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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.