Amgen, Inc. v. Connecticut Retirement Plans and Trust Funds
568 U.S. (2013)
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Rule of Law:
A plaintiff in a securities-fraud class action is not required to prove the materiality of an alleged misrepresentation at the class certification stage to satisfy Federal Rule of Civil Procedure 23(b)(3)'s predominance requirement. Because materiality is a common question and a failure of proof on this element would terminate the case for all class members, it does not risk causing individual questions of reliance to predominate.
Facts:
- Connecticut Retirement Plans and Trust Funds (Connecticut Retirement) purchased stock in Amgen Inc., a biotechnology company.
- Amgen allegedly made material misrepresentations and misleading omissions concerning the safety, efficacy, and marketing of two of its primary drugs.
- Connecticut Retirement alleged that these statements artificially inflated the price of Amgen's stock during the period they and other class members made their purchases.
- After the truth regarding the drugs was later revealed, Amgen's stock price declined, resulting in financial losses for those who had purchased the stock at the inflated price.
- Amgen conceded that its securities were traded on an efficient market (the NASDAQ stock exchange).
- Amgen did not contest the public character of its allegedly fraudulent statements.
Procedural Posture:
- Connecticut Retirement sued Amgen Inc. and its officers in the U.S. District Court for the Central District of California for alleged violations of federal securities laws.
- Connecticut Retirement filed a motion to certify a class action under Federal Rule of Civil Procedure 23(b)(3).
- The District Court granted the motion for class certification.
- The U.S. Court of Appeals for the Ninth Circuit granted Amgen's petition for an interlocutory appeal of the certification order.
- The Ninth Circuit affirmed the District Court's class-certification order.
- The U.S. Supreme Court granted Amgen's petition for a writ of certiorari.
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Issue:
Does Federal Rule of Civil Procedure 23(b)(3) require plaintiffs in a securities-fraud class action to prove the materiality of a defendant's alleged misrepresentations at the class certification stage in order to satisfy the predominance requirement?
Opinions:
Majority - Justice Ginsburg
No. Proof of materiality is not a prerequisite to class certification under Rule 23(b)(3). The Rule requires a showing that common questions of law or fact predominate, not that those questions will be answered in the class's favor on the merits. Materiality is an objective question common to all class members; the alleged misrepresentations are either material or immaterial for everyone. Crucially, if the plaintiffs fail to prove materiality, the entire case will be dismissed on the merits for all class members, meaning individual questions of reliance will not arise and predominate. Therefore, requiring a 'mini-trial' on materiality at the certification stage would be inefficient and inconsistent with Rule 23, which is meant to select the method of adjudication, not to adjudicate the merits.
Dissenting - Justice Scalia
Yes. The fraud-on-the-market theory established in 'Basic Inc. v. Levinson' is a special rule governing not only substantive liability but also the propriety of class certification itself. The presumption of reliance, which is necessary for certification, is contingent on the misrepresentation being material enough to affect the market price. Therefore, all elements of the fraud-on-the-market theory, including materiality, must be established at the certification stage. The majority errs by analyzing the issue under general Rule 23(b)(3) principles instead of through the specific requirements of the 'Basic' presumption.
Dissenting - Justice Thomas
Yes. To satisfy Rule 23(b)(3)'s predominance requirement, plaintiffs must prove every predicate of the fraud-on-the-market theory at certification, including materiality, to demonstrate that the element of reliance is a question common to the class. Without proof of materiality, the fraud-on-the-market presumption cannot be invoked, and reliance remains an inherently individual question for each investor, which would defeat class certification. The majority's approach of waiting until the merits stage to resolve materiality is improper because a later finding of immateriality retroactively confirms that the class should never have been certified in the first place.
Concurring - Justice Alito
Agrees with the majority based on precedent. The majority's opinion is correct under the existing framework of 'Basic Inc. v. Levinson'. However, the fraud-on-the-market presumption itself may rest on a faulty economic premise, and since the Court was not asked to revisit 'Basic' in this case, its reconsideration may be appropriate in the future.
Analysis:
This decision lowers the evidentiary burden on securities-fraud plaintiffs at the class certification stage, making it easier for such cases to proceed as class actions. By distinguishing materiality from other fraud-on-the-market predicates like market efficiency, the Court clarifies that certification is a procedural tool, not a preliminary merits determination. The ruling significantly increases the settlement pressure on defendants, as the certification of a class dramatically raises the financial stakes and defense costs of the litigation, often leading to settlement regardless of the case's underlying merits.
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