Supreme Court’s Amgen Decision Adopts Position Urged by Law Professors Represented by Robbins Geller
With its February 27, 2013 decision in Amgen Inc. v. Connecticut Retirement Plans and Trust Funds, No. 11-1085, the U.S. Supreme Court has dealt a blow to the defense bar’s efforts to terminate securities fraud class actions prematurely, before plaintiffs have a full opportunity to develop and present their evidence of fraud. The Court’s decision adopts precisely the position urged by Robbins Geller attorneys in a brief filed on behalf of law professors as “friends of the court.”
The case deals with what a plaintiff investor must prove in order to have a securities fraud case certified as a class action. A plaintiff investor seeking to assert securities fraud claims on behalf of a class of other similarly situated investors is required by the rules of civil procedure to demonstrate that common questions will predominate over individual issues if the case is tried as a class action. In some cases alleging fraud, however, proving class members’ reliance on the defendants’ fraudulent statements can present individualized issues. Recognizing that an actively traded security’s market price is ordinarily determined by publicly available information, the Supreme Court held in Basic Inc. v. Levinson, 485 U.S. 224 (1988), that investors may rely on the “integrity” of that price, establishing this reliance with common evidence that the defendants disseminated material misstatements in an open and developed market.
Defendants’ counsel endeavored to end such cases prematurely by asking courts to demand proof that statements were materially false before certifying a class – long before the plaintiffs had an opportunity to develop evidence of fraud for trial. Lower courts were divided on what investors must prove in order to obtain class certification. Some held that plaintiffs seeking to represent a class must demonstrate the materiality of fraudulent statements before a class may be certified. Others, including the Seventh Circuit and Ninth Circuit, held that class certification requires a plaintiff to merely demonstrate that statements were publicly disseminated into a market sufficiently “efficient” for material public information to be incorporated in the price, leaving proof of materiality – like proof of falsity and of the defendants’ culpable state of mind – for trial, after the plaintiffs have had a chance to develop their case.
When Amgen Inc. asked the Supreme Court to reject this approach, Robbins Geller attorneys worked with Professor David Marcus of the University of Arizona’s James E. Rogers College of Law to file an amicus curiae brief on behalf of 18 civil procedure and securities law professors. The brief traced the history and purpose of Civil Procedure Rule 23, whose framers stated that “a fraud perpetrated on numerous persons by the use of similar misrepresentations may be an appealing situation for a class action.” It also traced the history of common law fraud and market manipulation, and of fraud-on-the-market precedents preceding Basic. “Though proof of materiality supports an inference of reliance under Basic,” the amicus brief emphasized, if proof of statements’ materiality fails at trial, “there is no point in proving individualized reliance on them – as investors who rely on an immaterial misstatement have no claim in any event.” Thus, the brief urged, the case “would not produce individualized issues of reliance if the misrepresentations at issue turned out to be immaterial.” The Supreme Court agreed, holding that “there is no risk whatever that a failure of proof on the common question of materiality will result in individual questions predominating.” A failure of proof on materiality “will never cause individual questions of reliance or anything else to overwhelm questions common to the class.”
The decision is a good one for investors, who can no longer be required to prove material falsity before they have had a chance to develop their evidence for trial.
Other related articles: Reuters
The full decision is available at the U.S. Supreme Court’s website.
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