In a highly anticipated ruling, the Supreme Court held in Amgen, Inc. v. Connecticut Retirement Plans and Trust Funds (http://www.supremecourt.gov/opinions/12pdf/11-1085_9o6b.pdf), the Supreme Court held that securities plaintiffs are not required to prove materiality in order to obtain certification of a class seeking to recover under the securities laws. The plaintiffs in Amgen sought to certify under Rule 23(b)(3) which requires that common questions of fact or law predominate over individual questions. To do so, plaintiffs invoked the fraud-on-the-market theory to avoid the need to establish reliance on an individual basis. Courts have long held that in order to obatin certification under this theory, plaintiffs have to establish its prerequisites, such as that the security trades on an efficient market. Amgen contended that, in order for the theory to apply, the misrepresentation or omission at issue also had to be material -- otherwise the market for the security at issue by definition would be unaffected. The Supreme Court, however, disagreed. The Court held that other elements of the theory had to proved at the certification stage because, if those other elements failed, the class would fail but individual plaintiffs could bring individual actions. The Court reasoned that materiality is different. Materiality is also a substantive element of a securities claim -- therefore, if materiality fails, all the class' claims fail. Because all of the class' claims rise or fall together, materiality is appropriately determined at trial. The implication for securities defendants is that they are unable to get a pre-trial opportunity to defeat a securities claim b contesting materiality. While defendants maintain the opportunity to attack materiality on summary judgment, materiality tends to be a fact question not easily susceptible to summary judgment. A favorable ruling would have given defendants with strong, but disputed, materiality arguments an opportunity to get a ruling on the merits before trial (and the massive attendent risks that go with it).
The decision also has broader implications for class certification because it gives courts a framework for evaluating how deep into the merits they can go at the certification stage. Clearly now courts will not address merits issues under which the class will rise or fall together.