This week, in a 6 - 3 decision, the Supreme Court held that a plaintiff bringing a securities class action under Section 10(b) of the Exchange Act need not prove the materiality of the putative misstatement at the class certification stage to invoke the presumption of reliance established in Basic v. Levinson. See Amgen Inc. v. Connecticut Retirement Plans and Trust Funds. Specifically, the Court’s analysis centered on the predominance requirement under Rule 23(b)(3), which the Court emphasized focuses on ensuring that a class is sufficiently cohesive to warrant certification.
Amgen is being trumpeted as a decidedly pro-plaintiff ruling. And so it seems on the surface. The Supreme Court did not use the case — as many predicted (or at least, hoped) — to rein in securities class actions by affording defendants an early opportunity to test materiality at the certification stage or by revisiting in some fashion the theoretical underpinnings of the efficient market theory underlying Basic. A close reading of Amgen, however, suggests that it may be too soon to reach any sweeping conclusions about the import of Amgen.
First, while Basic remains intact following Amgen, its days may be numbered. Four Justices explicitly signaled interest in reassessing Basic’s underlying economic premise — that material information is necessarily incorporated into the price of a security traded in an efficient market — and the majority did not endorse Basic’s holding, instead stating that Amgen was “a poor vehicle for exploring … the fraud-on-the-market presumption” because Amgen had conceded market efficiency. Thus, the next battleground in Section 10(b) cases will likely involve challenges to Basic. While the Court declined to require proof of materiality at the certification stage, nothing in Amgen alters the fact that a plaintiff seeking to certify a Section 10(b) class still must demonstrate “market efficiency” to rely on Basic’s presumption of reliance. Thus, in that context, we expect that a future litigant, with the support of appropriate expert analysis, will seriously challenge the continued theoretical vitality of market efficiency. If Basic falls away, or is seriously eroded, plaintiffs will have to prove reliance rather than have it “presumed,” and Section 10(b) securities class actions will be harder to maintain.
Second, Amgen echoed last term’s decision in Wal-Mart Stores, Inc. v. Dukes, holding that the issue at class certification is not whether there are common questions, but rather whether there are common answers to those questions that drive the resolution of the litigation. Thus, Amgen is again a reminder that class certification is about what the issues will be as the case progresses, not about which side ultimately wins or loses those issues.
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.