, Inc. v. Northway, Inc., 426 U. S. 438 . Thus, it is a common question for Rule 23(b)(3) purposes. Second, a failure of proof on the common question of materiality would not result in individual questions predominating. Instead, it would end the case, for materiality is an essential element of a securities-fraud claim. Pp. 9–14.

     (b) Amgen’s arguments to the contrary are unpersuasive. Pp. 14–24.

          (1) Amgen points to the Court’s statement in Erica P. John Fund, Inc. v. Halliburton Co., 563 U. S. ___, ___, that “securities fraud plaintiffs must prove certain things in order to invoke Basic’s rebuttable presumption of reliance,” including “that the alleged misrepresentations were publicly known . . . , that the stock traded in an efficient market, and that the relevant transaction took place ‘between the time the misrepresentations were made and the time the truth was revealed.’ ” If these fraud-on-the-market predicates must be proved before class certification, Amgen contends, materiality—another fraud-on-the-market predicate—should be treated no differently. The Court disagrees. The requirement that a putative class representative establish that it executed trades “between the time the misrepresentations were made and the time the truth was revealed” relates primarily to the Rule 23(a)(3) and (a)(4) inquiries into typicality and adequacy of representation, not to the Rule 23(b)(3) predominance inquiry. And unlike materiality, market efficiency and the public nature of the alleged misrepresentations are not indispensable elements of a Rule 10–5 claim. While the failure of common, classwide proof of market efficiency or publicity leaves open the prospect of individualized proof of reliance, the failure of common proof on the issue of materiality ends the case for all class members. Pp. 15–18.

          (2) Amgen also contends that “policy considerations” militate in favor of requiring precertification proof of materiality. Because class certification can exert substantial pressure on the defendant to settle rather than risk ruinous liability, Amgen asserts, materiality may never be addressed by a court if it is not required to be evaluated at the class-certification stage. In this regard, however, materiality does not differ from other essential elements of a Rule 10b–5 claim, notably, the requirements that the statements or omissions on which the plaintiff’s claims are based were false or misleading and that the alleged statements or omissions caused the plaintiff to suffer economic loss. Significantly, while addressing the settlement pressures associated with securities-fraud class actions, Congress has rejected calls to undo the fraud-on-the-market theory. And contrary to Amgen’s argument that requiring proof of materiality before class certification would conserve judicial resources, Amgen’s position would necessitate time and resource intensive mini-trials on materiality at the class-certification stage. Pp. 18–22.

     (c) Also unavailing is Amgen’s claim that the District Court erred by refusing to consider the rebuttal evidence Amgen proffered in opposing Connecticut Retirement’s class-certification motion. The Ninth Circuit concluded, and Amgen does not contest, that Amgen’s rebuttal evidence aimed to prove that the misrepresentations and omissions alleged in Connecticut Retirement’s complaint were immaterial. The potential immateriality of Amgen’s alleged misrepresentations and omissions, however, is no barrier to finding that common questions predominate. Just as a plaintiff class’s inability to prove materiality creates no risk that individual questions will predominate, a definitive rebuttal on the issue of materiality would not undermine the predominance of questions common to the class. Pp. 24–26.

660 F. 3d 1170, affirmed.

     Ginsburg, J., delivered the opinion of the Court, in which Roberts, C. J., and Breyer, Alito, Sotomayor, and Kagan, JJ., joined. Alito, J., filed a concurring opinion. Scalia, J., filed a dissenting opinion. Thomas, J., filed a dissenting opinion, in which Kennedy, J., joined, and in which Scalia, J., joined except for Part I–B.

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