In an 6-3 decision authored by Justice Ruth Bader Ginsburg, the Supreme Court held today in Amgen v. Connecticut Retirement Plans that plaintiffs in a federal securities-fraud class action need not prove that the defendant's allegedly fraudulent statements were material to obtain class certification. Justice Ginsburg's opinion contains this nice synopsis:
The issue presented concerns the requirement stated in [federal class-action] Rule 23(b)(3) that “the questions of law or fact common toclass members predominate over any questions affecting only individual members.” [Defendant] Amgen contends that to meet the predominance requirement, Connecticut Retirementmust 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 [plaintiff] 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.
At first read, this decision looks like a significant win for court access in securities-fraud cases. The Supreme Court's ruling affirmed a decision of the Ninth Circuit.
