Amgen Inc. v. Connecticut Retirement Plans and Trust Funds
The Supreme Court ruled that investors suing a company for securities fraud as a group do not have to prove, before the lawsuit is certified as a class action, that the company's alleged misstatements actually affected the stock price.
The decision makes it easier for investors to band together in securities-fraud lawsuits, because courts will not hold time-consuming mini-trials over whether the statements mattered before letting the case proceed as a class action.
“As vital, the plaintiff class’s inability to prove materiality would not result in individual questions predominating.”
The majority explains why a failed materiality claim ends the case rather than creating individual disputes.
How it got here: A federal trial court certified the investor class; the Ninth Circuit affirmed; Amgen asked the Supreme Court to review whether materiality must be proved before certification.
The Case in Depth
What happened
A retirement fund sued the biotech company Amgen and several of its executives, claiming Amgen made misleading statements and left out important facts about the safety and marketing of two of its drugs, which artificially inflated Amgen's stock price. When the truth came out, the stock price fell and investors who bought at the inflated price lost money. The fund wanted to sue on behalf of all similarly situated investors.
The question before the Court
Before a court lets investors sue a company as a group for stock fraud, must the investors first prove the company's statements actually mattered to the stock price?
The Court's answer
No — investors seeking to sue a company as a group for securities fraud do not have to prove, before the lawsuit is certified as a class action, that the company's alleged misstatements actually mattered to the stock price (were "material"). The Court reasoned that materiality is judged by the same objective standard for every investor, so it's automatically a question the whole class shares, and if the class loses on that point, the case ends entirely rather than splintering into separate disputes needing individual trials.
This differs from other requirements, like showing the stock traded in an efficient market, because those relate to whether some investors can rely on the class-wide presumption at all — a loss there just means individual investors might still sue on their own. A loss on materiality, by contrast, kills every investor's claim at once, so there's no risk of individual issues taking over the case, and no need to resolve materiality before certification.
Curious how the Court got there? See the step-by-step legal reasoning →
Why it matters
Investors bringing group lawsuits against public companies for alleged stock-price fraud can get their cases certified as class actions without first winning a fight over whether the company's statements were significant. Companies facing these suits lose an early opportunity to knock out a class action before the settlement pressure that often follows certification kicks in.
What changes now
This is a final merits decision resolving the certification dispute; the case returns to the ordinary litigation track, where the investor class action proceeds and materiality will be litigated at summary judgment or trial rather than at the certification stage. The ruling settles a circuit split on this question and will apply to other securities class actions going forward.
What this does not decide
The Court did not decide whether Amgen's statements actually were material or whether the investors will ultimately win their case -- materiality still must be proved later, at summary judgment or trial. The ruling also left untouched the existing requirement that market efficiency and the public nature of statements be shown before certification.
Concurrences and dissents
Concurrence — Justice Alito
Justice Alito joined the majority but noted that Amgen had not asked the Court to reconsider the fraud-on-the-market presumption from Basic itself. He observed that newer economic evidence might undermine the economic premise behind that presumption and suggested the Court could revisit Basic in a future case.
Dissent — Justice Scalia
Justice Scalia argued that Basic's fraud-on-the-market rule was meant to govern not just liability but also certification itself, so every element of that rule, including materiality, must be shown before a class can be certified. He read Basic's remand language as requiring materiality to be established at certification, and warned the majority's approach would let virtually all such suits past the certification stage regardless of the alleged misrepresentation's materiality.
Dissent — Justice Thomas
“Fraud on the market is thus a condition precedent to class certification, without which individualized questions of reliance will defeat certification.”The dissent's core objection that materiality must be proved before a class can be certified.
Justice Thomas argued that without proof of materiality, the fraud-on-the-market presumption cannot be established, so reliance remains an individualized question that defeats predominance under Rule 23(b)(3); he would have required plaintiffs to prove all elements of fraud-on-the-market, including materiality, at certification. He traced the pre-Basic history of the fraud-on-the-market theory to argue materiality was always central to it, and would reverse the Ninth Circuit.
How the Court got there
The legal reasoning, step by step
- The Court applied the predominance requirement of Federal Rule of Civil Procedure 23(b)(3), which asks whether questions shared by the whole group of investors outweigh questions that would have to be answered separately for each investor.
- The Court reasoned that whether a company's statement was 'material' -- meaning it would matter to a reasonable investor -- is judged by an objective, one-size-fits-all standard, so it is automatically a question common to the whole class rather than one that varies investor by investor.
- The Court then asked what would happen if the class failed to prove materiality, and concluded that a loss on that single element would end the entire case for every class member at once, since materiality is a required part of a securities-fraud claim; it would not create a scattering of individual reliance questions needing separate trials.
- Because a materiality failure resolves the case for everyone in one stroke rather than splintering it into individual disputes, the Court held that materiality does not need to be proven before certification -- unlike the market's efficiency and the public nature of the statements, which the Court treated differently because failing to prove those simply opens the door to old-fashioned individual proof of reliance.
- The Court rejected Amgen's policy argument that certification creates pressure to settle before materiality is ever tested, noting Congress had already addressed abusive securities suits through other reforms without disturbing the fraud-on-the-market presumption from Basic Inc. v. Levinson.
- The Court concluded that because materiality would not cause individual issues to overwhelm common ones, requiring proof of it before certification was unnecessary, and for the same reason a company's evidence trying to disprove materiality also need not be considered at the certification stage.
Doctrinal impact
Cases affected by this decision
Reaffirms Basic Inc. v. Levinson (485 U. S. 224)
The Court relied on Basic's fraud-on-the-market presumption of reliance without disturbing it.