Amgen v. Connecticut Retirement Plans Supreme Court Opinion: Potential Impact Beyond the Securities Realm
Earlier this week, the U.S. Supreme Court issued its opinion in Amgen Inc. v. Connecticut Retirement Plans and Trust Funds, No. 11-1085 (slip opinion). In a 6-3 decision, the Court held that, in a securities fraud class action under Section 10(b) and Rule 10b-5, the plaintiff need not prove materiality as a prerequisite to class certification. Justice Ginsburg’s opinion for the Court reasoned that: (1) materiality is an objective question and a common question that can be proven with classwide evidence; and (2) regardless of how the issue of materiality is decided, it will not prevent common issues from predominating under Rule 23(b)(3), because if materiality can be proven that will be accomplished with classwide evidence, and if materiality cannot be proven then the case will end (given that the named plaintiffs’ individual claims will also fail). (Slip op. at 11.) In reaching this result, the Court also clarified the extent to which an inquiry on the merits is appropriate in deciding class certification:
Rule 23 grants courts no license to engage in free-ranging merits inquiries at the certification stage. Merits questions may be considered to the extent—but only to the extent—that they are relevant to determining whether the Rule 23 prerequisites for class certification are satisfied. (Id. at 9.)
Where might this opinion have an impact beyond the securities fraud context, such as in insurance class actions? Here are some thoughts:
- At class certification, both sides and the court likely will focus more intently on elements of the substantive cause of action that are not clearly capable of proof with common evidence. There was no dispute in Amgen that materiality could be proven with common evidence; rather, the dispute was over whether the plaintiffs could establish materiality. In many putative class actions, the question of whether certain elements can be proven with classwide evidence or will require individual adjudication is hotly contested, while other questions concededly could be established with common evidence if that evidence is sufficient. Amgen will require the district courts and the parties to focus on issues that potentially “give rise to [a] prospect of individual questions overwhelming common ones . . . .” (Id. at 18.) But given that every plaintiffs’ lawyer who brings a class action believes that they can prove everything with common evidence, how will that play out? Where will courts draw the line? And what will happen when the defendant disputes the admissibility of the classwide evidence? On the evidentiary question, we’ll need to wait for the Court’s opinion in Comcast v. Behrend which is expected to shed light on that question (see my November 9, 2012 blog post for more on that case).
- Amgen might make bifurcation of discovery easier. It often makes sense to phase discovery in class actions so that the parties focus on discovery pertinent to class certification issues until class certification is decided, and then do merits discovery thereafter. District courts sometimes struggle with where to draw the line. Amgen now provides a potential framework to aid in drawing that line where appropriate: Does the discovery relate to a question that is the subject of a reasonable debate over whether it can be established with classwide evidence? Does it relate to a question on which all claims would necessarily fail (individual and class) if the “common” evidence does not persuade the finder of fact?
- Early summary judgment motions may be a good defense strategy in some cases. The Court noted that the defendant’s contention that materiality could not be established would be “properly addressed at trial or in a ruling on a summary-judgment motion.” (Slip op. at 14.) When a key dispute in a putative class action focuses on materiality or another similar element of a cause of action, and a defendant is concerned that the issue will not be appropriate for resolution on a class certification motion in light of Amgen, one approach that potentially can be taken, where appropriate, is to move for summary judgment on that issue early in the case, before class certification. If the plaintiff objects to resolution of the summary judgment motion at that time, the defendant will have to convince the district court that taking up such a motion makes good sense as a matter of case management. But many times it does – why should the parties and the court go through class certification proceedings if there is a key threshold issue that can be resolved on summary judgment and would defeat the entire case? If the issue requires discovery, however, that discovery could not be postponed, so this would need to be considered in formulating any plan for phased discovery.