Supreme Court Gets It Right on in Amgen Case
As some of our recent posts have addressed, Congress and many federal courts have been chipping away at investor rights, seemingly oblivious both to established precedent and to the harm caused to our capital markets by further reducing accountability for securities frauds. But in an opinion authored by Justice Ginsburg, the Supreme Court put a stop to one of the latest anti-investor trends in the courts.
In Amgen, Inc. v. Connecticut Retirement Plans & Trust Funds, the Court reasoned that while a securities plaintiff must ultimately prove that an alleged misstatement or nondisclosure was “material,” the plaintiff need not establish materiality to have the case certified to proceed as a class action on behalf of similarly situated investors. Rather, materiality is a question for the jury.
What some federal courts have been doing is accelerating the proof requirements for plaintiffs, and thereby taking the case away from juries. Thus, some courts had essentially required plaintiffs to prove their case to the satisfaction of the judge at the class certification stage of the litigation, rather than letting the case go to a jury to decide disputed questions of fact. Fortunately – this time – the Supreme Court put a stop this effort.
Class certification is not the place to decide cases – juries are supposed to do that. The court at class certification simply decides whether the jury will decide any disputed question of materiality (or any other disputed fact issue) on an individual basis or for all similar investors. Since materiality has always been an objective rather than subjective test (the question is not whether the defendant’s representation or nondisclosure was material to this investor, but whether it would be material to any reasonable investor; i.e., whether a reasonable investor would have placed significance on the representation or nondisclosure), it is properly addressed by the jury on behealf of a class instead of on an investor-by-investor basis.
This decision is welcome news for investors. While they have seen their rights diminished over the last twenty years by both Congress and the courts, the Supreme Court in Amgen held firm on the materiality standard and rejected recent attempts by activist courts to conflate materaility with reliance, and thereby convert an objective standard to a subjective one.