High Court Will Have To Resolve Circuit Split On Class Certification In Securities Fraud Cases

High Court Will Have To Resolve Circuit Split On Class Certification In Securities Fraud Cases

The Ninth Circuit joined the Third and the Seventh in concluding that at the class certification stage plaintiffs in a securities fraud damage action need not prove materiality to utilize the fraud-on-the market. Three other circuits take a contrary view. The Circuit Court also held that the district court correctly rejected defendants' efforts to rebut the fraud-on-the-market presumption with evidence of a "truth-on-the-market" defense at the certification stage. Connecticut Retirement Plans and Trust Funds v. Amegen Inc., No. 09-56965 (9th Cir. Filed Nov. 8, 2011). The ruling is part of a clear split in the circuits on a key issue in securities fraud damage cases which at some point will have to be resolved by the Supreme Court.

Plaintiff Connecticut Retirement Plans brought an action against biotechnology company Amgen Inc. and several of its officers. The complaint alleges that the defendants misstated and failed to disclose safety information about two Amgen products used to treat anemia. Plaintiffs claim that four statements are misleading because they downplay the FDA's safety concerns about the products, conceal details about a clinical trial that was cancelled because of concerns that a company product exacerbated tumor growth in some patients, exaggerated the safety of the products on labels and misrepresent the marketing efforts. The complaint alleges violations of Exchange Act Section 10(b).

The district court granted the motion for class certification based on Federal Rule of Civil Procedure 23(b)(3). That Rule requires that questions of law or fact common to the class members predominate over those affecting only individual members and that the class vehicle be superior to other methods for fairly and efficiently adjudicating the controversy. Under the Rule plaintiffs have the burden of demonstrating that its requirements have been met. The district court is charged with conducting a "rigorous analysis" to ensure that the plaintiffs have met their burden under the Rule.

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