The Ninth Circuit last week addressed the standards for certifying a plaintiff's class action in a securities fraud case. The Ninth Circuit joined the Third and Seventh Circuits in holding that a plaintiff seeking to invoke the fraud-on-the-market presumption need not prove at the class certification stage that the defendant's misrepresentation was material.
In Connecticut Retirement Plans v. Amgen, Inc., the plaintiff alleged that misstatements and failure to disclose by defendants illegally inflated the value of Amgen stock. Plaintiff sought to certify a class action by showing that questions common to class members -- purchasers of Amgen stock -- predominated over questions affecting only individual members, under Fed. R. Civ. Proc. 23(a). To show that the element of reliance was common to the class, plaintiff invoked the fraud-on-the-market presumption, which is the principle that the market price of a publicly-traded security reflects all public information and a buyer is presumed to have relied on the truthfulness of that information. The Ninth Circuit held that, to invoke the presumption, plaintiff must show that the stock was traded in an efficient market, and that the alleged misstatements were public, but plaintiff need not prove that the misstatements were material. Instead, to gain class certification, plaintiff must simply plausibly allege materiality. The Ninth Circuit rejected the view of the First, Second, and Fifth Circuits that materiality must be proven in order to certify a class action.