THe US Supreme Court has agreed to review a case posing the question of whether, in a misrepresentation case under Rule 10b-5, a federal judge must require proof of materiality before certifying a plaintiff class based on the fraud-on-the-market theory; and the concomitant question of whether, in such a case, the district court must allow the defendant to present evidence rebutting the applicability of the fraud-on-the-market theory before certifying a plaintiff class based on that theory. The case is on an appeal from a decision of a panel of the Ninth Circuit Court of Appeals. Amgen v. Connecticut Retirement Plans, Dkt. No. 11-1085. Justice Breyer took no part in the granting of certiorari in this case.
The Ninth Circuit panel ruled that, because proof of materiality to ensure that the question of reliance is common among all prospective class members' securities frad claims, pliantiffs need not prove materiality to use the fraud-on-the-market presumption of reliance at the class certification stage. They need only allege materiality with sufficient plausibility to withstand a motion to dismiss. The panel also held that the district judge properly refused to consider the company's truth-on-the-market defense at the class certification stage.
The Court took the case to resolve a split among the federal circuit courts of appeal on this issue. Recently, the Seventh Circuit held that proving materiality is not a pre-condition to invoking the fraud-on-the-market presumption at the class certification stage. But three other circuits, the Second, Fifth and First, require a plaintiff to prove materiality at the class certification stage.