Amgen Inc. v. Conn. Ret. Plans & Trust Funds

Citation568 U.S. 455,185 L.Ed.2d 308,133 S.Ct. 1184
Decision Date27 February 2013
Docket NumberNo. 11–1085.,11–1085.
Parties AMGEN INC. et al., Petitioners v. CONNECTICUT RETIREMENT PLANS AND TRUST FUNDS.
CourtUnited States Supreme Court

Seth P. Waxman, Washington, DC, for Petitioners.

David C. Frederick, Washington, DC, for Respondents.

Melissa Arbus Sherry, for the United States as amicus curiae, by special leave of the Court, supporting the Respondent.

Noah A. Levine, Wilmer Cutler Pickering, Hale and Dorr LLP, New York, NY, Steven O. Kramer, John P. Stigi III, John M. Landry, Jonathan D. Moss, Sheppard, Mullin, Richter & Hampton LLP, Los Angeles, CA, Seth P. Waxman, Counsel of Record, Louis R. Cohen, Andrew N. Vollmer, Daniel S. Volchok, Weili J. Shaw, Wilmer Cutler Pickering, Hale and Dorr LLP, Washington, DC, for Petitioners.

Edward Labaton, Jonathan M. Plasse, Christopher J. McDonald, Labaton Sucharow LLP, New York, NY, David C. Frederick, Counsel of Record, Derek T. Ho, Emily T.P. Rosen, Kellogg, Huber, Hansen, Todd, Evans & Figel, P.L.L.C., Washington, DC, for Respondent.

Justice GINSBURG delivered the opinion of the Court.

This case involves a securities-fraud complaint filed by Connecticut Retirement Plans and Trust Funds (Connecticut Retirement) against biotechnology company Amgen Inc. and several of its officers (collectively, Amgen). Seeking class-action certification under Federal Rule of Civil Procedure 23, Connecticut Retirement invoked the "fraud-on-the-market" presumption endorsed by this Court in Basic Inc. v. Levinson, 485 U.S. 224, 108 S.Ct. 978, 99 L.Ed.2d 194 (1988), and recognized most recently in Erica P. John Fund, Inc. v. Halliburton Co., 563 U.S. ––––, 131 S.Ct. 2179, 180 L.Ed.2d 24 (2011). The fraud-on-the-market premise is that the price of a security traded in an efficient market will reflect all publicly available information about a company; accordingly, a buyer of the security may be presumed to have relied on that information in purchasing the security.

Amgen has conceded the efficiency of the market for the securities at issue and has not contested the public character of the allegedly fraudulent statements on which Connecticut Retirement's complaint is based. Nor does Amgen here dispute that Connecticut Retirement meets all of the class-action prerequisites stated in Rule 23(a) : (1) the alleged class "is so numerous that joinder of all members is impracticable"; (2) "there are questions of law or fact common to the class"; (3) Connecticut Retirement's claims are "typical of the claims ... of the class"; and (4) Connecticut Retirement will "fairly and adequately protect the interests of the class."

The issue presented concerns the requirement stated in Rule 23(b)(3) that "the questions of law or fact common to class members predominate over any questions affecting only individual members." Amgen contends that to meet the predominance requirement, Connecticut Retirement must 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 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.

Essentially, Amgen, also the dissenters from today's decision, would have us put the cart before the horse. To gain certification under Rule 23(b)(3), Amgen and the dissenters urge, Connecticut Retirement must first establish that it will win the fray. But the office of a Rule 23(b)(3) certification ruling is not to adjudicate the case; rather, it is to select the "metho[d]" best suited to adjudication of the controversy "fairly and efficiently."

I
A

This case involves the interaction between federal securities-fraud laws and Rule 23's requirements for class certification. To obtain certification of a class action for money damages under Rule 23(b)(3), a plaintiff must satisfy Rule 23(a)'s above-mentioned prerequisites of numerosity, commonality, typicality, and adequacy of representation, see supra, at 1190 – 1191, and must also establish that "the questions of law or fact common to class members predominate over any questions affecting only individual members, and that a class action is superior to other available methods for fairly and efficiently adjudicating the controversy." To recover damages in a private securities-fraud action under § 10(b) of the Securities Exchange Act of 1934, 48 Stat. 891, as amended, 15 U.S.C. § 78j(b) (2006 ed., Supp. V), and Securities and Exchange Commission Rule 10b–5, 17 CFR § 240.10b–5 (2011), a plaintiff must prove "(1) a material misrepresentation or omission by the defendant; (2) scienter; (3) a connection between the misrepresentation or omission and the purchase or sale of a security; (4) reliance upon the misrepresentation or omission; (5) economic loss; and (6) loss causation." Matrixx Initiatives, Inc. v. Siracusano, 563 U.S. ––––, ––––, 131 S.Ct. 1309, 1317, 179 L.Ed.2d 398 (2011) (internal quotation marks omitted).

"Reliance," we have explained, "is an essential element of the § 10(b) private cause of action" because "proof of reliance ensures that there is a proper connection between a defendant's misrepresentation and a plaintiff's injury." Halliburton, 563 U.S., at ––––, 131 S.Ct., at 2184 (internal quotation marks omitted). "The traditional (and most direct) way" for a plaintiff to demonstrate reliance "is by showing that he was aware of a company's statement and engaged in a relevant transaction ... based on that specific misrepresentation." Ibid. We have recognized, however, that requiring proof of direct reliance "would place an unnecessarily unrealistic evidentiary burden on [a] plaintiff who has traded on an impersonal market." Basic, 485 U.S., at 245, 108 S.Ct. 978. Accordingly, in Basic the Court endorsed the "fraud-on-the-market" theory, which permits certain Rule 10b–5 plaintiffs to invoke a rebuttable presumption of reliance on material misrepresentations aired to the general public. Id., at 241–249, 108 S.Ct. 978.1

The fraud-on-the-market theory rests on the premise that certain well developed markets are efficient processors of public information. In such markets, the "market price of shares" will "reflec[t] all publicly available information." Id., at 246, 108 S.Ct. 978. Few investors in such markets, if any, can consistently achieve above-market returns by trading based on publicly available information alone, for if such above-market returns were readily attainable, it would mean that market prices were not efficiently incorporating the full supply of public information. See R. Brealey, S. Myers, & F. Allen, Principles of Corporate Finance 330 (10th ed. 2011) ("[I]n an efficient market, there is no way for most investors to achieve consistently superior rates of return.").

In Basic, we held that if a market is shown to be efficient, courts may presume that investors who traded securities in that market relied on public, material misrepresentations regarding those securities. See 485 U.S., at 245–247, 108 S.Ct. 978. This presumption springs from the very concept of market efficiency. If a market is generally efficient in incorporating publicly available information into a security's market price, it is reasonable to presume that a particular public, material misrepresentation will be reflected in the security's price. Furthermore, it is reasonable to presume that most investors—knowing that they have little hope of outperforming the market in the long run based solely on their analysis of publicly available information—will rely on the security's market price as an unbiased assessment of the security's value in light of all public information. Thus, courts may presume that investors trading in efficient markets indirectly rely on public, material misrepresentations through their "reliance on the integrity of the price set by the market." Id., at 245, 108 S.Ct. 978."[T]he presumption," however, is "just that, and [can] be rebutted by appropriate evidence." Halliburton, 563 U.S., at ––––, 131 S.Ct., at 2185. See also Basic, 485 U.S., at 248–249, 108 S.Ct. 978 (providing examples of showings that would rebut the fraud-on-the-market presumption).

Although fraud on the market is a substantive doctrine of federal securities-fraud law that can be invoked by any Rule 10b–5 plaintiff, see, e.g., Black v. Finantra Capital, Inc., 418 F.3d 203, 209 (C.A.2 2005) ; Blackie v. Barrack, 524 F.2d 891, 908 (C.A.9 1975), the doctrine has particular significance in securities-fraud class actions. Absent the fraud-on-the-market theory, the requirement that Rule 10b–5 plaintiffs establish reliance would ordinarily preclude certification of a class action seeking money damages because individual...

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