FOR PUBLICATION
UNITED STATES COURT OF APPEALS
FOR THE NINTH CIRCUIT
CONNECTICUT RETIREMENT
PLANS AND TRUST FUNDS,
Plaintiff-Appellee, No. 09-56965
v.
D.C. No.
2:07-cv-02536-PSG
AMGEN INC.; KEVIN W. SHARER;
RICHARD D. NANULA; ROGER M. OPINION
PERLMUTTER; GEORGE W. MORROW,
Defendants-Appellants.
Appeal from the United States District Court
for the Central District of California
Philip S. Gutierrez, District Judge, Presiding
Argued and Submitted
October 14, 2011—Pasadena, California
Filed November 8, 2011
Before: Barry G. Silverman and Kim McLane Wardlaw,
Circuit Judges, and William K. Sessions III,*
District Judge.
Opinion by Judge Silverman
*The Honorable William K. Sessions III, United States District Judge
for the District of Vermont, sitting by designation.
20101
CONNECTICUT RETIREMENT PLANS v. AMGEN 20103
COUNSEL
Steven O. Kramer (argued), John P. Stigi III, John M. Landry,
and Jonathan D. Moss, Sheppard Mullin Richter & Hampton
LLP, Los Angeles, California, for the defendants-appellants.
J. Michael Hennigan (argued), McKool Smith Hennigan (Los
Angeles, California) and Jonathan M. Plasse, Christopher J.
McDonald, and Richard T. Joffe of Labaton Sucharow LLP,
New York, New York, for the plaintiff-appellee.
James J. Sabella and James R. Banko, Grant & Eisenhofer
P.A., New York, New York, for amici curiae California Pub-
lic Employees’ Retirement System and California State
Teacher’s Retirement System.
20104 CONNECTICUT RETIREMENT PLANS v. AMGEN
Ira D. Hammerman and Kevin M. Carroll of Securities Indus-
try and Financial Markets Association, Washington, DC,
Andrew N. Vollmer and Judith E. Coleman, Wilmer Cutler
Pickering Hale & Dorr LLP, Washington, DC, Robin S. Con-
rad and Amar D. Sarwal, National Chamber Litigation Center,
Inc., Washington, DC, and Melissa B. Kimmel, Pharmaceuti-
cal Research and Manufacturers of America, Washington,
DC, for amici curiae Securities Industry and Financial Mar-
kets Association, Chamber of Commerce of the United States
of America, and Pharmaceutical Research and Manufacturers
of America.
Daniel J. Popeo and Richard A. Samp, Washington Legal
Foundation, Washington, DC, for amicus curiae Washington
Legal Foundation.
OPINION
SILVERMAN, Circuit Judge:
To obtain class certification in a 10b-5 securities fraud
case, the plaintiff, as required by Federal Rule of Civil Proce-
dure 23(b)(3), must convince the district court that the ele-
ment of reliance is common to the class. The Supreme Court
has held that this can be done in an appropriate case by invok-
ing the “fraud-on-the-market” presumption — the principle
that the market price of a security traded in an efficient mar-
ket reflects all public information and therefore that a buyer
of the security is presumed to have relied on the truthfulness
of that information in purchasing the security. Were it not for
the fraud-on-the-market presumption, a plaintiff seeking class
certification would be required to show the impossible — reli-
ance by each individual prospective class member who
bought the stock.
What must a plaintiff do to invoke the fraud-on-the-market
presumption in aid of class certification? Today we join the
CONNECTICUT RETIREMENT PLANS v. AMGEN 20105
Third and Seventh Circuits in holding that the plaintiff must
(1) show that the security in question was traded in an effi-
cient market (a fact conceded here), and (2) show that the
alleged misrepresentations were public (a fact not contested
here). As for the element of materiality, the plaintiff must
plausibly allege — but need not prove at this juncture — that
the claimed misrepresentations were material. Proof of mate-
riality, like all other elements of a 10b-5 claim, is a merits
issue that abides the trial or motion for summary judgment.
Likewise, rebuttal of the fraud-on-the-market presumption, at
least by showing that the alleged misrepresentations were not
material, is a matter for trial or summary judgment, not a mat-
ter to be taken up in a class certification motion.
In this case, the plaintiff plausibly alleged that several of
the defendants’ public statements about Amgen’s pharmaceu-
tical products were false and material. Coupled with the con-
cession that Amgen’s stock traded in an efficient market, this
was sufficient to invoke the fraud-on-the-market presumption
of reliance. The district court did not abuse its discretion in
certifying the class.
I. Background
Connecticut Retirement Plans and Trust Funds brought this
securities fraud action against biotechnology company Amgen
Inc. and several of its officers, alleging that, by misstating and
failing to disclose safety information about two Amgen prod-
ucts used to treat anemia (a red blood cell deficiency), they
violated Sections 10(b) and 20(a) of the Securities Exchange
Act of 1934, 15 U.S.C. §§ 78j(b), 78t(a), and Rule 10b-5, 17
C.F.R. § 240.10b-5.
The complaint alleges four actionable misstatements. First,
Amgen supposedly downplayed the FDA’s safety concerns
about its products in advance of an FDA meeting with a group
of oncologists. Second, Amgen allegedly concealed details
about a clinical trial that was canceled over concerns that
20106 CONNECTICUT RETIREMENT PLANS v. AMGEN
Amgen’s product exacerbated tumor growth in a small num-
ber of patients. Third, Amgen purportedly exaggerated the on-
label (that is, for FDA-approved uses) safety of its products.
And fourth, Amgen allegedly misrepresented its marketing
practices, claiming that it promoted its products solely for on-
label uses when it in fact promoted significant off-label usage,
in violation of federal drug branding statutes.
Those alleged misstatements and omissions, according to
the complaint, inflated the price of Amgen’s stock when Con-
necticut Retirement purchased it. Later, corrective disclosures
allegedly caused Amgen’s stock price to fall, injuring Con-
necticut Retirement.
II. The District Court’s Class Certification Order
Connecticut Retirement moved in the district court to cer-
tify the action as a class action under Federal Rule of Civil
Procedure 23(b)(3) on behalf of all purchasers of Amgen
stock between the date of the alleged misstatements and omis-
sions and the date of the corrective disclosures. Rule 23(b)(3)
permits a party to maintain a class action if the Rule 23(a)
prerequisites are satisfied and “the court finds that the ques-
tions of law or fact common to class members predominate
over any questions affecting only individual members, and
that a class action is superior to other available methods for
fairly and efficiently adjudicating the controversy.” Fed. R.
Civ. P. 23(b)(3).
The district court found that the Rule 23(a) prerequisites
were satisfied and that common questions predominated. Of
the elements of a claim under Section 10(b) and Rule 10b-5,
the district court found that the following questions were
common to the class: whether Amgen made false statements,
whether those statements were material, whether those state-
ments were connected with the sale of securities, whether
those statements were intentionally false, and whether those
statements caused the class members’ losses. The district
CONNECTICUT RETIREMENT PLANS v. AMGEN 20107
court further found that although the class members’ losses
differed depending on when and how much they bought, the
losses would be simple to calculate.
The district court also ruled that the remaining element —
reliance — was common to the class because the class could
avail itself of the fraud-on-the-market presumption of reli-
ance. That doctrine, first approved by the Supreme Court in
Basic Inc. v. Levinson, 485 U.S. 224 (1988), rests on the effi-
cient capital market hypothesis: The price of a stock traded in
an efficient market fully reflects all publicly available infor-
mation about the company and its business. See 485 U.S. at
241-42, 244-45, 246-47. If the stock price did not reflect a
piece of publicly available information, the logic goes, then
investors would have a strong incentive to buy the stock (if
the information were positive) or sell it (if negative); in an
efficient market, that activity would drive the stock price up
or down until it fully reflected the information. Anyone who
buys stock at the prevailing market price is presumed to have
relied on that price — and, by extension, each piece of pub-
licly available information it reflects — as a measure of the
stock’s value, even if the investor never saw that information.
See id. at 247. Thus, the fraud-on-the-market presumption is
a way to prove reliance — a causal link from the defendant’s
misrepresentation, reflected in the prevailing market price, to
each class member’s decision to buy the stock. The presump-
tion, however, is rebuttable — for example, by showing that
the market was already aware of the truth behind the defen-
dant’s supposed falsehoods and thus that those falsehoods did
not affect the market price (the so-called “truth-on-the-
market” defense), or by showing that a particular plaintiff
would have bought the stock without relying on the integrity
of the market price. See Basic, 485 U.S. at 248-49.
The district court ruled that Connecticut Retirement suc-
cessfully invoked the fraud-on-the-market presumption by
showing that Amgen’s stock traded in an efficient market
(which Amgen conceded) and that the alleged misstatements
20108 CONNECTICUT RETIREMENT PLANS v. AMGEN
were public (which Amgen did not contest). The district court
further held that at the class certification stage, Connecticut
Retirement did not need to prove — but rather could merely
allege — that Amgen’s supposed falsehoods were material to
invoke the fraud-on-the-market presumption. Materiality
would, of course, have to be proven at trial.
Moreover, the district court declined to afford Amgen an
opportunity to rebut the presumption of reliance at the class
certification stage, holding again that rebuttal of the presump-
tion was a trial issue. Amgen’s proposed rebuttal consisted of
evidence purportedly showing that the truth behind each of
the supposed misstatements had already entered the market by
the time the misstatements were made. Amgen argued that the
misstatements therefore could not have affected Amgen’s
stock price, or, by extension, anyone relying on the integrity
of that stock price.
Having found that the Rule 23(a) prerequisites were satis-
fied and that common questions predominated, the district
court certified the action as a class action under Rule 23(b)(3).
III. Amgen’s Interlocutory Appeal
We granted Amgen’s Rule 23(f) request for permission to
appeal the district court’s class certification order. See Cham-
berlan v. Ford Motor Co., 402 F.3d 952, 959 (9th Cir. 2005).
We have jurisdiction under 28 U.S.C. § 1292(e).
IV. Analysis
A. Connecticut Retirement’s Motion to Vacate Grant of
Permission to Appeal
At the outset, Connecticut Retirement moves to vacate our
grant of permission to appeal the certification order, arguing
that the central issue in this appeal has been settled by three
cases decided since the district court certified the class:
CONNECTICUT RETIREMENT PLANS v. AMGEN 20109
United Steel, Paper & Forestry, Rubber, Manufacturing
Energy, Allied Industrial & Service Workers International
Union v. ConocoPhillips Co., 593 F.3d 802 (9th Cir. 2010),
Dukes v. Wal-Mart Stores, Inc., 603 F.3d 571 (9th Cir. 2010)
(en banc), rev’d, 131 S. Ct. 2541 (2011), and Miller v. Thane
International, Inc., 615 F.3d 1095 (9th Cir. 2010). But neither
United Steel Workers nor Dukes was a securities fraud case,
and thus neither had occasion to decide whether a securities
fraud plaintiff must prove materiality to avail herself of the
fraud-on-the-market presumption of reliance. See United
Steel, 593 F.3d at 804 (state law wage and hour claim);
Dukes, 131 S. Ct. at 2547 (sex discrimination claim). And
Miller had no occasion to decide the question either, because
that case was brought under a securities fraud statute that —
unlike Section 10(b) here — does not require the plaintiff to
show reliance. See Miller, 615 F.3d at 1102 n.2. Accordingly,
because the question remains unsettled, we deny Connecticut
Retirement’s motion.
B. Elements That Must Be Proved at the Class Certification
Stage to Invoke the Fraud-on-the-Market Presumption of
Reliance
We review a district court’s class certification order for
abuse of discretion, and any error of law on which a certifica-
tion order rests is deemed a per se abuse of discretion. See
United Steel, 593 F.3d at 807; Yokoyama v. Midland Nat’l
Life Ins. Co., 594 F.3d 1087, 1090-91 (9th Cir. 2010).
As the party seeking class certification, Connecticut Retire-
ment “bears the burden of demonstrating that the require-
ments of Rules 23(a) and (b) are met.” See United Steel, 593
F.3d at 807. And the district court facing a class certification
motion is required to conduct “a rigorous analysis” to ensure
that the Rule 23 requirements are satisfied. Gen. Tel. Co. of
Sw. v. Falcon, 457 U.S. 147, 161 (1982).
Amgen argues that Connecticut Retirement failed to carry
that burden because it did not prove that Amgen’s supposedly
20110 CONNECTICUT RETIREMENT PLANS v. AMGEN
false statements were material. If those misrepresentations
were immaterial, Amgen contends, they by definition would
not affect Amgen’s stock price in an efficient market, and
thus no buyer could claim to have been misled by an artifi-
cially inflated stock price. Thus, Amgen concludes, each indi-
vidual plaintiff would be left to prove reliance at trial
individually — making a class proceeding unwieldy.
The problem with that argument is that, because materiality
is an element of the merits of their securities fraud claim, the
plaintiffs cannot both fail to prove materiality yet still have a
viable claim for which they would need to prove reliance indi-
vidually. See Dura Pharm., Inc. v. Broudo, 544 U.S. 336, 341
(2005). If the misrepresentations turn out to be material, then
the fraud-on-the-market presumption makes the reliance issue
common to the class, and class treatment is appropriate. But
if the misrepresentations turn out to be immaterial, then every
plaintiff’s claim fails on the merits (materiality being a stand-
alone merits element), and there would be no need for a trial
on each plaintiff’s individual reliance. Either way, the plain-
tiffs’ claims stand or fall together — the critical question in
the Rule 23 inquiry. As the Supreme Court said in Dukes,
“[w]hat matters to class certification . . . is not the
raising of common ‘questions’ — even in droves —
but, rather the capacity of a classwide proceeding to
generate common answers apt to drive the resolution
of the litigation. Dissimilarities within the proposed
class are what have the potential to impede the gen-
eration of common answers.”
131 S. Ct. at 2551 (quoting Richard A. Nagareda, Class Certi-
fication in the Age of Aggregate Proof, 84 N.Y.U. L. Rev. 97,
132 (2009)).
By contrast, the elements of the fraud-on-the-market pre-
sumption — whether the securities market was efficient and
whether the defendant’s purported falsehoods were public —
CONNECTICUT RETIREMENT PLANS v. AMGEN 20111
are not elements of the merits of a securities fraud claim. See
Dura Pharm., 544 U.S. at 341-42. Thus, if the plaintiffs failed
to prove those elements, they could not use the fraud-on-the-
market presumption, but their claims would not be dead on
arrival; they could seek to prove reliance individually. That
scenario, however, would be inappropriate for a class pro-
ceeding. Accordingly, the district court was correct to require
Connecticut Retirement to prove at the class certification
stage that the market for Amgen’s stock was efficient and that
Amgen’s supposed misstatements were public. (Because
those elements were uncontested, we need not decide the
applicable standard of proof for proving those elements at the
class certification stage.)
[1] The Seventh Circuit, recently faced with this same
issue, held that proving materiality is not a precondition to
invoking the fraud-on-the-market presumption at the class
certification stage:
Defendants say that, before certifying a class, a court
must determine whether false statements materially
affected the price. But whether statements were
false, or whether the effects were large enough to be
called material, are questions on the merits.
Although we concluded in [a prior case] that a court
may take a peek at the merits before certifying a
class, [we] insisted that this peek be limited to those
aspects of the merits that affect the decisions essen-
tial under Rule 23. If something about “the merits”
also shows that individual questions predominate
over common ones, then certification may be inap-
propriate. Falsehood and materiality affect investors
alike, however. It is possible to certify a class under
Rule 23(b)(3) even though all statements turn out to
have only trivial effects on stock prices. Certification
is appropriate, but the class will lose on the merits.
Schleicher v. Wendt, 618 F.3d 679, 685 (7th Cir. 2010). The
Third Circuit agrees. See In re DVI, Inc. Sec. Litig., 639 F.3d
20112 CONNECTICUT RETIREMENT PLANS v. AMGEN
623, 631 (3d Cir. 2011) (“To invoke the fraud-on-the-market
presumption of reliance, plaintiffs must show they traded
shares in an efficient market, and the misrepresentation at
issue became public.”) (citations omitted).
The three circuits that require a plaintiff to prove material-
ity at the class certification stage do so on the apparent ratio-
nale that a footnote in Basic Inc. v. Levinson, 485 U.S. 224
(1988), compels it. See id. at 248 n.27 (“The Court of Appeals
held that in order to invoke the presumption, a plaintiff must
allege and prove . . . that the misrepresentations were material
. . . .”); see also In re Salomon Analyst Metromedia Litig., 544
F.3d 474, 481 (2d Cir. 2008) (“The Basic Court thereby set
forth a test of general applicability that where a defendant has
(1) publicly made (2) a material misrepresentation (3) about
stock traded on an impersonal, well-developed (i.e., efficient)
market, investors’ reliance on those misrepresentations may
be presumed.”) (citing Basic, 485 U.S. at 248 n.27); Oscar
Private Equity Invs. v. Allegiance Telecom, Inc., 487 F.3d
261, 264 (5th Cir. 2007) (“The Supreme Court in Basic
adopted this presumption of reliance . . . . Reliance is pre-
sumed if the plaintiffs can show that ‘(1) the defendant made
public material misrepresentations . . . .’ ”) (citation omitted),
abrogated on other grounds by Erica P. John Fund, 131
S. Ct. at 2183, 2186; In re PolyMedica Corp. Sec. Litig., 432
F.3d 1, 8 n.11 (1st Cir. 2005) (noting in a dictum that to
invoke fraud-on-the-market presumption at class certification
stage, plaintiff must prove materiality) (quoting Basic, 485
U.S. at 248 n.27).
But as the Seventh Circuit pointed out, those circuits mis-
read the Basic footnote: “All note 27 [in Basic] does . . . is
state that the court of appeals deemed materiality essential;
the Justices did not adopt it as a precondition to class certifi-
cation.” See Schleicher, 618 F.3d at 687; see also Basic, 485
U.S. at 248 n.27. That reading of Basic also enjoys support
from the Supreme Court’s more recent formulations of the
presumption in Erica P. John Fund and Dukes, which require
CONNECTICUT RETIREMENT PLANS v. AMGEN 20113
the plaintiff to show that the stock was traded in an efficient
market but do not mention materiality as a requirement. See
Erica P. John Fund v. Halliburton, 131 S. Ct. 2179, 2185
(2011); Dukes, 131 S. Ct. at 2552 n.6.
[2] Moreover, two Ninth Circuit cases have mentioned
materiality as an element of the presumption, but neither
squarely held that a plaintiff must prove materiality at the
class certification stage. See Binder v. Gillespie, 184 F.3d
1059, 1064 (9th Cir. 1999) (noting that “the presumption of
reliance is available only when a plaintiff alleges that a defen-
dant made material misrepresentations or omissions concern-
ing a security that is actively traded in an ‘efficient market,’ ”
but holding that presumption did not apply because market
was not efficient); Blackie v. Barrack, 524 F.2d 891, 900-01
& n.17, 905-08 (9th Cir. 1975) (holding, in pre-Basic case,
that complaint’s allegation of materiality sufficed to trigger
presumption).
[3] In sum, because proof of materiality is not necessary to
ensure that the question of reliance is common among all pro-
spective class members’ securities fraud claims, we hold that
plaintiffs need not prove materiality to avail themselves of the
fraud-on-the-market presumption of reliance at the class certi-
fication stage. They need only allege materiality with suffi-
cient plausibility to withstand a 12(b)(6) motion. See Ashcroft
v. Iqbal, 129 S. Ct. 1937, 1949-50 (2009).
C. Opportunity to Rebut the Presumption at the Class
Certification Stage
Amgen also argues that the district court erred by not
affording it an opportunity to rebut the fraud-on-the-market
presumption at the class certification stage. Specifically,
Amgen sought to introduce evidence that FDA announce-
ments and analyst reports about Amgen’s business publicized
the truth about the safety issues looming over Amgen’s drugs,
and thus that Amgen’s alleged misrepresentations could not
20114 CONNECTICUT RETIREMENT PLANS v. AMGEN
have affected the stock price — the so-called “truth-on-the-
market” defense. See, e.g., Basic, 485 U.S. at 248-49 (“[I]f,
despite [defendants’] allegedly fraudulent attempt to manipu-
late market price, [the truth] credibly entered the market and
dissipated the effects of the misstatements, those who traded
. . . after the corrective statements would have no direct or
indirect connection with the fraud.”).
[4] But as the Supreme Court and Ninth Circuit have
explained, the truth-on-the-market defense is a method of
refuting an alleged misrepresentation’s materiality. See, e.g.,
Va. Bankshares, Inc. v. Sandberg, 501 U.S. 1083, 1097-98
(1991); Provenz v. Miller, 102 F.3d 1478, 1492 (9th Cir.
1996). As explained above, a plaintiff need not prove materi-
ality at the class certification stage to invoke the presumption;
materiality is a merits issue to be reached at trial or by sum-
mary judgment motion if the facts are uncontested. The only
elements a plaintiff must prove at the class certification stage
are whether the market for the stock was efficient and whether
the alleged misrepresentations were public — issues that
Amgen does not contest here.
[5] Thus, the district court correctly refused to consider
Amgen’s truth-on-the-market defense at the class certification
stage.
AFFIRMED.