In recent years, the Court has provided important opinions for class action lawyers, including Dukes, Concepcion, Bayer Corp., Erica P. John Fund, and Janus Capital Group. The October Term 2012 reflects the Court’s continuing interest in this area and should provide two more important opinions.
Amgen—Class Certification In Securities Fraud Actions.
In Amgen Inc. v. Connecticut Retirement Plans & Trust Funds, No. 11-1085, the Court will resolve a circuit split regarding securities fraud class actions. In such class actions under Section 10(b) of the Securities Exchange Act of 1934 and Rule 10b-5, the plaintiffs may avoid having to establish individual class members’ reliance on allegedly-misleading statements or omissions (an impossible task). They do so through the fraud on the market presumption of reliance approved in Basic, Inc. v. Levinson, 485 U.S. 224 (1988). To benefit from the rebuttable presumption, a plaintiff must show that: (1) the defendant made public misrepresentations, (2) the misrepresentations were material, (3) the security traded in an efficient market, and (4) the plaintiff bought or sold shares after the misrepresentation but before the truth was known. The Court will address whether, as part of class certification proceedings, (1) a plaintiff must show the materiality of the misrepresentation and (2) the defendant must have the opportunity to rebut the application of the fraud on the market theory.
In the underlying dispute, the plaintiff alleges that Amgen misrepresented what the FDA would consider at an upcoming meeting. The plaintiff contends that the FDA intended to explore safety concerns about two Amgen drugs but Amgen misled the public about the meeting agenda. In response, Amgen denied that the alleged misrepresentations could have been material because many public sources disclosed to the market what the FDA was evaluating at the meeting; Amgen argued that the district court had to evaluate materiality as part of class certification so it could determine if the fraud on the market theory applied. The district court and Ninth Circuit, however, concluded that it would be an improper examination of the merits to require the plaintiff to establish materiality as part of class certification. The Seventh Circuit shares that view, but the Second and Fifth Circuits agree with Amgen’s arguments.
Combined with the Comcast case discussed below, this case could result in significant changes to class action jurisprudence across the spectrum. Even by itself, however, the matter could provide substantial tools for securities fraud class action defendants. Presently, defense lawyers in those cases do not have anywhere near the same number of tools to oppose certification as we do in, e.g., consumer fraud matters. If we are able to attack the application of the fraud on the market theory, then the class certification battle acquires greater significance and possible utility. Defeating matter at certification effectively ends the litigation while also avoiding the tremendous expense of post-certification litigation (particularly trial) and the almost unbearable risks of an adverse verdict.
Comcast—Examining The Merits And Expert Testimony At Class Certification.
In Comcast Corp. v. Behrend, No. 11-864, consumers brought antitrust claims against a cable television company. As typically happens in antitrust matters, the parties robustly disputed how to define the relevant market and whether the plaintiff could establish antitrust injury. They presented competing experts with strong qualifications, though each questioned the other’s methodology. In granting certiorari, the Court framed the issue a bit differently than Comcast did in its petition. Comcast focused on whether the Third Circuit improperly retreated from Wal-Mart v. Dukes in terms of permissible merits inquiries at class certification. The question the Court structured, however, is:
Whether a district court may certify a class action without resolving whether the plaintiff class has introduced admissible evidence, including expert testimony, to show that the case is susceptible to awarding damages on a class-wide basis.
In that respect, the Court seems poised to answer directly what it implied in Dukes (131 S. Ct. at 2553-54): does Daubert v. Merrell Dow Pharmaceuticals apply to expert evidence offered at class certification? Notably, that question presented does not require the Court to answer whether one or the other expert correctly analyzed competing data to define the relevant market. Instead, it only explores whether the plaintiff’s economist offered a methodology that truly can evaluate injury and allocating the resulting damages to the class members.
Amgen and Comcast will allow the Court to evaluate what type of proof class action plaintiffs must offer at the class certification stage. While no doubt exists any more that courts may delve into the merits to the extent they overlap with class certification, applying that standard turns out to be an inexact art that varies among trial courts. If a majority of the Court is so inclined, those justices could use these cases to broadly describe evidentiary showings a plaintiff must make well beyond securities fraud and antitrust disputes. The Court certainly seems poised to use the cases to limit plaintiffs’ ability to argue that certain substantive questions about their claims must wait until trial to be answered; instead, it is appropriate to consider whether plaintiffs can muster an adequate evidentiary record before consolidating hundreds or thousands of claims in a class.