Opinion ID: 616889
Heading Depth: 2
Heading Rank: 2

Heading: The District Court's Class Certification Order

Text: Connecticut Retirement moved in the district court to certify the action as a class action under Federal Rule of Civil Procedure 23(b)(3) on behalf of all purchasers of Amgen stock between the date of the alleged misstatements and omissions and the date of the corrective disclosures. Rule 23(b)(3) permits a party to maintain a class action if the Rule 23(a) prerequisites are satisfied and the court finds that the questions of law or fact common to class members predominate over any questions affecting only individual members, and that a class action is superior to other available methods for fairly and efficiently adjudicating the controversy. Fed. R.Civ.P. 23(b)(3). The district court found that the Rule 23(a) prerequisites were satisfied and that common questions predominated. Of the elements of a claim under Section 10(b) and Rule 10b-5, the district court found that the following questions were common to the class: whether Amgen made false statements, whether those statements were material, whether those statements were connected with the sale of securities, whether those statements were intentionally false, and whether those statements caused the class members' losses. The district court further found that although the class members' losses differed depending on when and how much they bought, the losses would be simple to calculate. The district court also ruled that the remaining elementreliancewas common to the class because the class could avail itself of the fraud-on-the-market presumption of reliance. That doctrine, first approved by the Supreme Court in Basic Inc. v. Levinson, 485 U.S. 224, 108 S.Ct. 978, 99 L.Ed.2d 194 (1988), rests on the efficient capital market hypothesis: The price of a stock traded in an efficient market fully reflects all publicly available information about the company and its business. See 485 U.S. at 241-42, 244-45, 246-47, 108 S.Ct. 978. If the stock price did not reflect a piece of publicly available information, the logic goes, then investors would have a strong incentive to buy the stock (if the information were positive) or sell it (if negative); in an efficient market, that activity would drive the stock price up or down until it fully reflected the information. Anyone who buys stock at the prevailing market price is presumed to have relied on that priceand, by extension, each piece of publicly available information it reflectsas a measure of the stock's value, even if the investor never saw that information. See id. at 247, 108 S.Ct. 978. Thus, the fraud-on-the-market presumption is a way to prove reliancea causal link from the defendant's misrepresentation, reflected in the prevailing market price, to each class member's decision to buy the stock. The presumption, however, is rebuttablefor example, by showing that the market was already aware of the truth behind the defendant's supposed falsehoods and thus that those falsehoods did not affect the market price (the so-called truth-on-the-market defense), or by showing that a particular plaintiff would have bought the stock without relying on the integrity of the market price. See Basic, 485 U.S. at 248-49, 108 S.Ct. 978. The district court ruled that Connecticut Retirement successfully invoked the fraud-on-the-market presumption by showing that Amgen's stock traded in an efficient market (which Amgen conceded) and that the alleged misstatements were public (which Amgen did not contest). The district court further held that at the class certification stage, Connecticut Retirement did not need to prove but rather could merely allege that Amgen's supposed falsehoods were material to invoke the fraud-on-the-market presumption. Materiality would, of course, have to be proven at trial. Moreover, the district court declined to afford Amgen an opportunity to rebut the presumption of reliance at the class certification stage, holding again that rebuttal of the presumption was a trial issue. Amgen's proposed rebuttal consisted of evidence purportedly showing that the truth behind each of the supposed misstatements had already entered the market by the time the misstatements were made. Amgen argued that the misstatements therefore could not have affected Amgen's stock price, or, by extension, anyone relying on the integrity of that stock price. Having found that the Rule 23(a) prerequisites were satisfied and that common questions predominated, the district court certified the action as a class action under Rule 23(b)(3).