By: Mark Casciari and Barbara Borowski

The answer is — more than you might think.

On February 27, the Supreme Court issued two securities law decisions.  In Amgen v. Connecticut Retirement Plan and Trust Funds, No. 11-1085 (February 27, 2013), the Supreme Court, 6-3, affirmed the Ninth Circuit’s decision in a Rule 10b-5 fraud-on-the-market misrepresentation case that proof of materiality is not a prerequisite to certify a securities fraud class action seeking money damages.  Resolving a split in the circuits, the Supreme Court held that plaintiffs need not prove materiality as a condition to class certification.  We note that the only issue before the Court was whether “questions of law or fact common to the class members predominate over any questions affecting only individual members.”  The Court found: “While Connecticut Retirement must prove materiality to prevail on the merits, we hold that such proof is not a prerequisite to class certification.  Rule 23(b)(3) requires a showing that questions common to the class predominate, not that those questions will be answered, on the merits, in favor of the class.”  The Court found that Rule 23(b)(3) was met because:

  • Materiality is judged according to an objective standard and, therefore, presents a question common to all members of the class;
  • The alleged misrepresentations, whether material or immaterial, apply equally to all investor class members; and
  • Failure to prove materiality at trial would end the case for all class members.

The Supreme Court rejected Amgen’s policy arguments that (1) granting certification could exert substantial pressure on a defendant to settle, and (2) requiring proof of materiality before class certification would conserve judicial resources.  The Court rejected the first argument because Congress has addressed the settlement pressures associated with securities fraud class actions in the Private Securities Litigation Reform Act of 1995.  The Court rejected the second argument because requiring proof of materiality at the class certification stage would necessitate a mini-trial and certification would require a second trial on the merits.  The Court also said that denying certification after a mini-trial for failure to prove materiality would not end litigation because nonnamed class members would not be bound by the certification denial.

The ERISA tie-in?  After CIGNA Corp. v. Amara, 131 S. Ct. 1866 (2011), it remains unclear whether the “actual harm” element of a fiduciary breach turns on individual reliance.  If not, certification will be easier to accomplish, putting in play the settlement value and judicial economy consequences noted in Amgen.

In the second case, Gabelli v. SEC, No. 11-1274 (February 27, 2013), the Supreme Court held, 9-0, that the language in the Investment Advisors Act requiring the SEC to sue “within five years from the date when the claim first accrued” is a statute of repose and that the “discovery” rule on limitations does not apply to a Government plaintiff who asserts a claim sounding in fraud.  The decision contains good language on when a claim accrues for limitations purposes — “when it comes into existence” — and on the value of a statute of repose in ending stale controversies.

The ERISA tie-in?  Gabelli can be used as general authority to support arguments that start ERISA claim accruals at early dates, and to support the ERISA Section 413(1)(a) fiduciary breach claim statute of repose.  To be sure, Gebelli is only general authority involving a Government plaintiff, and Section 413 has a fraud or concealment exception to its statute of repose, but it does provide sound policy support for early accrual dates and for statutes of repose.