The U.S. Supreme Court recently heard oral argument in Amgen v. Conn. Retirement Systems, U.S. Supreme Court No. 11-1085. In Amgen, shareholders led by Connecticut Retirement Plans allege that Amgen Inc. artificially inflated the market price for Amgen stock by making misrepresentations regarding the safety of two Amgen pharmaceutical products. 

Shareholders sought class certification based on the “fraud on the market” theory endorsed by the Supreme Court in Basic Inc. v. Levinson, 485 U.S. 224 (1988). Amgen responded arguing that the representations were not material, had no impact on the stock price, and that the safety concerns at issue entered the market anyway via publicly available FDA and analyst reports.

The issues to be decided by the Court are:

  1. Whether, in a misrepresentation case under SEC Rule 10b-5, the district court must require proof of materiality before certifying a plaintiff class based on the “fraud on the market” theory; and
  2. Whether, in such a case, the district court must allow the defendant to present evidence rebutting the applicability of the “fraud on the market” theory before certifying a plaintiff class based on that theory.

Reuters reports that at the oral argument, Justice Scalia told the shareholders' counsel there is "good reason" to decide the question of materiality before a class is certified. "The reason is the enormous pressure to settle once the class is certified," he said. "In most cases, that's the end of the lawsuit."

On the other hand, NASDAQ reports that Justice Kagan appeared to side against proving materiality at the certification stage. To do so, Justice Kagan noted, would make the certification stage a "super-merits inquiry."

For more, read the full transcript of the argument. We will continue to follow Amgen as it moves toward final disposition in the Court.