Each month, lawyers at Mayer Brown LLP, which has the nation’s largest and oldest Supreme Court & Appellate practice, are pleased to offer the readers of InsideCounsel their insights on the most compelling developments in the United States Supreme Court that are relevant to in-house counsel. Today, we look at two current cases, Amgen Inc. v. Connecticut Retirement Plans and Trust Funds and Comcast Corp. v. Behrend. Both cases were argued on November 5, 2012, and each addresses critical questions affecting class action litigation.
Resolving “materiality” at the class certification stage in securities cases. A perennial problem with securities fraud cases is that few, if any, of a plaintiff’s allegations are truly tested before class certification opens the door to massive discovery, and so raises the stakes of the case that settlement is the only realistic option for a defendant. In Amgen Inc. v. Connecticut Retirement Plans and Trust Funds, the Supreme Court has taken on that issue by asking whether a class can be certified if misrepresentations alleged by the plaintiff are not “material.” The defendants in Amgen opposed class certification on materiality grounds because the matters allegedly misstated had been publicly disclosed by analysts and therefore did not significantly alter the mix of available information about the issuer. Because similar challenges based on public disclosures and the absence of any price effect can be raised in many securities fraud cases, Amgen promises to be a significant case.
At the center of the case is the rebuttable “presumption of reliance” that plaintiffs enjoy in securities fraud suits. That presumption is essential to any class action because it allows a plaintiff to avoid proving the individual reliance of each class member on the alleged misrepresentations. But the presumption is unavailable unless the suit involves a public and material misrepresentation about a security traded in an efficient market. Everyone agrees that, in order to obtain class certification, a plaintiff must show that the alleged misstatement was publicly made and concerned a security traded in an efficient market. The question in Amgen is whether materiality is a matter that should be considered at the class certification stage.
At oral argument, the Supreme Court was sharply divided over the materiality question. Some justices indicated that they believe materiality is different from other prerequisites to the presumption of reliance because materiality is an element of a securities fraud claim. Other justices suggested that they view materiality as being no different than any other prerequisite to the presumption of reliance. The core dispute is over whether the price of getting the advantage of presumed reliance should be the burden of proving materiality (alongside the other prerequisites), at the class certification stage, even if a failure to prove materiality would lead not just to a denial of class certification, but also to judgment for the defendant.
Resolving admissibility of expert testimony on class-wide damages at the class certification stage. At issue in Comcast Corp. v. Behrend, is “whether a district court may certify a class action without resolving whether the plaintiff class has introduced admissible evidence, including expert testimony, to show that the case is susceptible to awarding damages on a class-wide basis.”
That issue matters a great deal. Plaintiffs often make use of expert testimony at the class-certification stage in an effort to assure courts that damages calculations can readily be performed on a class-wide basis. In response, defendants often contend that—before a class may be certified—the district court must determine that expert testimony is admissible under Federal Rule of Evidence 702, as interpreted by Daubert v. Merrell Dow Pharmaceuticals, Inc.) and its progeny. Under Daubert, district judges must act as gatekeepers in assessing the reliability of the expert’s methodology and the application of that methodology to the facts of the case. In practice, however, many courts accept those assurances without conducting a Daubert inquiry, preferring to defer admissibility questions until trial. Yet trials of class actions are exceedingly rare, because an order certifying a class creates extraordinary pressure on defendants to settle rather than risk an adverse—potentially massive—jury verdict.
Unfortunately, the oral arguments in Comcast do not provide much fodder for (reliable) prediction. At least some justices questioned whether the defendant had raised an objection in the district court to the admissibility of the expert testimony at issue—noting that a failure to do so might mean that the issue presented to the court had been waived. Chief Justice Roberts suggested the possibility that the court could “answer the question and then send it back” for the lower courts “to determine whether or not the parties adequately preserved…that objection or not.”
If the court does reach the question presented—one that the court rewrote when it granted review—the oral arguments did not reveal a major clash between the parties’ positions: Both counsel for Comcast and counsel for the plaintiffs agreed that objections to the admissibility of expert testimony must be resolved at the class certification stage, although plaintiffs’ counsel argued in places for a weaker analysis in which the district court would conclude merely that it is “more likely than not, that the evidence that you will present to the jury at trial is going to be admissible.” Regardless of the parties’ positions, any decision by the court on the merits will likely have a significant impact on how businesses approach expert witness testimony at the class certification stage.
Decisions in Amgen and Comcast are expected by June of 2013.