SCOTUS to tackle class action criteria for securities cases

Investors who file claims against a company for misrepresenting stock offerings could have a harder time making the suit a class action, depending on the outcome of a case before the Supreme Court.

Last Monday, the high court heard oral arguments in Amgen Inc. v. Connecticut Retirement Plans and Trust Funds. The $24.3 billion pension fund is the lead plaintiff among a group of investors alleging that Amgen withheld information about the safety of two of the firm’s anemia drugs; once the information came out, the company stock price dropped sharply.

Several justices suggested that it is more appropriate to prove harm after a class is certified.

But Justice Antonin Scalia argued that materiality is an important issue at the initial certification stage “because there is enormous pressure to settle once a class is certified.”

If the Supreme Court upholds lower-court rulings that allowed a class to be certified before determining whether the information affected the stock price, companies might decide to disseminate an avalanche of material to protect against future suits.

“It means [investment] advisers are going to have to ferret through that much more information to figure out what is actually going on at a company,” said Lee Unterman, managing partner at Montgomery McCracken Walker & Rhoads LLP.

The question of materiality should be determined before class status is granted, the company argues.

But a district court and the 9th U.S. Circuit Court of Appeals ruled in favor of the plaintiffs, holding that the investors could be designated as a class first and then materiality could be addressed at trial.

Other circuits have held that the class determination should occur after materiality is settled.

The high court’s decision “could make it more difficult for plaintiffs to be certified as a class in securities law cases,” said Jay Baris, a partner at Morrison & Foerster LLP.

“The company should have a chance to defeat class certification on the merits early on rather than waiting for trial or a summary judgment,” Mr. Unterman said.

— Hazel Bradford from sister publication Pensions & Investments contributed to this report.
[email protected] Twitter: @markschoeff