The U.S. Supreme Court doubled down on securities law recently by issuing two decisions in one week. We’ve already covered Gabelli here. In Amgen Inc. v. Connecticut Retirement Plans & Trust Funds the Court affirmed the Ninth Circuit’s conclusion that a plaintiff need not prove the materiality of the alleged misstatements in a securities class action to certify a class of investors. The Court likewise ruled that rebuttal evidence from the defendants demonstrating a lack of materiality need not be considered at class certification. The plaintiffs’ bar was quick to hail this decision as a victory for their side, but according to this advisory from our friends at Alston & Bird, a closer examination of the opinion reveals that the issue decided by the Court was a narrow one and reflects an argument that is seldom made by the defendants in opposition to class certification. According to the firm, it remains to be seen whether this decision will have a meaningful impact on how class certification issues are litigated in the vast majority of securities cases. Here is an excerpt:
A critical issue frequently debated at class certification in securities class actions relates to the separate requirement under Section 10(b) of proof of reliance and, specifically, whether plaintiffs can invoke a presumption of reliance to satisfy the predominance requirement for certification under Fed. R. Civ. P. 23(b)(3). The Supreme Court has previously held that (1) to invoke that presumption at class certification, a plaintiff must show, inter alia, that the stock at issue traded in an efficient market and (2) once this presumption is established, it may be rebutted by the defendants. In opposition to class certification, defendants often challenge whether plaintiffs have offered sufficient evidence to carry their burden of establishing the existence of an efficient market and/or offer in rebuttal direct evidence of the market’s inefficiency.
In Amgen, however, the defendants conceded both that Amgen’s stock traded in an efficient market and that their rebuttal evidence related not to the question of market efficiency, but to the issue of materiality. Thus, the debate in Amgen focused exclusively on whether proof of materiality of the alleged misstatements was a further requirement for invoking the presumption of reliance in addition to market efficiency. The Supreme Court’s refusal to impose this additional requirement leaves untouched the Court’s prior decisions that specifically acknowledge that plaintiffs bear the burden of demonstrating market efficiency at class certification and certification must be denied where they fail to meet their burden. Nor does the decision in Amgen affect the right of a defendant also recognized in the Court’s prior decisions to attempt to rebut the presumption of reliance by showing, for example, that the market for the stock was not efficient. At best, Amgen can be said to have removed the possibility of imposing a further hurdle for plaintiffs at class certification. It did not and could not change the fact that other requirements previously recognized by the Supreme Court—like proof of market efficiency—still exist for certification of a shareholder class, and a defendant may successfully oppose class certification by raising plaintiffs’ failure to satisfy these long-standing requirements.
The Amgen ruling also reflects a clear difference of opinion among the Justices regarding the wisdom of allowing plaintiffs to prevail at class certification based on a “judicially invented” presumption of reliance. The separate opinions from Justices Scalia, Thomas and Alito in Amgen strongly suggest that some members of the Court in the future may be willing to reconsider what they view as “the regrettable consequences” of recognizing this presumption in the first place based on recent evidence that the presumption “may rest on a faulty economic principle.”
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