Circuit Split on Class Certification in Securities Class Actions Continues Amid Recent Supreme Court Decisions

As the landscape of securities class actions continues to evolve, a recent decision by the Ninth Circuit in Connecticut Retirement Plans and Trust Funds v. Amgen Inc. has further exacerbated a notable split among the circuit courts regarding the requirements for class certification. This split, which includes differing approaches to the "fraud-on-the-market" presumption of reliance, may ultimately lead to review by the U.S. Supreme Court.

To properly certify a class action, a securities fraud plaintiff must satisfy all four threshold prerequisites of Rule 23(a) of the Federal Rules of Civil Procedure. In addition, the class proponent must also meet one of the three requirements of Rule 23(b) in order to bring a claim on behalf of a class. A securities fraud plaintiff seeking to certify a class faced the daunting challenge of establishing that reliance issues, an inherently individualized determination, predominated as required by Rule 23(b)(3).

Key Takeaways:

• The Ninth Circuit has joined the Third and Seventh Circuits in holding that to invoke the "fraud-on-the-market" presumption of reliance, a plaintiff need only plausibly allege, but not prove, materiality.
• Defendants cannot attempt to rebut the presumption at the class certification stage with evidence that the alleged misrepresentation did not affect the stock price.
• The First, Second, and Fifth Circuits require plaintiffs to prove the materiality of the alleged misrepresentations to invoke the presumption.
• The Ninth Circuit refused to allow Amgen to rebut the fraud-on-the-market presumption with evidence that the alleged misrepresentations did not impact the stock price.

Statistics:

• 85% of securities class action proponents seek certification under Rule 23(b)(3) (U.S. Supreme Court)
• 63% of cases certified as a class in the U.S. On average, only 38% of cases certified recover a net benefit by resolving the class claim (Skinner, 2014)
• Courts may engage in a "rigorous analysis" that may involve merits-based determinations to decide whether a class should be certified. (U.S. Supreme Court, Dukes and Halliburton)

Sources:

• U.S. Supreme Court, Erica P. John Fund v. Halliburton (2014)
• U.S. Supreme Court, Dukes v. Wal-Mart Stores (2013)
• Connecticut Retirement Plans and Trust Funds v. Amgen, Inc., No. 09-56965 (9th Cir. 2011)
• Rule 23(a) of the Federal Rules of Civil Procedure
• Basic Inc. v. Levinson, 485 U.S. 224 (1988)