High Court Asked to Decide Whether Securities Suit May Proceed as a Class Action

WASHINGTON, D.C. - (Mealey's) A shareholder plaintiff and a pharmaceutical company debated in front of the U.S. Supreme Court on Nov. 5 whether a securities lawsuit may proceed as a class action even if the plaintiff is unable to plead materiality (Amgen Inc., Kevin W. Sharer, Richard D. Nanula, Roger M. Perlmutter and George J. Morrow v. Connecticut Retirement Plans and Trust Funds, No. 11-1085, U.S. Sup.; See October 2012, Page 30).

Arguing for petitioners Amgen Inc., Kevin W. Sharer, Richard D. Nanula, Roger M. Perlmutter and George J. Morrow, attorney Seth P. Waxman of Wilmer Cutler Pickering Hale and Dorr said that "[o]ur case is about whether the claim of liability is in a fundamental sense class wide or individual."

Waxman argued that an inability to prove to a judge at the class certification stage "that class-wide reliance can be - that class-wide reliance exists because the statement was material doesn't preclude a plaintiff like [shareholder] Connecticut Retirement [Plans and Trust Funds (CRPTF)], which has said it's going to proceed whether there's a class or not, or any other member of the class, from coming to court and saying either, 'I directly relied on this statement and here's my proof that it's material to the trier-of-fact,' because the decision that the judge makes at certification is not binding on the trier-of-fact; or even to say, 'I relied on the integrity of the market price, and I have proof that the market price was affected because here are three investors, they're all reasonable people, and they say that it was relevant, important to them in the total mix of information involved.'"

Immaterial

But Justice Elena Kagan questioned whether, if at the class certification stage, the court "holds that a statement is immaterial, it's immaterial for all members of the class, and the suit has to be dismissed?  Isn't that right?"

Justice Kagan also questioned whether, under Amgen's theory, the class certification stage becomes a sort of "super merits inquiry."

Arguing for CRPTF, attorney David C. Frederick of Kellogg, Huber, Hansen, Todd, Evans & Figel said, "In a fraud-on-the-market case, the idea of reliance, the only theory of reliance that is being advanced, is indirect reliance on the integrity of the market."

"There is no other theory of reliance," Frederick said.

CRPTF sued the defendants in the U.S. District Court for the Central District of California under Sections 10(b) and 20(a) of the Securities Exchange Act of 1934 and Securities and Exchange Commission Rule 10b-5.

Misrepresentations Made

CRPTF alleged that Amgen made misrepresentations regarding the safety of two of its products, Aranesp and Epogen, causing artificial inflation of the market price for Amgen stock.  CRPTF moved to certify a class of people who bought Amgen stock from April 22, 2004, through May 10, 2007.  The start of the period corresponds to a public statement by Amgen regarding a May 2004 Food and Drug Administration advisory committee meeting.  CRPTF alleges that Amgen misrepresented that the meeting would not focus on the safety of Aranesp.  The end of the class period corresponds with a later meeting of the same FDA committee.  CRPTF alleged that the meeting constituted a corrective disclosure.

Amgen opposed class certification principally on the ground that CRPTF did not, and could not, establish that the alleged misrepresentations were material.  The District Court rejected Amgen's arguments and granted CRPTF's motion for class certification, holding that CRPTF could invoke the presumption of reliance arising from the fraud-on-the-market theory because to trigger the presumption, CRPTF "need only establish that an efficient market exists."  Amgen appealed to the Ninth Circuit U.S. Court of Appeals, which affirmed.  The Ninth Circuit rejected Amgen's contention that CRPTF must provide proof of materiality at the class certification stage.

On March 1, Amgen and the individual defendants filed a petition for writ of certiorari with the U.S. Supreme Court.

Questions Presented

The petition presented two questions:  "Whether, in a misrepresentation case under SEC Rule 10b-5, the district court must require proof of materiality before certifying a plaintiff class based on the fraud-on-the-market theory" and "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 Supreme Court granted the petition on June 11.  On Aug. 18, the petitioners filed a petitioners' brief, and on Sept. 20, CRPTF filed a respondent's brief.

Former SEC commissioners and officials and law and finance professors filed an amicus curiae brief in support of the petitioners on Aug. 14.

Amicus Curiae

On Sept. 27, the following entities each filed amicus curiae briefs in support of CRPTF:  the United States; the National Association of Shareholder and Consumer Attorneys; Public Justice P.C., civil procedure and securities law professors; AARP, New York City pension funds and the Colorado Public Employees' Retirement Association of the City of New York; Public Citizen Inc.; and financial economists.

The petitioners are represented by Noah A. Levine of Wilmer Cutler in New York, Waxman, Louis R. Cohen, Andrew N. Vollmer, Daniel S. Volchok and Weili J. Shaw of Wilmer Cutler in Washington, and Steven O. Kramer, John P. Stigi III, John M. Landry and Jonathan D. Moss of Shephard, Mullin, Richter & Hampton in Los Angeles.  CRPTF is represented by Frederick, Derek T. Ho and Emily T.P. Rosen of Kellogg, Huber, Hansen, Todd, Evans & Figel in Washington and Edward Labaton, Jonathan M. Plasse and Christopher J. McDonald of Labaton Sucharow in New York.

The former SEC commissioners and officials and law and finance professors are represented by Timothy S. Bishop, Joshua D. Yount and Frank M. Dickerson of Mayer Brown in Chicago.  The United States is represented by Mark D. Cahn, Michael A. Conley, Jacob H. Stillman, John W. Wavery, Benjamin L. Schiffrin and Jeffrey A. Berger of the Securities and Exchange Commission in Washington and Donald B. Verrilli Jr., Malcolm L. Stewart and Nicole A. Saharsky of the Department of Justice in Washington.  The National Association of Shareholder and Consumer Attorneys is represented by William C. Fredericks and Ann M. Lipton of Bernstein Litowitz Berger & Grossman in New York. 

Public Justice P.C. is represented by Arthur Bryant of Public Justice P.C. in Oakland, Calif., and Earl Landers Vickery of Austin, Texas.  The civil procedure and securities law professors are represented by David Marcus of the University of Arizona Rogers College of Law in Tucson, Ariz., and Darren J. Robbins and Eric Alan Isaacson of Robbins Geller Rudman & Dowd in San Diego.  AARP is represented by Jay Sushelsky of AARP Foundation Litigation and Michael Shuster of AARP, both in Washington.  The New York City pension funds are represented by Michael A. Cardozo of the City of New York. 

The Colorado Public Employees' Retirement Association of the City of New York is represented by Gregory W. Smith of the Colorado Public Employees' Retirement Association in Denver.  Public Citizen Inc. is represented by Scott L. Nelson and Allison M. Zieve of the Public Citizen Litigation Group in Washington.  The financial economists are represented by Ernest A. Young in Durham, N.C., and William C. Fredericks and Ann M. Lipton of Bernstein Litowitz Berger & Grossman in New York.

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