The U.S. Supreme Court on Febru­ary 27 continued its extensive exploration of class action litigation, handing a rare victory to plaintiffs.

In Amgen Inc. v. Connecticut Retire­ment Plans and Trust, the court, by a 6-3 vote, declined to adopt a rule that would have made it harder for plaintiffs to mount a class action in securities fraud cases. Amgen and business groups hoped the court would require plaintiffs to prove, before a class could be certified, that company misrepresentations materially affected the price of its stock. Investors sued Amgen, claiming its misrepresentations about two drugs it marketed to combat anemia had artificially inflated Amgen’s stock price.

Justice Ruth Bader Ginsburg, writing for the majority, said that proof of materiality is necessary for plaintiffs to prevail — but it did not have to be made before the class is certified. Amgen, Ginsburg said, "would have us put the cart before the horse."

She dismissed the "policy considerations" advanced by Amgen that not requiring proof before a class is certified would force defendants to settle with plaintiffs filing flimsy lawsuits — rather than incur the costs of litigation and "potentially ruinous" damages. Congress had considered that concern, she added, but had not disturbed the "fraud on the market" presumption that a stock’s price reflects all publicly available information about a company. The court endorsed that presumption in the 1988 ruling Basic Inc. v. Levinson.

In dissent, Justice Antonin Scalia said the majority had expanded the scope of Basic "from the arguably regrettable to the unquestionably disastrous." Justice Clarence Thomas wrote a separate dissent that was joined in part by Scalia and in full by Justice Anthony Kennedy.

The decision was a win for David Frederick of Kellogg, Huber, Hansen, Todd, Evans & Figel, who argued for the plaintiffs against Seth Waxman of Wilmer Cutler Pickering Hale and Dorr, who represented Amgen.

Boris Feldman of Wilson Sonsini Goodrich & Rosati said the ruling was unsurprising, even though it was a rare affirmance of a ruling by the U.S. Court of Appeals for the Ninth Circuit. But Feldman pointed to a concurrence by Justice Samuel Alito Jr. as well as the dissents to suggest that at least four justices are looking for a case in which the court could overturn the "fraud on the market" presumption under Basic.

 

Contact Tony Mauro at tmauro@alm.com.