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Keywords: violation, securities and exchange
act, class certification, class-wide reliance, securities fraud
Securities and Exchange Act—Certification of
Class Actions
To obtain class certification in an action alleging a
misrepresentation in violation of Section 10(b) of the Securities
and Exchange Act, 15 U.S.C. § 78j(b), a plaintiff must show
that reliance on the alleged misrepresentation is common to the
class. In Basic Inc. v. Levinson, 485 U.S. 224 (1988), the
Supreme Court held that a putative class-action plaintiff may
obtain a rebuttable presumption of class-wide reliance by invoking
the "fraud-on-the-market" theory. Today the Supreme Court
granted certiorari in Amgen Inc. v. Connecticut Retirement
Plans and Trust Funds, No. 11-1085, to determine whether a
plaintiff who relies on the fraud-on-the-market theory must prove
at the class certification stage that the alleged misrepresentation
was material, and whether a defendant may defeat class
certification by showing that the immateriality of the alleged
misrepresentation rebuts the presumption of class-wide
reliance.
The Supreme Court's decision in this case will affect the
standards for class certification of securities fraud claims. It
will thus be of interest to all public companies that may be the
target of securities class actions.
Respondent, the plaintiff below, alleged that petitioner Amgen
made certain misrepresentations, which allegedly inflated the price
of its stock. After ruling that the plaintiff could invoke the
fraud-on-the-market theory, the district court held that at the
class certification stage the plaintiff need only
allege—and does not have to prove—that the
purported misrepresentations were material. The district court also
refused to consider Amgen's evidence rebutting the
applicability of the fraud-on-the-market theory at the class
certification stage, holding that rebuttal of the presumption was
an issue for trial. Finding that common questions predominated, the
district court certified the action as a class action under Rule
23(b).
The Ninth Circuit affirmed, holding that because materiality is
an element of a securities fraud claim, it is a "merits"
issue that should be addressed only at trial or on a summary
judgment motion. The court stated that at the class certification
stage a plaintiff "need only allege materiality with
sufficient plausibility to withstand a 12(b)(6) motion." 660
F.3d 1170, 1177. The court also held that evidence proffered by a
defendant to rebut the presumption of class-wide reliance could not
be considered at the class certification stage because such
evidence is essentially a method of refuting an alleged
misrepresentation's materiality. In so holding, the Ninth
Circuit joined the Seventh Circuit and rejected the contrary
positions of the Second, Third, and Fifth Circuits, which hold that
a plaintiff must demonstrate that an alleged misrepresentation is
material before a class may be certified or that a defendant
opposing class certification may rebut the presumption of reliance
by showing the alleged misrepresentation's immateriality.
Absent extensions, which are likely, amicus briefs in support of
the petitioners will be due on August 2, 2012, and amicus briefs in
support of the respondent will be due on September 4, 2012.
Mayer Brown LLP filed an amicus brief in support of petitioners
at the certiorari stage.
Mayer Brown is a global legal services provider
comprising legal practices that are separate entities (the
"Mayer Brown Practices"). The Mayer Brown Practices are:
Mayer Brown LLP and Mayer Brown Europe – Brussels LLP,
both limited liability partnerships established in Illinois USA;
Mayer Brown International LLP, a limited liability partnership
incorporated in England and Wales (authorized and regulated by the
Solicitors Regulation Authority and registered in England and Wales
number OC 303359); Mayer Brown, a SELAS established in France;
Mayer Brown JSM, a Hong Kong partnership and its associated
entities in Asia; and Tauil & Chequer Advogados, a Brazilian
law partnership with which Mayer Brown is associated. "Mayer
Brown" and the Mayer Brown logo are the trademarks of the
Mayer Brown Practices in their respective
jurisdictions.
This
Mayer Brown article provides information and comments on legal
issues and developments of interest. The foregoing is not a
comprehensive treatment of the subject matter covered and is not
intended to provide legal advice. Readers should seek specific
legal advice before taking any action with respect to the matters
discussed herein.
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