Supreme Court justices on Monday differed on how much and when investors must prove material harm in class-action lawsuits as they heard arguments in a lawsuit led by the $24.3 billion Connecticut Retirement Plans & Trust Funds, Hartford, against Amgen Inc.
A ruling in the lawsuit in favor of Amgen has the potential to make such stock-loss suits more difficult and costly to initiate because it would require more proof of harm from the beginning stage, when investor classes are determined.
During questioning, several justices suggested 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. In most cases, it is simply a preliminary to a settlement.”
The pension fund is 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.
After being rebuffed by federal district and appellate courts in California in its challenge to the class certification, Amgen petitioned the Supreme Court to decide whether a class plaintiff has to prove that alleged misstatements had material impact on the stock price. Amgen also wants to be able to rebut evidence at the class-certification stage.
Requiring more proof at the certification stage would be “front-loading,” argued David C. Frederick, a partner in law firm Kellogg, Huber, Hansen, Todd, Evans & Figel which argued before the Supreme Court on behalf of the investors. ”You are having a mini-trial on the merits of the case.”
Numerous amicus briefs have been filed on behalf of both parties, including the $245.3 billion California Public Employees' Retirement System, Sacramento, and the $152.5 billion California State Teachers' Retirement System, West Sacramento, in support of the investor class. Amgen is supported by the U.S. Chamber of Commerce and other groups concerned about the ease of filing class-action lawsuits.
A Supreme Court decision is expected in late spring, after which the case will go back to district court for further discovery.