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SUPREME COURT OF THE UNITED STATES
_________________
No. 11–1085
_________________
AMGEN INC., et al., PETITIONERS
v.
CONNECTICUT RETIREMENT PLANS AND TRUST FUNDS
on writ of certiorari to the united states
court of appeals for the ninth circuit
[February 27, 2013]
Justice Ginsburg delivered the opinion of the
Court.
This case involves a securities-fraud complaint
filed by Connecticut Retirement Plans and Trust Funds (Connecticut
Retirement) against biotechnology company Amgen Inc. and several of
its officers (collectively, Amgen). Seeking class-action
certification under Federal Rule of Civil Procedure 23, Connecticut
Retirement invoked the “fraud-on-the-market” presumption endorsed
by this Court in
Basic Inc. v.
Levinson,
485 U.S.
224 (1988), and recog- nized most recently in
Erica P. John
Fund, Inc. v.
Halliburton Co., 563 U. S. ___
(2011). The fraud-on-the-market premise is that the price of a
security traded in an efficient market will reflect all publicly
available information about a company; accordingly, a buyer of the
security may be presumed to have relied on that information in
purchasing the security.
Amgen has conceded the efficiency of the market
for the securities at issue and has not contested the public
character of the allegedly fraudulent statements on which
Connecticut Retirement’s complaint is based. Nor does Amgen here
dispute that Connecticut Retirement meets all of the class-action
prerequisites stated in Rule 23(a): (1) the alleged class “is so
numerous that joinder of all members is impracticable”; (2) “there
are questions of law or fact common to the class”; (3) Connecticut
Retirement’s claims are “typical of the claims . . . of
the class”; and (4) Connecticut Retirement will “fairly and
adequately protect the interests of the class.”
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’ securities-fraud 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.”
I
A
This case involves the interaction between
federal securities-fraud laws and Rule 23’s requirements for class
certification. To obtain certification of a class ac- tion for
money damages under Rule 23(b)(3), a plaintiff must satisfy Rule
23(a)’s above-mentioned prerequisites of numerosity, commonality,
typicality, and adequacy of representation, see
supra, at
1–2, and must also establish that “the questions of law or fact
common to class members predominate over any questions affecting
only individual members, and that a class action is superior to
other available methods for fairly and efficiently adjudicating the
controversy.” To recover damages in a private securities-fraud
action under §10(b) of the Securities Exchange Act of 1934, 48Stat.
891, as amended, 15 U. S. C. §78j(b) (2006 ed., Supp. V),
and Securities and Exchange Commission Rule 10b–5, 17 CFR
§240.10b–5 (2011), 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.”
Matrixx Initiatives, Inc. v.
Siracusano,
563 U. S. ___, ___ (2011) (slip op., at 9) (internal quotation
marks omitted).
“Reliance,” we have explained, “is an essential
element of the §10(b) private cause of action” because “proof of
reliance ensures that there is a proper connection between a
defendant’s misrepresentation and a plaintiff’s injury.”
Halliburton, 563 U. S., at ___ (slip op., at 4)
(internal quotation marks omitted). “The traditional (and most
direct) way” for a plaintiff to demonstrate reliance “is by showing
that he was aware of a company’s statement and engaged in a
relevant transaction . . . based on that specific
misrepresentation.”
Ibid. We have recognized, however, that
requiring proof of direct reliance “would place an unnecessarily
unrealistic evidentiary burden on [a] plaintiff who has traded on
an impersonal market.”
Basic, 485 U. S., at 245.
Accordingly, in
Basic the Court endorsed the
“fraud-on-the-market” theory, which permits certain Rule 10b–5
plaintiffs to invoke a rebuttable presumption of reliance on
material misrepresentations aired to the general public.
Id., at 241–249.[
1]
The fraud-on-the-market theory rests on the
premise that certain well developed markets are efficient
processors of public information. In such markets, the “market
price of shares” will “reflec[t] all publicly available
information.”
Id., at 246. Few investors in such markets, if
any, can consistently achieve above-market returns by trading based
on publicly available information alone, for if such above-market
returns were readily attainable, it would mean that market prices
were not efficiently incorporating the full supply of public
information. See R. Brealey, S. Myers, & F. Allen, Principles
of Corporate Finance 330 (10th ed. 2011) (“[I]n an efficient
market, there is no way for most investors to achieve consistently
superior rates of return.”).
In
Basic, we held that if a market is
shown to be efficient, courts may presume that investors who traded
securities in that market relied on public, material
misrepresentations regarding those securities. See 485 U. S.,
at 245–247. This presumption springs from the very concept of
market efficiency. If 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. Furthermore, it is reasonable to presume that most
investors—knowing that they have little hope of outperforming the
market in the long run based solely on their analysis of publicly
available information—will rely on the security’s market price as
an unbiased assessment of the security’s value in light of all
public information. Thus, courts may presume that investors trading
in efficient markets indirectly rely on public, material
misrepresentations through their “reliance on the integrity of the
price set by the market.”
Id., at 245. “[T]he presumption,”
however, is “just that, and [can] be rebutted by appropriate
evidence.”
Halliburton, 563 U. S., at ___ (slip op., at
5). See also
Basic, 485 U. S., at 248–249 (providing
examples of showings that would rebut the fraud-on-the-market
presumption).
Although fraud on the market is a substantive
doctrine of federal securities-fraud law that can be invoked by any
Rule 10b–5 plaintiff, see,
e.g.,
Black v.
Finantra
Capital, Inc.,
418 F.3d 203, 209 (CA2 2005);
Blackie v.
Barrack,
524 F.2d 891, 908 (CA9 1975), the doctrine has particular
significance in securities-fraud class actions. Absent the
fraud-on-the-market theory, the requirement that Rule 10b–5
plaintiffs establish reliance would ordinarily preclude
certification of a class action seeking money dam- ages because
individual reliance issues would overwhelm questions common to the
class. See
Basic, 485 U. S., at 242. The
fraud-on-the-market theory, however, facilitates class
certification by recognizing a rebuttable presumption of classwide
reliance on public, material misrepresentations when shares are
traded in an efficient market.
Ibid.[
2]
B
In its complaint, Connecticut Retirement
alleges that Amgen violated §10(b) and Rule 10b–5 through certain
misrepresentations and misleading omissions regarding the safety,
efficacy, and marketing of two of its flagship drugs.[
3] According to Connecticut Retirement, these
misrepresentations and omissions artificially inflated the price of
Amgen’s stock at the time Connecticut Retirement and numerous other
securities buyers purchased the stock. When the truth came to
light, Connecticut Retirement asserts, Amgen’s stock price
declined, resulting in financial losses to those who purchased the
stock at the inflated price. In its answer to Connecticut
Retirement’s complaint, Amgen conceded that “[a]t all relevant
times, the market for [its] securities,” which are traded on the
NASDAQ stock exchange, “was an efficient market”; thus, “the market
for Amgen’s securities promptly digested current information
regarding Amgen from all publicly available sources and reflected
such information in Amgen’s stock price.” Consolidated Amended
Class Action Complaint ¶¶199–200 in No. CV–07–2536 (CD Cal.);
Answer ¶¶199–200.
The District Court granted Connecticut
Retirement’s motion to certify a class action under Rule 23(b)(3)
on behalf of all investors who purchased Amgen stock between the
date of the first alleged misrepresentation and the date of the
last alleged corrective disclosure. After granting Amgen’s request
to take an interlocutory appeal from the District Court’s
class-certification order, see Fed. Rule Civ. Proc. 23(f), the
Court of Appeals affirmed. See 660 F.3d 1170 (CA9 2011).
Amgen raised two arguments on appeal. First,
Amgen contended that the District Court erred by certifying the
proposed class without first requiring Connecticut Retirement to
prove that Amgen’s alleged misrepresentations and omissions were
material. Second, Amgen argued that the District Court erred by
refusing to consider certain rebuttal evidence that Amgen had
proffered in opposition to Connecticut Retirement’s
class-certification motion. This evidence, in Amgen’s view,
demonstrated that the market was well aware of the truth regarding
its alleged misrepresentations and omissions at the time the class
members purchased their shares.
The Court of Appeals rejected both contentions.
Amgen’s first argument, the Court of Appeals noted, made the
uncontroversial point that immaterial misrepresentations and
omissions “by definition [do] not affect . . . stock
price[s] in an efficient market.”
Id., at 1175. Thus, where
misrepresentations and omissions are not material, there is no
basis for presuming classwide reliance on those misrepresentations
and omissions through the information-processing mechanism of the
market price. “The problem with that argument,” the Court of
Appeals ob-served, is evident: “[B]ecause materiality is an element
of the
merits of their securities fraud claim, the
plaintiffs cannot both fail to prove materiality yet still have a
viable claim for which they would need to prove reliance
individually.”
Ibid. The Court of Appeals thus concluded
that “proof of materiality is not necessary” to ensure compliance
with Rule 23(b)(3)’s requirement that common questions predominate.
Id., at 1177.
With respect to Amgen’s second argument, the
Court of Appeals determined that Amgen’s proffered rebuttal
evidence was merely “a method of refuting [the]
materi-
ality” of the misrepresentations and omissions alleged in
Connecticut Retirement’s complaint.
Ibid. Having al- ready
concluded that a securities-fraud plaintiff does not need to prove
materiality before class certification, the court similarly held
that “the district court correctly refused to consider” Amgen’s
rebuttal evidence “at the class certification stage.”
Ibid.
We granted Amgen’s petition for certiorari, 567
U. S. ___ (2012), to resolve a conflict among the Courts of
Appeals over whether district courts must require plaintiffs to
prove, and must allow defendants to present evidence rebutting, the
element of materiality before certifying a class action under
§10(b) and Rule 10b–5. Compare 660 F.3d 1170 (case below); and
Schleicher v.
Wendt, 618 F.3d 679, 687 (CA7 2010)
(materiality need not be proved at the class-certification stage),
with
In re Salomon Analyst Metromedia Litigation, 544
F.3d 474, 484–485, 486, n. 9 (CA2 2008) (plaintiff must prove, and
defendant may present evidence rebutting, materiality before class
certification). See also
In re DVI, Inc. Securities
Litigation, 639 F.3d 623, 631–632, 637–638 (CA3 2011)
(plaintiff need not prove materiality before class certification,
but defendant may present rebuttal evidence on the issue).
II
A
The only issue before us in this case is
whether Connecticut Retirement has satisfied Rule 23(b)(3)’s
requirement that “questions of law or fact common to class members
predominate over any questions affecting only individual members.”
Although we have cautioned that a court’s class-certification
analysis must be “rigorous” and may “entail some overlap with the
merits of the plaintiff’s underlying claim,”
Wal-Mart Stores,
Inc. v.
Dukes, 564 U. S. ___, ___ (2011) (slip op.,
at 10) (internal quotation marks omitted), Rule 23 grants courts no
license to engage in free-ranging merits inquiries at the
certification stage. Merits questions may be considered to the
extent—but only to the extent—that they are relevant to determining
whether the Rule 23 prerequisites for class certification are
satisfied. See
id., at ___, n. 6 (slip op., at 10,
n. 6) (a district court has no “ ‘authority to conduct a
preliminary inquiry into the merits of a suit’ ” at class
certification unless it is necessary “to determine the propriety of
certification” (quoting
Eisen v.
Carlisle &
Jacquelin,
417 U.S.
156, 177 (1974))); Advisory Committee’s 2003 Note on subd.
(c)(1) of Fed. Rule Civ. Proc. 23, 28 U. S. C. App.,
p. 144 (“[A]n evaluation of the probable outcome on the merits is
not properly part of the certification decision.”).
Bearing firmly in mind that the focus of Rule
23(b)(3) is on the predominance of common
questions, we turn
to Amgen’s contention that the courts below erred by failing to
require Connecticut Retirement to prove the material- ity of
Amgen’s alleged misrepresentations and omissions before certifying
Connecticut Retirement’s proposed class. As Amgen notes,
materiality is not only an element of the Rule 10b–5 cause of
action; it is also an essential predicate of the
fraud-on-the-market theory. See
Basic, 485 U. S., at
247 (“[W]here
materially misleading statements have been
disseminated into an impersonal, well-developed market for
securities, the reliance of individual plaintiffs on the integrity
of the market price may be presumed.” (emphasis added)). That
theory, Amgen correctly observes, is premised on the understanding
that in an efficient market, all publicly available information is
rapidly incorporated into, and thus transmitted to investors
through, the market price. See
id., at 246–247. Because
immaterial in- formation, by definition, does not affect market
price, it cannot be relied upon indirectly by investors who, as the
fraud-on-the-market theory presumes, rely on the mar- ket price’s
integrity. Therefore, the fraud-on-the-market theory cannot apply
absent a
material misrepresentation or omission. And without
the fraud-on-the-market theory, the element of reliance cannot be
proved on a classwide basis through evidence common to the class.
See
id., at 242. It thus follows, Amgen contends, that
materiality must be proved before a securities-fraud class action
can be certified.
Contrary to Amgen’s argument, the key question
in this case is not whether materiality is an essential predicate
of the fraud-on-the-market theory; indisputably it is.[
4] Instead, 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. Fed. Rule Civ. Proc. 23(b)(3).
For two reasons, the answer to this question is clearly “no.”
First, because “[t]he question of materiality
. . . is an objective one, involving the significance of
an omitted or misrepresented fact to a reasonable investor,”
materiality can be proved through evidence common to the class.
TSC Industries, Inc. v.
Northway, Inc.,
426 U.S.
438, 445 (1976). Consequently, materiality is a “common
questio[n]” for purposes of Rule 23(b)(3).
Basic, 485
U. S., at 242 (listing “materiality” as one of the questions
common to the
Basic class members).
Second, there is no risk whatever that a failure
of proof on the common question of materiality will result in
individual questions predominating. Because materiality is an
essential element of a Rule 10b–5 claim, see
Matrixx
Initiatives, 563 U. S., at ___ (slip op., at 9),
Connecticut Retirement’s failure to present sufficient evidence of
materiality to defeat a summary-judgment motion or to prevail at
trial would not cause individual reliance questions to overwhelm
the questions common to the class. Instead, the failure of proof on
the element of materiality would end the case for one and for all;
no claim would re- main in which individual reliance issues could
potentially predominate.
Totally misapprehending our essential point,
Justice Thomas’ dissent asserts that our “entire argument is based
on the assumption that the fraud-on-the-market presumption need not
be shown at certification because it will be proved later on the
merits.”
Post, at 11, n. 9. Our position is not so
based. We rest, instead, entirely on the text of Rule 23(b)(3),
which provides for class certification if “the questions of law or
fact common to class members predominate over any questions
affecting only individual members.” A failure of proof on the
common question of materiality ends the litigation and thus
will never cause individual questions of reliance or anything else
to overwhelm questions common to the class. Therefore, under the
plain language of Rule 23(b)(3), plaintiffs are not required to
prove materiality at the class-certification stage. In other words,
they need not, at that threshold, prove that the predominating
question will be answered in their favor.
Justice Thomas urges that a plaintiff seeking
class certification “must show that the elements of [her] claim are
susceptible to classwide proof.”
Post, at 7. See also
post, at 11 (criticizing the Court for failing to focus its
analysis on “whether the element of
reliance is susceptible
to classwide proof”). From this premise, Justice Thomas concludes
that Rule 10b–5 plaintiffs must prove material- ity before class
certification because (1) “materiality is a necessary component of
fraud on the market,” and (2) without fraud on the market, the Rule
10b–5 element of reliance is not “susceptible of a classwide
answer.”
Post, at 6, 10–11. See also
post, at 12
(“[I]f a plaintiff wishes to use
Basic’s presumption to
prove that reliance is a common question, he must establish the
entire presumption, including materiality, at the class
certification stage.”).
Rule 23(b)(3), however, does
not require
a plaintiff seeking class certification to prove that each
“elemen[t] of [her] claim [is] susceptible to classwide proof.”
Post, at 7. What the rule does require is that common
questions “
predominate over any questions affecting only
individual [class] members.” Fed. Rule Civ. Proc. 23(b)(3)
(emphasis added). Nowhere does Justice Thomas explain how, in an
action invoking the
Basic presumption, a plaintiff class’s
failure to prove an essential element of its claim for relief will
result in individual questions predominating over common ones.
Absent proof of materiality, the claim of the Rule 10b–5 class will
fail in its entirety; there will be no remaining individual
questions to adjudicate.
Consequently, proof of materiality is not
required to establish that a proposed class is “sufficiently
cohesive to warrant adjudication by representation”—the focus of
the predominance inquiry under Rule 23(b)(3).
Amchem Products,
Inc. v.
Windsor,
521 U.S.
591, 623 (1997). No doubt a clever mind could conjure up
fantastic scenarios in which an individual investor might rely on
immaterial information (think of the superstitious investor who
sells her securities based on a CEO’s statement that a black cat
crossed the CEO’s path that morning). But such objectively
unreasonable reliance does not give rise to a Rule 10b–5 claim. See
TSC Industries, 426 U. S., at 445 (materiality is
judged by an objective standard). Thus, “the individualized
questions of reliance,”
post, at 9, n. 8, that
hypothetically might arise when a failure of proof on the issue of
materiality dooms the fraud-on-the-market class are far more
imaginative than real. Such “individualized questions” do not
undermine class cohesion and thus cannot be said to “predominate”
for purposes of Rule 23(b)(3).[
5]
Because the question of materiality is common to
the class, and because a failure of proof on that issue would not
result in questions “affecting only individual members”
predominating, Fed. Rule Civ. Proc. 23(b)(3), Connecticut
Retirement was not required to prove the materiality of Amgen’s
alleged misrepresentations and omissions at the class-certification
stage. This is not a case in which the asserted
problem—
i.e., that the plaintiff class cannot prove
materiality—“exhibits some fatal dissimilarity” among class members
that would make use of the class-action device inefficient or
unfair. Nagareda, Class Certification in the Age of Aggregate
Proof, 84 N. Y. U. L. Rev. 97, 107 (2009). Instead, what Amgen
alleges is “a fatal similarity—[an alleged] failure of proof as to
an element of the plaintiffs’ cause of action.”
Ibid. Such a
contention is properly addressed at trial or in a ruling on a
summary-judgment motion. The allegation should not be resolved in
deciding whether to certify a proposed class.
Ibid. See also
Schleicher, 618 F. 3d, at 687 (“[W]hether a statement
is materially false is a question common to all class members and
therefore may be resolved on a class-wide basis after
certification.”).
B
Insisting that materiality must be proved at
the class-certification stage, Amgen relies chiefly on two
arguments, neither of which we find persuasive.[
6]
1
Amgen points first to our statement in
Halliburton 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.’ ” 563
U. S., at ___ (slip op., at 5–6) (quoting
Basic, 485
U. S., at 248, n. 27). See also
Dukes, 564 U. S.,
at ___, n. 6 (slip op., at 11, n. 6) (“[P]laintiffs
seeking 23(b)(3) certification [of a securities-fraud class action]
must prove that their shares were traded on an efficient market.”).
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.
We disagree. As an initial matter, 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.
Basic, 485 U. S., at 248, n. 27.[
7] A security’s market price cannot be affected by
a misrepresentation not yet made, and in an efficient market, a
misrepresentation’s impact on market price is quickly nullified
once the truth comes to light. Thus, a plaintiff whose relevant
transactions were not executed between the time the
misrepresentation was made and the time the truth was revealed
cannot be said to have indirectly relied on the misrepresentation
through its reliance on the integrity of the market price.[
8] Such a plaintiff’s claims,
therefore, would not be “typical” of the claims of investors who
did trade during the window between misrepresentation and truth
revelation. Fed. Rule Civ. Proc. 23(a)(3). Nor could a court
confidently conclude that such a plaintiff would “fairly and
adequately protect the interests” of investors who traded during
the relevant window. Rule 23(a)(4). The requirement that the
fraud-on-the-market theory’s trade-timing predicate be established
before class certification thus sheds little light on the question
whether materiality must also be proved at the class-certification
stage.
Amgen is not aided by
Halliburton’s
statement that market efficiency and the public nature of the
alleged misrepresentations must be proved before a securities-fraud
class action can be certified. As Amgen notes, market efficiency,
publicity, and materiality can all be proved on a classwide basis.
Furthermore, they are all essential predicates of the
fraud-on-the-market theory. Unless those predicates are
established, there is no basis for presuming that the defendant’s
alleged misrepresentations were reflected in the security’s market
price, and hence no grounding for any contention that investors
indirectly relied on those misrepresentations through their
reliance on the integrity of the market price. But unlike
materiality, market efficiency and publicity are not indispensable
elements of a Rule 10b–5 claim. See
Matrixx Initiatives, 563
U. S., at ___ (slip op., at 9) (listing elements of a Rule
10b–5 claim). Thus, where the market for a security is inefficient
or the defendant’s alleged misrepresentations were not aired
publicly, a plaintiff cannot invoke the fraud-on-the-market
presumption. She can, however, attempt to establish reliance
through the “traditional” mode of demonstrating that she was
personally “aware of [the defendant’s] statement and engaged in a
relevant transaction . . . based on that specific
misrepresentation.”
Halliburton, 563 U. S., at ___
(slip op., at 4). Individualized reliance issues would predominate
in such a lawsuit. See
Basic, 485 U. S., at 242. The
litigation, therefore, could not be certified under Rule 23(b)(3)
as a class action, but the initiating plaintiff’s claim would
remain live; it would not be “dead on arrival.” 660 F. 3d, at
1175.
A failure of proof on the issue of materiality,
in contrast, not only precludes a plaintiff from invoking the
fraud-on-the-market presumption of classwide reliance; it also
establishes as a matter of law that the plaintiff cannot prevail on
the merits of her Rule 10b–5 claim. Materiality thus differs from
the market-efficiency and publicity predicates in this critical
respect: While the failure of common, classwide proof on the issues
of market efficiency and publicity leaves open the prospect of
individualized proof of reliance, the failure of common proof on
the issue of materiality ends the case for the class and for all
indi- viduals alleged to compose the class. See Brief for United
States as
Amicus Curiae 20 (“Unless the failure of
common proof gives rise to a need for
individualized
proof, it does not cast doubt on the propriety of class
certification.”). In short, there can be no actionable reliance,
individually or collectively, on immaterial information. Be- cause
a failure of proof on the issue of materiality, unlike the issues
of market efficiency and publicity, does not give rise to any
prospect of individual questions overwhelming common ones,
materiality need not be proved prior to Rule 23(b)(3) class
certification.
2
Amgen also contends that certain “policy
considerations” militate in favor of requiring precertification
proof of materiality. Brief for Petitioners 28. An order granting
class certification, Amgen observes, can exert substantial pressure
on a defendant “to settle rather than incur the costs of defending
a class action and run the risk of potentially ruinous liability.”
Advisory Committee’s 1998 Note on subd. (f) of Fed. Rule Civ.
Proc. 23, 28 U. S. C. App., p. 143. See also
AT&T
Mobility LLC v.
Concepcion, 563 U. S. ___, ___
(2011) (slip op., at 16) (class actions can entail a “risk of ‘in
terrorem’ settlements”). Absent a requirement to evaluate
materiality at the class-certification stage, Amgen contends, the
issue may never be addressed by a court, for the defendant will
surrender and settle soon after a class is certified. Insistence on
proof of materiality before certifying a securities-fraud class
action, Amgen thus urges, ensures that the issue will be
adjudicated and not forgone. See also
post, at 4 (Scalia,
J., dissenting) (expressing the same concerns).
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. See
Matrixx Initiatives, 563 U. S., at
___ (slip op., at 9). Settlement pressure exerted by class
certification may prevent judicial resolution of these issues. Yet
this Court has held that loss causation and the falsity or
misleading nature of the defendant’s alleged statements or
omissions are common questions that need not be adjudicated before
a class is certified. See
Halliburton, 563 U. S., at
___ (slip op., at 3) (loss causation need not be proved at the
class-certification stage);
Basic, 485 U. S., at 242
(“the falsity or misleading nature of the . . . public
statements” allegedly made by the defendant is a “common
questio[n]”). See also
Schleicher, 618 F. 3d, at 685
(falsity of alleged mis- statements need not be proved before
certification of a securities-fraud class action).
Congress, we count it significant, has addressed
the settlement pressures associated with securities-fraud class
actions through means other than requiring proof of materiality at
the class-certification stage. In enacting the Private Securities
Litigation Reform Act of 1995 (PSLRA), 109Stat. 737, Congress
recognized that although private securities-fraud litigation
furthers important public-policy interests, prime among them,
deterring wrongdoing and providing restitution to defrauded
investors, such law- suits have also been subject to abuse,
including the “extract[ion]” of “extortionate ‘settlements’ ”
of frivolous claims. H. R. Conf. Rep. No. 104–369, pp. 31–32
(1995). The PSLRA’s response to the perceived abuses was,
inter
alia, to “impos[e] heightened pleading requirements” for
securities-fraud actions, “limit recoverable damages and attorney’s
fees, provide a ‘safe harbor’ for forward-looking statements,
impose new restrictions on the selection of (and compensation
awarded to) lead plaintiffs, mandate imposition of sanctions for
frivolous litigation, and authorize a stay of discovery pending
resolution of any motion to dismiss.”
Merrill Lynch, Pierce,
Fenner & Smith Inc. v.
Dabit,
547 U.S.
71, 81–82 (2006). See also 15 U. S. C. §78u–4 (2006
ed. and Supp. V). Congress later fortified the PSLRA by enacting
the Securities Litigation Uniform Standards Act of 1998, 112Stat.
3227, which curtailed plaintiffs’ ability to evade the PSLRA’s
limitations on federal securities-fraud litigation by bringing
class-action suits under state rather than federal law. See 15
U. S. C. §78bb(f)(1) (2006 ed.).
While taking these steps to curb abusive
securities-fraud lawsuits, Congress rejected calls to undo the
fraud-on-the-market presumption of classwide reliance endorsed in
Basic. See Langevoort,
Basic at Twenty: Rethinking
Fraud on the Market, 2009 Wis. L. Rev. 151, 153, and n. 8
(noting that the initial version of H. R. 10, 104th Cong., 1st
Sess. (1995), an unenacted bill that, like the PSLRA, was designed
to curtail abuses in private securities litigation, “would have
undone
Basic”). See also Common Sense Legal Reform Act:
Hearings before the Subcommittee on Telecommunications and Finance
of the House Committee on Commerce, 104th Cong., 1st Sess., 92,
236–237, 251–252, 272 (1995) (witnesses criticized the
fraud-on-the-market presumption and expressed support for
H. R. 10’s requirement that securities-fraud plaintiffs prove
direct reliance). Nor did Congress decree that securities-fraud
plaintiffs prove each element of their claim before obtaining class
certification. Because Congress has homed in on the precise policy
concerns raised in Amgen’s brief, “[w]e do not think it appropriate
for the judiciary to make its own further adjustments by
reinterpreting Rule 23 to make likely success on the merits
essential to class certification in securities-fraud suits.”
Schleicher, 618 F. 3d, at 686; cf.
Smith v.
Bayer Corp., 564 U. S. ___, ___ (2011) (slip op., at
17–18) (“Congress’s decision to address the relitigation concerns
associated with class actions through the mechanism of removal
provides yet another reason for federal courts to adhere in this
context to longstanding principles of preclusion.”).
In addition to seeking our aid in warding off
“in terrorem” settlements, Amgen also argues that requiring proof
of materiality before class certification would conserve judicial
resources by sparing judges the task of overseeing large class
proceedings in which the essential element of reliance cannot be
proved on a classwide basis. In reality, however, it is Amgen’s
position, not the judgments of the lower courts in this case, that
would waste judicial resources. Amgen’s argument, if embraced,
would necessitate a mini-trial on the issue of materiality at the
class-certification stage. Such preliminary adjudications would
entail considerable expenditures of judicial time and resources,
costs scarcely anticipated by Federal Rule of Civil Procedure
23(c)(1)(A), which instructs that the decision whether to certify a
class action be made “[a]t an early practicable time.” If the class
is certified, materiality might have to be shown all over again at
trial. And if certification is denied for failure to prove
materiality, nonnamed class members would not be bound by that
determination. See
Smith, 564 U. S., at ___ (slip op.,
at 12–18). They would be free to renew the fray, perhaps in another
forum, perhaps with a stronger showing of materiality.
Given the tenuousness of Amgen’s
judicial-economy argument, Amgen’s policy arguments ultimately
return to the contention that private securities-fraud actions
should be hemmed in to mitigate their potentially “vexatiou[s]”
character.
Blue Chip Stamps v.
Manor Drug Stores,
421 U.S.
723, 739 (1975). We have already noted what Congress has done
to control exorbitant securities-fraud actions. See
supra,
at 19–20. Congress, the Executive Branch, and this Court, moreover,
have “recognized that meritorious private actions to enforce
federal antifraud securities laws are an essential supplement to
criminal prosecutions and civil enforcement actions brought,
respectively, by the Department of Justice and the Securities and
Exchange Commission.”
Tellabs, Inc. v.
Makor Issues &
Rights, Ltd.,
551 U.S.
308, 313 (2007); see H. R. Conf. Rep. No. 104–369, at 31;
Brief for United States as
Amicus Curiae 1. See also
Amchem, 521 U. S., at 617 (“ ‘The policy at the
very core of the class action mechanism is to overcome the problem
that small recoveries do not provide the incentive for any
individual to bring a solo action prosecuting his or her
rights.’ ” (quoting
Mace v.
Van Ru Credit Corp.,
109 F.3d 338, 344 (CA7 1997))). We have no warrant to encumber
securities-fraud litigation by adopting an atextual requirement of
precertification proof of materiality that Congress, despite its
extensive in- volvement in the securities field, has not
sanctioned.
C
Justice Scalia acknowledges that proof of
materiality is not required to satisfy Rule 23(b)(3)’s predominance
requirement. See
post, at 1. Nevertheless, he maintains that
full satisfaction of Rule 23’s requirements is insufficient to
obtain class certification under
Basic. In Justice Scalia’s
view, the Court’s decision in
Basic established a special
rule: A securities-fraud class action cannot be certified unless
all of the prerequisites of the fraud-on-the-market presumption of
reliance, including materiality, have first been established.
Post, at 2.
The purported rule is Justice Scalia’s
invention. It cannot be attributed to anything the Court said in
Basic. That decision is best known for its endorsement of
the fraud-on-the-market theory. But the opinion also established
something more. It stated the proper standard for judging the
materiality of misleading statements regarding the existence and
status of preliminary merger discussions. See 485 U. S., at
230–241, 250 (“Materiality in the merger context depends on the
probability that the transaction will be consummated, and its
significance to the issuer of the securities.”). The District Court
in
Basic certified a class of investors whose share prices
were allegedly depressed by misleading statements that disguised
ongoing merger negotiations.
Id., at 228. Postcertification,
the court granted summary judgment to the defendants on the ground
that the alleged misstatements were immaterial as a matter of law.
Id., at 228–229. The Court of Appeals affirmed the class
certification but reversed the grant of summary judgment.
Id., at 229. This Court, in turn, vacated the Court of
Appeals’ judgment and remanded for further proceedings on the
defendants’ summary-judgment motion in light of the materiality
standard set forth in the Court’s opinion.
Id., at 240–241,
250. Notably, however, we did not disturb the District Court’s
class-certification order, which we stated “was appropriate when
made.”
Id., at 250.[
9]
If Justice Scalia were correct that our
decision in
Basic demands proof of materiality before class
certification, the Court in
Basic should have ordered the
lower courts to reconsider on remand both the defendants’
entitlement to summary judgment and the propriety of class
certification. Instead, the Court expressly endorsed the District
Court’s class-certification order while at the same time
recognizing that further proceedings were necessary to determine
whether the plaintiffs had mustered sufficient evidence to satisfy
the relatively lenient standard for avoiding summary judgment. See
Anderson v.
Liberty Lobby, Inc.,
477 U.S.
242, 248 (1986) (“[S]ummary judgment will not lie if
. . . the evidence is such that a reasonable jury could
return a verdict for the nonmoving party.”). Unlike Justice Scalia,
we are unwilling to presume that
Basic announced a rule
requiring precertification proof of materiality when
Basic
failed to apply any such rule to the very case before it.[
10]
III
Amgen also argues that the District Court
erred by refusing to consider the rebuttal evidence Amgen proffered
in opposing Connecticut Retirement’s class-certification motion.
This evidence, Amgen contends, showed that “in light of all the
information available to the market,” its alleged
misrepresentations and misleading omissions “could not be presumed
to have altered the market price because they would not have
‘significantly altered the total mix of information made
available.’ ” Brief for Petitioners 40–41 (quoting
Basic, 485 U. S., at 232). For example, Connecticut
Retirement’s complaint alleges that an Amgen executive misleadingly
downplayed the significance of an upcoming Food and Drug
Administration advisory committee meeting by incorrectly stating
that the meeting would not focus on one of Amgen’s leading drugs.
See App. to Pet. for Cert. 17a. Amgen responded to this allegation
by presenting public documents—including the committee’s meeting
agenda, which was published in the Federal Register more than a
month before the meeting—stating that safety concerns associated
with Amgen’s drug would be discussed at the meeting. See
id., at 41a–42a. See also 69 Fed. Reg. 16582 (2004).
The District Court did not err, we agree with
the Court of Appeals, by disregarding Amgen’s rebuttal evidence in
deciding whether Connecticut Retirement’s proposed class satisfied
Rule 23(b)(3)’s predominance requirement. The Court of Appeals
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. 660
F. 3d, at 1177 (characterizing Amgen’s rebuttal evidence as an
attempt to present a “ ‘truth-on-the-market’ defense,” which
the Court of Appeals explained “is a method of refuting an alleged
misrepresentation’s
materiality”). See also Reply Brief 17
(Amgen’s evidence was offered to rebut the “materiality predicate”
of the fraud-on-the-market theory). As explained above, however,
the potential immateriality of Amgen’s alleged misrepresentations
and omissions is no barrier to finding that common questions
predominate. See Part II,
supra. If the alleged
misrepresentations and omissions are ultimately found immaterial,
the fraud-on-the-market presumption of classwide reliance will
collapse. But again, as earlier explained, see
supra, at
10–13, individual reliance questions will not overwhelm questions
common to the class, for the class members’ claims will have failed
on their merits, thus bringing the litigation to a close.
Therefore, just as a plaintiff class’s inability to prove
materiality creates no risk that individual questions will
predominate, so even a definitive rebuttal on the issue of
materiality would not undermine the predominance of questions
common to the class.
We recognized as much in
Basic itself. A
defendant could “rebut the [fraud-on-the-market] presumption of
reliance,” we observed in
Basic, by demonstrating that “news
of the [truth] credibly entered the market and dissipated the
effects of [prior] misstatements.” 485 U. S., at 248–249. We
emphasized, however, that “[p]roof of that sort is a matter for
trial” (and presumably also for a summary-judgment motion under
Federal Rule of Civil Procedure 56).
Id., at 249, n.
29.[
11] The District Court
thus correctly reserved consideration of Amgen’s rebuttal evidence
for summary judgment or trial. It was not required to consider the
evidence in determining whether common questions predominated under
Rule 23(b)(3).
* * *
For the reasons stated, the judgment of the
Court of Appeals for the Ninth Circuit is affirmed.
It is so ordered.