Amgen: The Basic Problem - Fried Frank

To Our Clients and Friends
Memorandum
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Amgen: The Basic Problem
This week, in a 6 - 3 decision, the Supreme Court held that a plaintiff bringing a securities class action
under Section 10(b) of the Exchange Act need not prove the materiality of the putative misstatement at
the class certification stage to invoke the presumption of reliance established in Basic v. Levinson. See
Amgen Inc. v. Connecticut Retirement Plans and Trust Funds. Specifically, the Court’s analysis centered
on the predominance requirement under Rule 23(b)(3), which the Court emphasized focuses on ensuring
that a class is sufficiently cohesive to warrant certification.
Amgen is being trumpeted as a decidedly pro-plaintiff ruling. And so it seems on the surface. The
Supreme Court did not use the case — as many predicted (or at least, hoped) — to rein in securities
class actions by affording defendants an early opportunity to test materiality at the certification stage or by
revisiting in some fashion the theoretical underpinnings of the efficient market theory underlying Basic. A
close reading of Amgen, however, suggests that it may be too soon to reach any sweeping conclusions
about the import of Amgen.
First, while Basic remains intact following Amgen, its days may be numbered. Four Justices explicitly
signaled interest in reassessing Basic’s underlying economic premise — that material information is
necessarily incorporated into the price of a security traded in an efficient market — and the majority did
not endorse Basic’s holding, instead stating that Amgen was “a poor vehicle for exploring … the fraud-onthe-market
presumption” because Amgen had conceded market efficiency. Thus, the next battleground
in Section 10(b) cases will likely involve challenges to Basic. While the Court declined to require proof of
materiality at the certification stage, nothing in Amgen alters the fact that a plaintiff seeking to certify a
Section 10(b) class still must demonstrate “market efficiency” to rely on Basic’s presumption of reliance.
Thus, in that context, we expect that a future litigant, with the support of appropriate expert analysis, will
seriously challenge the continued theoretical vitality of market efficiency. If Basic falls away, or is
seriously eroded, plaintiffs will have to prove reliance rather than have it “presumed,” and Section 10(b)
securities class actions will be harder to maintain.
Second, Amgen echoed last term’s decision in Wal-Mart Stores, Inc. v. Dukes, holding that the issue at
class certification is not whether there are common questions, but rather whether there are common
answers to those questions that drive the resolution of the litigation. Thus, Amgen is again a reminder
that class certification is about what the issues will be as the case progresses, not about which side
ultimately wins or loses those issues.
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Copyright © 2013 Fried, Frank, Harris, Shriver & Jacobson LLP 03/01/2013
A Delaware Limited Liability Partnership
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Fried Frank Client Memorandum
Authors:
William G. McGuinness
Douglas H. Flaum
Gregg L. Weiner
Stephanie J. Goldstein
David B. Hennes
Israel David
This memorandum is not intended to provide legal advice, and no legal or business decision should be
based on its contents. If you have any questions about the contents of this memorandum, please call one
of the authors.
Contacts:
New York
William G. McGuinness +1.212.859.8026 william.mcguinness@friedfrank.com
Douglas H. Flaum +1.212.859.8259 douglas.flaum@friedfrank.com
Gregg L. Weiner +1.212.859.8579 gregg.weiner@friedfrank.com
Stephanie J. Goldstein +1.212.859.8254 stephanie.goldstein@friedfrank.com
David B. Hennes +1.212.859.8355 david.hennes@friedfrank.com
Israel David +1.212.859.8218 israel.david@friedfrank.com
New York Washington, DC London Paris Frankfurt Hong Kong Shanghai friedfrank.com
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