Sentenza

AMGEN INC. ET AL. v. CONNECTICUT RETIREMENT PLANS AND TRUST FUNDS CERTIORARI TO THE UNITED STATES COURT OF APPEALS FOR THE NINTH CIRCUIT

SUPREME COURT OF THE UNITED STATES
AMGEN INC. ET AL. v. CONNECTICUT RETIREMENT PLANS AND TRUST FUNDS
CERTIORARI TO THE UNITED STATES COURT OF APPEALS FOR THE NINTH CIRCUIT
No. 11–1085. Argued November 5, 2012—Decided February 27, 2013
To recover damages in a private securities-fraud action under §10(b) ofthe Securities Exchange Act of 1934 and Securities and ExchangeCommission Rule 10b–5, a plaintiff must prove, among other things, reliance on a material misrepresentation or omission made by the defendant. Matrixx Initiatives, Inc. v. Siracusano, 563 U. S. ___, ___. Requiring proof of direct reliance “would place an unnecessarily unrealistic evidentiary burden on [a] plaintiff who has traded on an impersonal market.” Basic Inc. v. Levinson, 485 U. S. 224, 245. Thus, this Court has endorsed a “fraud-on-the-market” theory, which permits securities-fraud plaintiffs to invoke a rebuttable presumption ofreliance on public, material misrepresentations regarding securities traded in an efficient market. Id., at 241–249. The fraud-on-themarket theory facilitates the certification of securities-fraud class actions by permitting reliance to be proved on a classwide basis. Invoking the fraud-on-the-market theory, respondent Connecticut Retirement Plans and Trust Funds (Connecticut Retirement) soughtcertification of a securities-fraud class action under Federal Rule of Civil Procedure 23(b)(3) against biotechnology company Amgen Inc.and several of its officers (collectively, Amgen). The District Court certified the class, and the Ninth Circuit affirmed. The Ninth Circuit rejected Amgen's argument that Connecticut Retirement was required to prove the materiality of Amgen's alleged misrepresentations and omissions before class certification in order to satisfy Rule23(b)(3)'s requirement that “questions of law or fact common to classmembers predominate over any questions affecting only individual members.” The Ninth Circuit also held that the District Court did not err in refusing to consider rebuttal evidence that Amgen had pre2
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sented on the issue of materiality at the class-certification stage. Held: Proof of materiality is not a prerequisite to certification of a securities-fraud class action seeking money damages for alleged violationsof §10(b) and Rule 10b–5. Pp. 9–26.
(a) The pivotal inquiry in this case is whether proof of materialityis needed to ensure that the questions of law or fact common to theclass will “predominate over any questions affecting only individualmembers” as the litigation progresses. For two reasons, the answer to this question is “no.” First, because materiality is judged according to an objective standard, it can be proved through evidence common to the class. TSC Industries, Inc. v. Northway, Inc., 426 U. S. 438, 445. Thus, it is a common question for Rule 23(b)(3) purposes.Second, a failure of proof on the common question of materialitywould not result in individual questions predominating. Instead, it would end the case, for materiality is an essential element of a securities-fraud claim. Pp. 9–14.
(b) Amgen's arguments to the contrary are unpersuasive. Pp. 14– 24.
(1)
Amgen points to the Court's statement in Erica P. John Fund, Inc. v. Halliburton Co., 563 U. S. ___, ___, that “securities fraud plaintiffs must prove certain things in order to invoke Basic's rebuttable presumption of reliance,” including “that the alleged misrepresentations were publicly known . . . , that the stock traded in anefficient market, and that the relevant transaction took place ‘between the time the misrepresentations were made and the time the truth was revealed.' ” If these fraud-on-the-market predicates must be proved before class certification, Amgen contends, materiality—another fraud-on-the-market predicate—should be treated no differently. The Court disagrees. The requirement that a putative classrepresentative establish that it executed trades “between the timethe misrepresentations were made and the time the truth was revealed” relates primarily to the Rule 23(a)(3) and (a)(4) inquiries intotypicality and adequacy of representation, not to the Rule 23(b)(3)predominance inquiry. And unlike materiality, market efficiency and the public nature of the alleged misrepresentations are not indispensable elements of a Rule 10–5 claim. While the failure of common, classwide proof of market efficiency or publicity leaves open the prospect of individualized proof of reliance, the failure of common proof on the issue of materiality ends the case for all class members.Pp. 15–18.
(2)
Amgen also contends that “policy considerations” militate infavor of requiring precertification proof of materiality. Because class certification can exert substantial pressure on the defendant to settlerather than risk ruinous liability, Amgen asserts, materiality may
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never be addressed by a court if it is not required to be evaluated atthe class-certification stage. In this regard, however, materialitydoes not differ from other essential elements of a Rule 10b–5 claim, notably, the requirements that the statements or omissions on which the plaintiff 's claims are based were false or misleading and that thealleged statements or omissions caused the plaintiff to suffer economic loss. Significantly, while addressing the settlement pressures associated with securities-fraud class actions, Congress has rejectedcalls to undo the fraud-on-the-market theory. And contrary to Amgen's argument that requiring proof of materiality before classcertification would conserve judicial resources, Amgen's positionwould necessitate time and resource intensive mini-trials on materiality at the class-certification stage. Pp. 18–22.
(c) Also unavailing is Amgen's claim that the District Court erredby refusing to consider the rebuttal evidence Amgen proffered in opposing Connecticut Retirement's class-certification motion. The Ninth Circuit concluded, and Amgen does not contest, that Amgen's rebuttal evidence aimed to prove that the misrepresentations andomissions alleged in Connecticut Retirement's complaint were immaterial. The potential immateriality of Amgen's alleged misrepresentations and omissions, however, is no barrier to finding that commonquestions predominate. Just as a plaintiff class's inability to provemateriality creates no risk that individual questions will predominate, a definitive rebuttal on the issue of materiality would not undermine the predominance of questions common to the class. Pp. 24–
26. 660 F. 3d 1170, affirmed.
GINSBURG, J., delivered the opinion of the Court, in which ROBERTS,
C. J., and BREYER, ALITO, SOTOMAYOR, and KAGAN, JJ., joined. ALITO, J., filed a concurring opinion. SCALIA, J., filed a dissenting opinion. THOMAS, J., filed a dissenting opinion, in which KENNEDY, J., joined, and in which SCALIA, J., joined except for Part I–B.
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Opinion of the Court
NOTICE: This opinion is subject to formal revision before publication in thepreliminary print of the United States Reports. Readers are requested tonotify the Reporter of Decisions, Supreme Court of the United States, Washington, D. C. 20543, of any typographical or other formal errors, in orderthat corrections may be made before the preliminary print goes to press.
SUPREME COURT OF THE UNITED STATES
No. 11–1085
AMGEN INC., ET AL., PETITIONERS v. CONNECTICUT RETIREMENT PLANS AND TRUST FUNDS
ON WRIT OF CERTIORARI TO THE UNITED STATES COURT OF
APPEALS FOR THE NINTH CIRCUIT
[February 27, 2013]
JUSTICE GINSBURG delivered the opinion of the Court.
This case involves a securities-fraud complaint filed by Connecticut Retirement Plans and Trust Funds (Connecticut Retirement) against biotechnology company Amgen Inc. and several of its officers (collectively, Amgen). Seeking class-action certification under Federal Rule ofCivil Procedure 23, Connecticut Retirement invoked the “fraud-on-the-market” presumption endorsed by this Courtin Basic Inc. v. Levinson, 485 U. S. 224 (1988), and recog- nized most recently in Erica P. John Fund, Inc. v. Halliburton Co., 563 U. S. ___ (2011). The fraud-on-the-market premise is that the price of a security traded in an efficientmarket will reflect all publicly available information about a company; accordingly, a buyer of the security may bepresumed to have relied on that information in purchasing the security.
Amgen has conceded the efficiency of the market for the securities at issue and has not contested the publiccharacter of the allegedly fraudulent statements on which Connecticut Retirement's complaint is based. Nor does Amgen here dispute that Connecticut Retirement meets
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all of the class-action prerequisites stated in Rule 23(a):
(1) the alleged class “is so numerous that joinder of allmembers is impracticable”; (2) “there are questions of law or fact common to the class”; (3) Connecticut Retirement's claims are “typical of the claims . . . of the class”; and (4)Connecticut Retirement will “fairly and adequately protect the interests of the class.”
The issue presented concerns the requirement stated in Rule 23(b)(3) that “the questions of law or fact common toclass members predominate over any questions affecting only individual members.” Amgen contends that to meet the predominance requirement, Connecticut Retirementmust do more than plausibly plead that Amgen's alleged misrepresentations and misleading omissions materially affected Amgen's stock price. According to Amgen, certification must be denied unless Connecticut Retirement proves materiality, for immaterial misrepresentations or omissions, by definition, would have no impact on Amgen'sstock price in an efficient market.
While Connecticut Retirement certainly must provemateriality to prevail on the merits, we hold that suchproof 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. Because materiality is judged according to an objective standard, the materiality of Amgen's alleged misrepresentations and omissions is a question common to all members of theclass Connecticut Retirement would represent. The alleged misrepresentations and omissions, whether material or immaterial, would be so equally for all investors composing the class. As vital, the plaintiff class's inability to prove materiality would not result in individual questionspredominating. Instead, a failure of proof on the issueof materiality would end the case, given that materiality is an essential element of the class members' securities3
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fraud claims. As to materiality, therefore, the class isentirely cohesive: It will prevail or fail in unison. In no event will the individual circumstances of particular classmembers bear on the inquiry.
Essentially, Amgen, also the dissenters from today'sdecision, would have us put the cart before the horse. To gain certification under Rule 23(b)(3), Amgen and thedissenters urge, Connecticut Retirement must first establish that it will win the fray. But the office of a Rule 23(b)(3) certification ruling is not to adjudicate the case; rather, it is to select the “metho[d]” best suited to adjudication of the controversy “fairly and efficiently.”
I
A
This case involves the interaction between federal securities-fraud laws and Rule 23's requirements forclass certification. To obtain certification of a class ac- tion for money damages under Rule 23(b)(3), a plaintiffmust satisfy Rule 23(a)'s above-mentioned prerequisites of numerosity, commonality, typicality, and adequacy of representation, see supra, at 1–2, and must also establish that “the questions 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.” To recover damages in a privatesecurities-fraud action under §10(b) of the SecuritiesExchange Act of 1934, 48 Stat. 891, as amended, 15
U. S. C. §78j(b) (2006 ed., Supp. V), and Securities and Exchange Commission Rule 10b–5, 17 CFR §240.10b–5(2011), a plaintiff must prove “(1) a material misrepresentation or omission by the defendant; (2) scienter; (3) a connection between the misrepresentation or omission and the purchase or sale of a security; (4) reliance upon the misrepresentation or omission; (5) economic loss; and (6)
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loss causation.” Matrixx Initiatives, Inc. v. Siracusano, 563 U. S. ___, ___ (2011) (slip op., at 9) (internal quotation marks omitted).
“Reliance,” we have explained, “is an essential element of the §10(b) private cause of action” because “proof of reliance ensures that there is a proper connection between a defendant's misrepresentation and a plaintiff 's injury.” Halliburton, 563 U. S., at ___ (slip op., at 4) (internal quotation marks omitted). “The traditional (and mostdirect) way” for a plaintiff to demonstrate reliance “is byshowing that he was aware of a company's statement andengaged in a relevant transaction . . . based on that specificmisrepresentation.” Ibid. We have recognized, however,that requiring proof of direct reliance “would place anunnecessarily unrealistic evidentiary burden on [a] plaintiff who has traded on an impersonal market.” Basic, 485
U. S., at 245. Accordingly, in Basic the Court endorsed the “fraud-on-the-market” theory, which permits certain Rule 10b–5 plaintiffs to invoke a rebuttable presumption of reliance on material misrepresentations aired to the general public. Id., at 241–249.1
The fraud-on-the-market theory rests on the premise that certain well developed markets are efficient processors of public information. In such markets, the “market price of shares” will “reflec[t] all publicly available information.” Id., at 246. Few investors in such markets, if any, can consistently achieve above-market returns by trading based on publicly available information alone, for if such above-market returns were readily attainable, it
—————— 1Part IV of Justice Blackmun's opinion in Basic—the part endorsing the fraud-on-the-market theory—was joined by Justices Brennan, Marshall, and Stevens. Together, these Justices composed a majorityof the quorum of six Justices who participated in the case. See 28
U. S. C. §1 (“The Supreme Court of the United States shall consist of aChief Justice of the United States and eight associate justices, any sixof whom shall constitute a quorum.”).
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would mean that market prices were not efficiently incorporating the full supply of public information. See R. Brealey, S. Myers, & F. Allen, Principles of Corporate Finance 330 (10th ed. 2011) (“[I]n an efficient market,there is no way for most investors to achieve consistently superior rates of return.”).
In Basic, we held that if a market is shown to be efficient, courts may presume that investors who tradedsecurities in that market relied on public, material misrepresentations regarding those securities. See 485 U. S., at 245–247. This presumption springs from the very concept of market efficiency. If a market is generallyefficient in incorporating publicly available informationinto a security's market price, it is reasonable to presumethat a particular public, material misrepresentation will be reflected in the security's price. Furthermore, it is reasonable to presume that most investors—knowing thatthey have little hope of outperforming the market in the long run based solely on their analysis of publicly available information—will rely on the security's market price asan unbiased assessment of the security's value in light of all public information. Thus, courts may presume thatinvestors trading in efficient markets indirectly rely on public, material misrepresentations through their “reliance on the integrity of the price set by the market.” Id., at 245. “[T]he presumption,” however, is “just that, and [can] be rebutted by appropriate evidence.” Halliburton, 563 U. S., at ___ (slip op., at 5). See also Basic, 485 U. S., at 248–249 (providing examples of showings that would rebut the fraud-on-the-market presumption).
Although fraud on the market is a substantive doctrineof federal securities-fraud law that can be invoked by any Rule 10b–5 plaintiff, see, e.g., Black v. Finantra Capital, Inc., 418 F. 3d 203, 209 (CA2 2005); Blackie v. Barrack, 524 F. 2d 891, 908 (CA9 1975), the doctrine has particularsignificance in securities-fraud class actions. Absent the
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fraud-on-the-market theory, the requirement that Rule 10b–5 plaintiffs establish reliance would ordinarily preclude certification of a class action seeking money dam- ages because individual reliance issues would overwhelmquestions common to the class. See Basic, 485 U. S., at
242. The fraud-on-the-market theory, however, facilitates class certification by recognizing a rebuttable presumption of classwide reliance on public, material misrepresentations when shares are traded in an efficient market. Ibid.2
B In its complaint, Connecticut Retirement alleges thatAmgen violated §10(b) and Rule 10b–5 through certainmisrepresentations and misleading omissions regarding the safety, efficacy, and marketing of two of its flagshipdrugs.3 According to Connecticut Retirement, these misrepresentations and omissions artificially inflated theprice of Amgen's stock at the time Connecticut Retirement and numerous other securities buyers purchased thestock. When the truth came to light, Connecticut Retirement asserts, Amgen's stock price declined, resulting in financial losses to those who purchased the stock at the inflated price. In its answer to Connecticut Retirement's complaint, Amgen conceded that “[a]t all relevant times, the market for [its] securities,” which are traded on theNASDAQ stock exchange, “was an efficient market”; thus, “the market for Amgen's securities promptly digested current information regarding Amgen from all publicly
—————— 2Although describing Basic's adoption of the fraud-on-the-market presumption of reliance as “questionable,” JUSTICE THOMAS' dissent acknowledges that “the Court has not been asked to revisit” that issue. Post, at 4–5, n. 4. See also post, p. 1 (ALITO, J., concurring). 3Amgen's allegedly improper marketing practices have sparked federal and state investigations and several whistleblower lawsuits. See Dye, Amgen to pay $762 million in drug-marketing case, Washington Post, Dec. 19, 2012, p. A17.
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available sources and reflected such information in Amgen's stock price.” Consolidated Amended Class ActionComplaint ¶¶199–200 in No. CV–07–2536 (CD Cal.); Answer ¶¶199–200.
The District Court granted Connecticut Retirement'smotion to certify a class action under Rule 23(b)(3) on behalf of all investors who purchased Amgen stock between the date of the first alleged misrepresentation and the date of the last alleged corrective disclosure. After granting Amgen's request to take an interlocutory appeal from the District Court's class-certification order, see Fed. Rule Civ. Proc. 23(f), the Court of Appeals affirmed. See 660 F. 3d 1170 (CA9 2011).
Amgen raised two arguments on appeal. First, Amgencontended that the District Court erred by certifying theproposed class without first requiring Connecticut Retirement to prove that Amgen's alleged misrepresentationsand omissions were material. Second, Amgen argued thatthe District Court erred by refusing to consider certainrebuttal evidence that Amgen had proffered in oppositionto Connecticut Retirement's class-certification motion. This evidence, in Amgen's view, demonstrated that the market was well aware of the truth regarding its alleged misrepresentations and omissions at the time the classmembers purchased their shares.
The Court of Appeals rejected both contentions. Amgen's first argument, the Court of Appeals noted, madethe uncontroversial point that immaterial misrepresentations and omissions “by definition [do] not affect . . . stock price[s] in an efficient market.” Id., at 1175. Thus, where misrepresentations and omissions are not material, there is no basis for presuming classwide reliance onthose misrepresentations and omissions through the information-processing mechanism of the market price.“The problem with that argument,” the Court of Appeals observed, is evident: “[B]ecause materiality is an element of
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the merits of their securities fraud claim, the plaintiffs cannot both fail to prove materiality yet still have a viableclaim for which they would need to prove reliance individually.” Ibid. The Court of Appeals thus concluded that“proof of materiality is not necessary” to ensure compliance with Rule 23(b)(3)'s requirement that common questions predominate. Id., at 1177.
With respect to Amgen's second argument, the Court ofAppeals determined that Amgen's proffered rebuttal evidence was merely “a method of refuting [the] materi- ality” of the misrepresentations and omissions alleged in Connecticut Retirement's complaint. Ibid. Having al- ready concluded that a securities-fraud plaintiff does not need to prove materiality before class certification, thecourt similarly held that “the district court correctly refused to consider” Amgen's rebuttal evidence “at the class certification stage.” Ibid.
We granted Amgen's petition for certiorari, 567 U. S. ___(2012), to resolve a conflict among the Courts of Appealsover whether district courts must require plaintiffs toprove, and must allow defendants to present evidencerebutting, the element of materiality before certifying aclass action under §10(b) and Rule 10b–5. Compare 660
F. 3d 1170 (case below); and Schleicher v. Wendt, 618 F. 3d 679, 687 (CA7 2010) (materiality need not be proved at theclass-certification stage), with In re Salomon Analyst Metromedia Litigation, 544 F. 3d 474, 484–485, 486, n. 9 (CA2 2008) (plaintiff must prove, and defendant maypresent evidence rebutting, materiality before class certification). See also In re DVI, Inc. Securities Litigation, 639
F. 3d 623, 631–632, 637–638 (CA3 2011) (plaintiff need not prove materiality before class certification, but defendant may present rebuttal evidence on the issue).
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II
A
The only issue before us in this case is whether Connecticut Retirement has satisfied Rule 23(b)(3)'s requirement that “questions of law or fact common to class memberspredominate over any questions affecting only individual members.” Although we have cautioned that a court'sclass-certification analysis must be “rigorous” and may“entail some overlap with the merits of the plaintiff 's underlying claim,” Wal-Mart Stores, Inc. v. Dukes, 564
U. S. ___, ___ (2011) (slip op., at 10) (internal quotation marks omitted), Rule 23 grants courts no license to engage in free-ranging merits inquiries at the certification stage.Merits questions may be considered to the extent—but only to the extent—that they are relevant to determiningwhether the Rule 23 prerequisites for class certificationare satisfied. See id., at ___, n. 6 (slip op., at 10, n. 6) (a district court has no “‘authority to conduct a preliminaryinquiry into the merits of a suit'” at class certification unless it is necessary “to determine the propriety of certification” (quoting Eisen v. Carlisle & Jacquelin, 417 U. S. 156, 177 (1974))); Advisory Committee's 2003 Note onsubd. (c)(1) of Fed. Rule Civ. Proc. 23, 28 U. S. C. App.,
p. 144 (“[A]n evaluation of the probable outcome on the merits is not properly part of the certification decision.”).
Bearing firmly in mind that the focus of Rule 23(b)(3) is on the predominance of common questions, we turn to Amgen's contention that the courts below erred by failing to require Connecticut Retirement to prove the materiality of Amgen's alleged misrepresentations and omissions before certifying Connecticut Retirement's proposed class. As Amgen notes, materiality is not only an element of the Rule 10b–5 cause of action; it is also an essential predicateof the fraud-on-the-market theory. See Basic, 485 U. S., at 247 (“[W]here materially misleading statements have been disseminated into an impersonal, well-developed market
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for securities, the reliance of individual plaintiffs on theintegrity of the market price may be presumed.” (emphasis added)). That theory, Amgen correctly observes, is premised on the understanding that in an efficient market, all publicly available information is rapidly incorporated into, and thus transmitted to investors through, the market price. See id., at 246–247. Because immaterial in- formation, by definition, does not affect market price,it cannot be relied upon indirectly by investors who, asthe fraud-on-the-market theory presumes, rely on the market price's integrity. Therefore, the fraud-on-the-market theory cannot apply absent a material misrepresentationor omission. And without the fraud-on-the-market theory, the element of reliance cannot be proved on a classwidebasis through evidence common to the class. See id., at
242. It thus follows, Amgen contends, that materiality must be proved before a securities-fraud class action canbe certified.
Contrary to Amgen's argument, the key question in this case is not whether materiality is an essential predicate of the fraud-on-the-market theory; indisputably it is.4 Instead, the pivotal inquiry is whether proof of materiality is needed to ensure that the questions of law or fact common to the class will “predominate over any questions affectingonly individual members” as the litigation progresses. Fed. Rule Civ. Proc. 23(b)(3). For two reasons, the answer to this question is clearly “no.”
—————— 4We agree with JUSTICE THOMAS that “[m]ateriality was central to the development, analysis, and adoption of the fraud-on-the-market theory both before Basic and in Basic itself.” Post, at 18. We disagree,however, that the history of the fraud-on-the-market theory's development “confirms that materiality must be proved at the time that the theory is invoked—i.e., at certification.” Ibid. As explained below, see infra this page and 11–13, proof of materiality is not required prior toclass certification because such proof is not necessary to ensure satisfaction of Rule 23(b)(3)'s predominance requirement.
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First, because “[t]he question of materiality . . . is anobjective one, involving the significance of an omitted or misrepresented fact to a reasonable investor,” materiality can be proved through evidence common to the class. TSC Industries, Inc. v. Northway, Inc., 426 U. S. 438, 445 (1976). Consequently, materiality is a “common questio[n]” for purposes of Rule 23(b)(3). Basic, 485 U. S., at 242 (listing “materiality” as one of the questions commonto the Basic class members).
Second, there is no risk whatever that a failure of proof on the common question of materiality will result in individual questions predominating. Because materiality isan essential element of a Rule 10b–5 claim, see Matrixx Initiatives, 563 U. S., at ___ (slip op., at 9), Connecticut Retirement's failure to present sufficient evidence of materiality to defeat a summary-judgment motion or to prevail at trial would not cause individual reliance questions tooverwhelm the questions common to the class. Instead, the failure of proof on the element of materiality would end the case for one and for all; no claim would remain in which individual reliance issues could potentially predominate.
Totally misapprehending our essential point, JUSTICE THOMAS' dissent asserts that our “entire argument is based on the assumption that the fraud-on-the-market presumption need not be shown at certification because it will be proved later on the merits.” Post, at 11, n. 9. Our position is not so based. We rest, instead, entirely on thetext of Rule 23(b)(3), which provides for class certificationif “the questions of law or fact common to class members predominate over any questions affecting only individual members.” A failure of proof on the common question ofmateriality ends the litigation and thus will never causeindividual questions of reliance or anything else to overwhelm questions common to the class. Therefore, under the plain language of Rule 23(b)(3), plaintiffs are not
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required to prove materiality at the class-certification stage. In other words, they need not, at that threshold,prove that the predominating question will be answered in their favor.
JUSTICE THOMAS urges that a plaintiff seeking classcertification “must show that the elements of [her] claimare susceptible to classwide proof.” Post, at 7. See also post, at 11 (criticizing the Court for failing to focus itsanalysis on “whether the element of reliance is susceptibleto classwide proof ”). From this premise, JUSTICE THOMAS concludes that Rule 10b–5 plaintiffs must prove material-ity before class certification because (1) “materiality is anecessary component of fraud on the market,” and (2) without fraud on the market, the Rule 10b–5 element of reliance is not “susceptible of a classwide answer.” Post, at 6, 10–11. See also post, at 12 (“[I]f a plaintiff wishes to use Basic's presumption to prove that reliance is a common question, he must establish the entire presumption,including materiality, at the class certification stage.”).
Rule 23(b)(3), however, does not require a plaintiff seeking class certification to prove that each “elemen[t] of [her] claim [is] susceptible to classwide proof.” Post, at 7. What the rule does require is that common questions“predominate over any questions affecting only individual[class] members.” Fed. Rule Civ. Proc. 23(b)(3) (emphasis added). Nowhere does JUSTICE THOMAS explain how, inan action invoking the Basic presumption, a plaintiff class's failure to prove an essential element of its claim for relief will result in individual questions predominating over common ones. Absent proof of materiality, the claim of the Rule 10b–5 class will fail in its entirety; there willbe no remaining individual questions to adjudicate.
Consequently, proof of materiality is not required toestablish that a proposed class is “sufficiently cohesiveto warrant adjudication by representation”—the focus of the predominance inquiry under Rule 23(b)(3). Amchem
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Products, Inc. v. Windsor, 521 U. S. 591, 623 (1997). No doubt a clever mind could conjure up fantastic scenarios in which an individual investor might rely on immaterialinformation (think of the superstitious investor who sells her securities based on a CEO's statement that a black cat crossed the CEO's path that morning). But such objectively unreasonable reliance does not give rise to a Rule 10b–5claim. See TSC Industries, 426 U. S., at 445 (materiality is judged by an objective standard). Thus, “the individualized questions of reliance,” post, at 9, n. 8, that hypothetically might arise when a failure of proof on the issue of materiality dooms the fraud-on-the-market class are far more imaginative than real. Such “individualized questions” do not undermine class cohesion and thus cannot be said to “predominate” for purposes of Rule 23(b)(3).5
Because the question of materiality is common to theclass, and because a failure of proof on that issue would not result in questions “affecting only individual members” predominating, Fed. Rule Civ. Proc. 23(b)(3), Connecticut Retirement was not required to prove the materiality of Amgen's alleged misrepresentations and omissions at the class-certification stage. This is not a case in which the asserted problem—i.e., that the plaintiff class cannot prove materiality—“exhibits some fatal dissimilarity” among class members that would make use of the classaction device inefficient or unfair. Nagareda, Class Certification in the Age of Aggregate Proof, 84 N. Y. U. L. Rev. 97, 107 (2009). Instead, what Amgen alleges is “a fatalsimilarity—[an alleged] failure of proof as to an element of
—————— 5 JUSTICE THOMAS is also wrong in arguing that a failure of proof on the issue of materiality would demonstrate that a Rule 10b–5 class action “should not have been certified in the first place.” Post, at 2. Quite the contrary. The fact that such a failure of proof resolves all class members' claims once and for all, leaving no individual issues tobe adjudicated, confirms that the original certification decision was proper.
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the plaintiffs' cause of action.” Ibid. Such a contention is properly addressed at trial or in a ruling on a summaryjudgment motion. The allegation should not be resolved in deciding whether to certify a proposed class. Ibid. See also Schleicher, 618 F. 3d, at 687 (“[W]hether a statement is materially false is a question common to all class members and therefore may be resolved on a class-wide basis after certification.”).
B
Insisting that materiality must be proved at the classcertification stage, Amgen relies chiefly on two arguments, neither of which we find persuasive.6
—————— 6Amgen advances a third argument founded on modern economic research tending to show that market efficiency is not “ ‘a binary, yes orno question.' ” Brief for Petitioners 32 (quoting Langevoort, Basic at Twenty: Rethinking Fraud on the Market, 2009 Wis. L. Rev. 151, 167). Instead, this research suggests, differences in efficiency can exist within a single market. For example, a market may more readily process certain forms of widely disseminated and easily digestibleinformation, such as public merger announcements, than informationmore difficult to acquire and understand, such as obscure technicaldata buried in a filing with the Securities and Exchange Commission.See, e.g., Macey & Miller, Good Finance, Bad Economics: An Analysis ofthe Fraud-on-the-Market Theory, 42 Stan. L. Rev. 1059, 1083–1087 (1990); Stout, The Mechanisms of Market Inefficiency: An Introduction to the New Finance, 28 J. Corp. L. 635, 653–656 (2003). Amgen, however, never clearly explains how this research on market efficiencybolsters its argument that courts should require precertification proofof materiality. In any event, this case is a poor vehicle for exploring whatever implications the research Amgen cites may have for the fraud-on-the-market presumption recognized in Basic. As noted above, see supra, at 6–7, Amgen conceded in its answer that the market for itssecurities is “efficient” and thus “promptly digest[s] current informationregarding Amgen from all publicly available sources and reflect[s] suchinformation in Amgen's stock price.” Consolidated Amended Class Action Complaint ¶¶199–200; Answer ¶¶199–200. See also App. to Pet.for Cert. 40a (relying on the admission in Amgen's answer and an unchallenged expert report submitted by Connecticut Retirement, the District Court expressly found that the market for Amgen's stock was
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1 Amgen points first to our statement in Halliburton that “securities fraud plaintiffs must prove certain things in order to invoke Basic's rebuttable presumption of reliance,” including “that the alleged misrepresentations werepublicly known . . . , that the stock traded in an efficient market, and that the relevant transaction took place ‘between the time the misrepresentations were made and the time the truth was revealed.'” 563 U. S., at ___ (slip op., at 5–6) (quoting Basic, 485 U. S., at 248, n. 27). See also Dukes, 564 U. S., at ___, n. 6 (slip op., at 11, n. 6)(“[P]laintiffs seeking 23(b)(3) certification [of a securitiesfraud class action] must prove that their shares were traded on an efficient market.”). If these fraud-on-the-market predicates must be proved before class certification, Amgen contends, materiality—another fraud-on-themarket predicate—should be treated no differently. We disagree. As an initial matter, the requirement that a putative class representative establish that it executedtrades “between the time the misrepresentations were made and the time the truth was revealed” relates primarily to the Rule 23(a)(3) and (a)(4) inquiries into typicality
and adequacy of representation, not to the Rule 23(b)(3) predominance inquiry. Basic, 485 U. S., at 248, n. 27.7 A ——————
efficient). Amgen remains bound by that concession. See American Title Ins. Co. v. Lacelaw Corp., 861 F. 2d 224, 226 (CA9 1988) (“Factual assertions in pleadings and pretrial orders, unless amended, are considered judicial admissions conclusively binding on the party who made them.”); cf. Christian Legal Soc. Chapter of Univ. of Cal., Hastings College of Law v. Martinez, 561 U. S. ___, ___ (2010) (slip op., at10) (“This Court has . . . refused to consider a party's argument thatcontradicted a joint ‘stipulation [entered] at the outset of th[e] litigation.' ” (quoting Board of Regents of Univ. of Wis. System v. Southworth, 529 U. S. 217, 226 (2000))). We thus find nothing in the cited researchthat would support requiring precertification proof of materiality in this case.
7As earlier noted, see supra, at 1–2, Amgen does not here contest
16 AMGEN INC. v. CONNECTICUT RETIREMENT PLANS AND TRUST FUNDS Opinion of the Court
security's market price cannot be affected by a misrepresentation not yet made, and in an efficient market, amisrepresentation's impact on market price is quickly nullified once the truth comes to light. Thus, a plaintiff whose relevant transactions were not executed between the time the misrepresentation was made and the time the truth was revealed cannot be said to have indirectly relied on the misrepresentation through its reliance on the integrity of the market price.8 Such a plaintiff 's claims, therefore, would not be “typical” of the claims of investors who did trade during the window between misrepresentation and truth revelation. Fed. Rule Civ. Proc. 23(a)(3). Nor could a court confidently conclude that such a plaintiff would “fairly and adequately protect the interests” of investors who traded during the relevant window. Rule 23(a)(4). The requirement that the fraud-on-the-market theory's trade-timing predicate be established beforeclass certification thus sheds little light on the questionwhether materiality must also be proved at the classcertification stage.
Amgen is not aided by Halliburton's statement that market efficiency and the public nature of the alleged misrepresentations must be proved before a securitiesfraud class action can be certified. As Amgen notes, market efficiency, publicity, and materiality can all be proved on a classwide basis. Furthermore, they are all essential predicates of the fraud-on-the-market theory. Unless
—————— Connecticut Retirement's satisfaction of Rule 23(a)'s requirements. 8Accordingly, “the timing of the relevant stock trades” is indeed an“element” of the fraud-on-the-market theory. Post, at 6, n. 6 (opinion of THOMAS, J.). Unlike JUSTICE THOMAS, however, see ibid., we do not understand the United States as amicus curiae to take a different view. See Brief for United States 15, n. 2 (“Precise identification of the times when the alleged misrepresentation was made and the truth was subsequently revealed is . . . important to ensure that the named plaintiff has traded stock during the time the stock price allegedly was distorted by the defendant's misrepresentations.”).
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those predicates are established, there is no basis for presuming that the defendant's alleged misrepresentations were reflected in the security's market price, and hence no grounding for any contention that investorsindirectly relied on those misrepresentations through theirreliance on the integrity of the market price. But unlike materiality, market efficiency and publicity are not indispensable elements of a Rule 10b–5 claim. See Matrixx Initiatives, 563 U. S., at ___ (slip op., at 9) (listing elements of a Rule 10b–5 claim). Thus, where the market for a security is inefficient or the defendant's alleged misrepresentations were not aired publicly, a plaintiff cannotinvoke the fraud-on-the-market presumption. She can, however, attempt to establish reliance through the “traditional” mode of demonstrating that she was personally “aware of [the defendant's] statement and engaged in a relevant transaction . . . based on that specific misrepresentation.” Halliburton, 563 U. S., at ___ (slip op., at 4). Individualized reliance issues would predominate in such a lawsuit. See Basic, 485 U. S., at 242. The litigation,therefore, could not be certified under Rule 23(b)(3) as a class action, but the initiating plaintiff 's claim would remain live; it would not be “dead on arrival.” 660 F. 3d, at 1175.
A failure of proof on the issue of materiality, in contrast,not only precludes a plaintiff from invoking the fraud-onthe-market presumption of classwide reliance; it alsoestablishes as a matter of law that the plaintiff cannot prevail on the merits of her Rule 10b–5 claim. Materialitythus differs from the market-efficiency and publicity predicates in this critical respect: While the failure of common, classwide proof on the issues of market efficiency and publicity leaves open the prospect of individualized proofof reliance, the failure of common proof on the issue of materiality ends the case for the class and for all individuals alleged to compose the class. See Brief for United
18 AMGEN INC. v. CONNECTICUT RETIREMENT PLANS AND TRUST FUNDS Opinion of the Court
States as Amicus Curiae 20 (“Unless the failure of common proof gives rise to a need for individualized proof, it does not cast doubt on the propriety of class certification.”). In short, there can be no actionable reliance, individually or collectively, on immaterial information. Be- cause a failure of proof on the issue of materiality, unlikethe issues of market efficiency and publicity, does not give rise to any prospect of individual questions overwhelming common ones, materiality need not be proved prior to Rule23(b)(3) class certification.
2 Amgen also contends that certain “policy considerations”militate in favor of requiring precertification proof of materiality. Brief for Petitioners 28. An order grantingclass certification, Amgen observes, can exert substantialpressure on a defendant “to settle rather than incur thecosts of defending a class action and run the risk of potentially ruinous liability.” Advisory Committee's 1998 Noteon subd. (f) of Fed. Rule Civ. Proc. 23, 28 U. S. C. App.,
p. 143. See also AT&T Mobility LLC v. Concepcion, 563 U. S. ___, ___ (2011) (slip op., at 16) (class actions can entail a “risk of ‘in terrorem' settlements”). Absent a requirement to evaluate materiality at the classcertification stage, Amgen contends, the issue may neverbe addressed by a court, for the defendant will surrender and settle soon after a class is certified. Insistence on proof of materiality before certifying a securities-fraudclass action, Amgen thus urges, ensures that the issue will be adjudicated and not forgone. See also post, at 4 (SCALIA, J., dissenting) (expressing the same concerns).
In this regard, however, materiality does not differ fromother essential elements of a Rule 10b–5 claim, notably,the requirements that the statements or omissions onwhich the plaintiff 's claims are based were false or misleading and that the alleged statements or omissions
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caused the plaintiff to suffer economic loss. See Matrixx Initiatives, 563 U. S., at ___ (slip op., at 9). Settlement pressure exerted by class certification may prevent judicial resolution of these issues. Yet this Court has held that loss causation and the falsity or misleading nature of the defendant's alleged statements or omissions are common questions that need not be adjudicated before a classis certified. See Halliburton, 563 U. S., at ___ (slip op., at 3) (loss causation need not be proved at the classcertification stage); Basic, 485 U. S., at 242 (“the falsity or misleading nature of the . . . public statements” allegedly made by the defendant is a “common questio[n]”). See also Schleicher, 618 F. 3d, at 685 (falsity of alleged mis- statements need not be proved before certification of asecurities-fraud class action).
Congress, we count it significant, has addressed thesettlement pressures associated with securities-fraud classactions through means other than requiring proof of materiality at the class-certification stage. In enacting the Private Securities Litigation Reform Act of 1995 (PSLRA),109 Stat. 737, Congress recognized that although privatesecurities-fraud litigation furthers important public-policy interests, prime among them, deterring wrongdoing andproviding restitution to defrauded investors, such law-suits have also been subject to abuse, including the “extract[ion]” of “extortionate ‘settlements'” of frivolous claims. H. R. Conf. Rep. No. 104–369, pp. 31–32 (1995). The PSLRA's response to the perceived abuses was, inter alia, to “impos[e] heightened pleading requirements” for securities-fraud actions, “limit recoverable damages andattorney's fees, provide a ‘safe harbor' for forward-looking statements, impose new restrictions on the selection of (and compensation awarded to) lead plaintiffs, mandate imposition of sanctions for frivolous litigation, and authorize a stay of discovery pending resolution of any motion todismiss.” Merrill Lynch, Pierce, Fenner & Smith Inc. v.
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Dabit, 547 U. S. 71, 81–82 (2006). See also 15 U. S. C. §78u–4 (2006 ed. and Supp. V). Congress later fortifiedthe PSLRA by enacting the Securities Litigation UniformStandards Act of 1998, 112 Stat. 3227, which curtailed plaintiffs' ability to evade the PSLRA's limitations onfederal securities-fraud litigation by bringing class-action suits under state rather than federal law. See 15 U. S. C. §78bb(f)(1) (2006 ed.).
While taking these steps to curb abusive securitiesfraud lawsuits, Congress rejected calls to undo the fraudon-the-market presumption of classwide reliance endorsed in Basic. See Langevoort, Basic at Twenty: RethinkingFraud on the Market, 2009 Wis. L. Rev. 151, 153, and n. 8 (noting that the initial version of H. R. 10, 104th Cong., 1st Sess. (1995), an unenacted bill that, like the PSLRA,was designed to curtail abuses in private securities litigation, “would have undone Basic”). See also Common Sense Legal Reform Act: Hearings before the Subcommittee on Telecommunications and Finance of the House Committee on Commerce, 104th Cong., 1st Sess., 92, 236–237, 251–252, 272 (1995) (witnesses criticized the fraud-on-themarket presumption and expressed support for H. R. 10's requirement that securities-fraud plaintiffs prove directreliance). Nor did Congress decree that securities-fraudplaintiffs prove each element of their claim before obtaining class certification. Because Congress has homed in on the precise policy concerns raised in Amgen's brief, “[w]edo not think it appropriate for the judiciary to make itsown further adjustments by reinterpreting Rule 23 tomake likely success on the merits essential to class certification in securities-fraud suits.” Schleicher, 618 F. 3d, at 686; cf. Smith v. Bayer Corp., 564 U. S. ___, ___ (2011) (slip op., at 17–18) (“Congress's decision to address therelitigation concerns associated with class actions throughthe mechanism of removal provides yet another reason for federal courts to adhere in this context to longstanding
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principles of preclusion.”).
In addition to seeking our aid in warding off “in terrorem” settlements, Amgen also argues that requiring proof of materiality before class certification would conserve judicial resources by sparing judges the task ofoverseeing large class proceedings in which the essentialelement of reliance cannot be proved on a classwide basis. In reality, however, it is Amgen's position, not the judgments of the lower courts in this case, that would waste judicial resources. Amgen's argument, if embraced, would necessitate a mini-trial on the issue of materiality at the class-certification stage. Such preliminary adjudications would entail considerable expenditures of judicial time and resources, costs scarcely anticipated by Federal Rule of Civil Procedure 23(c)(1)(A), which instructs that thedecision whether to certify a class action be made “[a]t an early practicable time.” If the class is certified, materialitymight have to be shown all over again at trial. And if certification is denied for failure to prove materiality,nonnamed class members would not be bound by thatdetermination. See Smith, 564 U. S., at ___ (slip op., at 12–18). They would be free to renew the fray, perhapsin another forum, perhaps with a stronger showing ofmateriality.
Given the tenuousness of Amgen's judicial-economyargument, Amgen's policy arguments ultimately return to the contention that private securities-fraud actions shouldbe hemmed in to mitigate their potentially “vexatiou[s]” character. Blue Chip Stamps v. Manor Drug Stores, 421
U. S. 723, 739 (1975). We have already noted what Congress has done to control exorbitant securities-fraud actions. See supra, at 19–20. Congress, the ExecutiveBranch, and this Court, moreover, have “recognized thatmeritorious private actions to enforce federal antifraudsecurities laws are an essential supplement to criminal prosecutions and civil enforcement actions brought, re22
AMGEN INC. v. CONNECTICUT RETIREMENT PLANS AND TRUST FUNDS Opinion of the Court
spectively, by the Department of Justice and the Securities and Exchange Commission.” Tellabs, Inc. v. Makor Issues & Rights, Ltd., 551 U. S. 308, 313 (2007); see H. R. Conf. Rep. No. 104–369, at 31; Brief for United States as Amicus Curiae 1. See also Amchem, 521 U. S., at 617 (“‘The policy at the very core of the class action mechanism is to overcome the problem that small recoveries donot provide the incentive for any individual to bring a soloaction prosecuting his or her rights.'” (quoting Mace v. Van Ru Credit Corp., 109 F. 3d 338, 344 (CA7 1997))). We have no warrant to encumber securities-fraud litigationby adopting an atextual requirement of precertificationproof of materiality that Congress, despite its extensive in- volvement in the securities field, has not sanctioned.
C
JUSTICE SCALIA acknowledges that proof of materiality is not required to satisfy Rule 23(b)(3)'s predominancerequirement. See post, at 1. Nevertheless, he maintains that full satisfaction of Rule 23's requirements is insufficient to obtain class certification under Basic. In JUSTICE SCALIA's view, the Court's decision in Basic established a special rule: A securities-fraud class action cannot becertified unless all of the prerequisites of the fraud-on-themarket presumption of reliance, including materiality, have first been established. Post, at 2.
The purported rule is JUSTICE SCALIA's invention. It cannot be attributed to anything the Court said in Basic. That decision is best known for its endorsement of the fraud-on-the-market theory. But the opinion also established something more. It stated the proper standard forjudging the materiality of misleading statements regarding the existence and status of preliminary merger discussions. See 485 U. S., at 230–241, 250 (“Materiality in the merger context depends on the probability that the transaction will be consummated, and its significance to the
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issuer of the securities.”). The District Court in Basic certified a class of investors whose share prices were allegedly depressed by misleading statements that disguised ongoing merger negotiations. Id., at 228. Postcertification, the court granted summary judgment to the defendants on the ground that the alleged misstatements were immaterial as a matter of law. Id., at 228–229. The Court of Appeals affirmed the class certification but reversed the grant of summary judgment. Id., at 229. This Court, in turn, vacated the Court of Appeals' judgmentand remanded for further proceedings on the defendants'summary-judgment motion in light of the materialitystandard set forth in the Court's opinion. Id., at 240–241,
250. Notably, however, we did not disturb the District Court's class-certification order, which we stated “was appropriate when made.” Id., at 250.9
If JUSTICE SCALIA were correct that our decision in Basic demands proof of materiality before class certification, the Court in Basic should have ordered the lower courts to reconsider on remand both the defendants' entitlement to summary judgment and the propriety of classcertification. Instead, the Court expressly endorsed the District Court's class-certification order while at the same time recognizing that further proceedings were necessaryto determine whether the plaintiffs had mustered sufficient evidence to satisfy the relatively lenient standard for
—————— 9Scouring the Court's decision in Basic for some semblance of support for his position, JUSTICE SCALIA attaches portentous significance to Basic's statement that the District Court's class-certification order, although “ ‘appropriate when made,' ” was “ ‘subject on remand to suchadjustment, if any, as developing circumstances demand[ed].' ” Post, at 2 (quoting Basic, 485 U. S., at 250). This statement, however, merelyreminds that certifications are not frozen once made. Rule 23 empowers district courts to “alte[r] or amen[d]” class-certification orders based on circumstances developing as the case unfolds. Fed. Rule Civ. Proc. 23(c)(1) (1988). See also Rule 23(c)(1)(C) (2013).
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Opinion of the Court
avoiding summary judgment. See Anderson v. Liberty Lobby, Inc., 477 U. S. 242, 248 (1986) (“[S]ummary judgment will not lie if . . . the evidence is such that a reasonable jury could return a verdict for the nonmoving party.”).Unlike JUSTICE SCALIA, we are unwilling to presume that Basic announced a rule requiring precertification proof of materiality when Basic failed to apply any such rule to the very case before it.10
III Amgen also argues that the District Court erred byrefusing to consider the rebuttal evidence Amgen profferedin opposing Connecticut Retirement's class-certification motion. This evidence, Amgen contends, showed that “in light of all the information available to the market,” itsalleged misrepresentations and misleading omissions “could not be presumed to have altered the market pricebecause they would not have ‘significantly altered the total mix of information made available.'” Brief for Petitioners 40–41 (quoting Basic, 485 U. S., at 232). For example, Connecticut Retirement's complaint alleges that an Amgen executive misleadingly downplayed the significance of an upcoming Food and Drug Administration advisory committee meeting by incorrectly stating that the meeting would not focus on one of Amgen's leading drugs. See App. to Pet. for Cert. 17a. Amgen responded to thisallegation by presenting public documents—including thecommittee's meeting agenda, which was published in the
—————— 10 JUSTICE SCALIA suggests that the Court's approach in Basic mighthave been influenced by the obsolete view that “ ‘Rule 23 . . . set[s] forth a mere pleading standard.' ” Post, at 3 (quoting Wal-Mart Stores, Inc. v. Dukes, 564 U. S. ___, ___ (2011) (slip op., at 10)). The opinion in Basic, however, provides no indication that the Court perceived any issuebefore it to turn on the question whether a plaintiff must merely plead,rather than “affirmatively demonstrate,” her satisfaction of Rule 23's certification requirements. Dukes, 564 U. S., at ___ (slip op., at 10).
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Federal Register more than a month before the meeting—stating that safety concerns associated with Amgen's drugwould be discussed at the meeting. See id., at 41a–42a. See also 69 Fed. Reg. 16582 (2004).
The District Court did not err, we agree with the Courtof Appeals, by disregarding Amgen's rebuttal evidence indeciding whether Connecticut Retirement's proposed class satisfied Rule 23(b)(3)'s predominance requirement. The Court of Appeals concluded, and Amgen does not contest,that Amgen's rebuttal evidence aimed to prove that the misrepresentations and omissions alleged in Connecticut Retirement's complaint were immaterial. 660 F. 3d, at 1177 (characterizing Amgen's rebuttal evidence as an attempt to present a “‘truth-on-the-market' defense,”which the Court of Appeals explained “is a method of refuting an alleged misrepresentation's materiality”). See also Reply Brief 17 (Amgen's evidence was offered to rebutthe “materiality predicate” of the fraud-on-the-market theory). As explained above, however, the potential immateriality of Amgen's alleged misrepresentations and omissions is no barrier to finding that common questionspredominate. See Part II, supra. If the alleged misrepresentations and omissions are ultimately found immaterial,the fraud-on-the-market presumption of classwide reliancewill collapse. But again, as earlier explained, see supra, at 10–13, individual reliance questions will not overwhelm questions common to the class, for the class members' claims will have failed on their merits, thus bringing thelitigation to a close. Therefore, just as a plaintiff class'sinability to prove materiality creates no risk that individual questions will predominate, so even a definitive rebuttal on the issue of materiality would not undermine thepredominance of questions common to the class.
We recognized as much in Basic itself. A defendant could “rebut the [fraud-on-the-market] presumption of reliance,” we observed in Basic, by demonstrating that“news of the [truth] credibly entered the market and dissi26
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Opinion of the Court
pated the effects of [prior] misstatements.” 485 U. S., at 248–249. We emphasized, however, that “[p]roof of thatsort is a matter for trial” (and presumably also for a summary-judgment motion under Federal Rule of Civil Procedure 56). Id., at 249, n. 29.11 The District Court thus correctly reserved consideration of Amgen's rebuttal evidence for summary judgment or trial. It was not requiredto consider the evidence in determining whether common questions predominated under Rule 23(b)(3).
* * * For the reasons stated, the judgment of the Court ofAppeals for the Ninth Circuit is affirmed.
It is so ordered.
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11Amgen attempts to minimize the import of this statement by noting that it was made prior to a 2003 amendment to Rule 23 that eliminated district courts' authority to conditionally certify class actions. See Advisory Committee's 2003 Note on subd. (c)(1) of Fed. Rule Civ.Proc. 23, 28 U. S. C. App., p. 144. Nothing in our opinion in Basic, however, suggests that the statement relied in any way on districtcourts' conditional-certification authority. To the contrary, the Court in Basic stated: “Proof of that sort [i.e., that news of the truth had entered the market and dissipated the effects of prior misstatements] is a matter for trial, throughout which the District Court retains the authority to amend the certification order as may be appropriate.” 485
U. S., at 249, n. 29 (emphasis added). Rule 23(c)(1)(C) continues to provide that a class-certification order “may be altered or amended before final judgment.”
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ALITO, J., concurring
SUPREME COURT OF THE UNITED STATES
No. 11–1085
AMGEN INC., ET AL., PETITIONERS v. CONNECTICUT RETIREMENT PLANS AND TRUST FUNDS
ON WRIT OF CERTIORARI TO THE UNITED STATES COURT OF
APPEALS FOR THE NINTH CIRCUIT
[February 27, 2013]
JUSTICE ALITO, concurring.
I join the opinion of the Court with the understandingthat the petitioners did not ask us to revisit Basic's fraudon-the-market presumption. See Basic Inc. v. Levinson, 485 U. S. 224 (1988). As the dissent observes, more re- cent evidence suggests that the presumption may rest ona faulty economic premise. Post, at 4, n. 4 (opinion of THOMAS, J.); see Langevoort, Basic at Twenty: RethinkingFraud on the Market, 2009 Wis. L. Rev. 151, 175–176. In light of this development, reconsideration of the Basic presumption may be appropriate.
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SCALIA, J., dissenting
SUPREME COURT OF THE UNITED STATES
No. 11–1085
AMGEN INC., ET AL., PETITIONERS v. CONNECTICUT
RETIREMENT PLANS AND TRUST FUNDS
ON WRIT OF CERTIORARI TO THE UNITED STATES COURT OF
APPEALS FOR THE NINTH CIRCUIT
[February 27, 2013]
JUSTICE SCALIA, dissenting.
I join the principal dissent, that of JUSTICE THOMAS, except for Part I–B.
The fraud-on-the-market rule says that purchase or sale of a security in a well functioning market establishes reliance on a material misrepresentation known to themarket. This rule is to be found nowhere in the United States Code or in the common law of fraud or deception; itwas invented by the Court in Basic Inc. v. Levinson, 485
U. S. 224 (1988). Today's Court applies to that rule the principles of Federal Rule of Civil Procedure 23(b)(3), and thereby concludes (logically enough) that commonality is established at the certification stage even when materiality has not been shown. That would be a correct procedureif Basic meant the rule it announced to govern only the question of substantive liability—what must be shown inorder to prevail. If that were so, the new substantive rule, like the more general substantive rule that reliance mustbe proved, would be subject, at the certification stage, tothe commonality analysis of Rule 23(b)(3). In my view,however, the Basic rule of fraud-on-the-market—a well functioning market plus purchase or sale in the market plus material misrepresentation known to the marketestablishes a necessary showing of reliance—governs not only the question of substantive liability, but also the
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question whether certification is proper. All of the elements of that rule, including materiality, must be established if and when it is relied upon to justify certification.The answer to the question before us today is to be found not in Rule 23(b)(3), but in the opinion of Basic.
Basic established a presumption that the misrepresentation was relied upon, not a mere presumption that theplaintiffs relied on the market price. And it established that presumption not just for the question of substantive liability but also for the question of certification. “We granted certiorari . . . to determine whether the courtsbelow properly applied a presumption of reliance in certifying the class, rather than requiring each class member toshow direct reliance on Basic's statements.” 485 U. S., at 230 (emphasis added). Of course it makes no sense to “presume reliance” on the misrepresentation merely because the plaintiff relied on the market price, unless the alleged misrepresentation would likely have affected themarket price—that is, unless it was material. Thus, as JUSTICE THOMAS' dissent shows, the Basic opinion is shot through with references to the necessary materiality. The presumption of reliance does not apply, and hence neither substantive liability will attach nor will certification beproper, unless materiality is shown. The necessity ofmateriality for certification is demonstrated by the lastsentence of the Basic opinion, which comes after the Courthas decided to remand the case for reconsideration of materiality under the appropriate legal standard: “TheDistrict Court's certification of the class here was appropriate when made but is subject on remand to such adjustment, if any, as developing circumstances demand.” Id., at 250. Those circumstances are the establishment of facts that rebut the presumption, including of facts that show the misrepresentation was not material, or was notknown to the market.
The Court argues that if materiality were a predicate to
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certification on a fraud-on-the-market theory, the Basic Court would not have approved the class certificationorder while remanding for reconsideration of “whetherthe plaintiffs had mustered sufficient evidence to satisfythe relatively lenient standard for avoiding summary judgment.” See ante, at 23–24. The Court manufactures an inconsistency on the basis of doctrine that did not governclass certification at the time of Basic. We recently clarified that “Rule 23 does not set forth a mere pleading standard.” Wal-Mart Stores, Inc. v. Dukes, 564 U. S. ___, ___ (2011) (slip op., at 10). But review of the Basic certification order shows that the District Court's fraud-on-themarket analysis was based exclusively on the pleadings: “[T]he allegations of plaintiffs' complaint are sufficient to bring this section 10(b) and Rule 10(b)(5) claim within the so-called ‘fraud on the market' theory.” App. to Pet. for Cert. in Basic Inc. v. Levinson, O. T. 1987, No. 86–279,
p. 115a (emphasis added); see also ibid. (citing complaintparagraphs as establishing fraud on the market). Under a pleadings standard, the District Court found that theplaintiffs had satisfied Rule 23(b)(3) with regard to fraud on the market, including its materiality predicate. See id., at 133a (denial of reconsideration) (“This court ruled onDecember 10 that transaction causation [i.e., reliance]could be established by the following: proof of a material misrepresentation which affected the market price of the stocks with a resulting injury to the plaintiffs” (emphasisadded)). Thus, even if the plaintiffs sufficiently pleadedmateriality that the certification order “was appropriatewhen made,” Basic, supra, at 250, the defendants retained an opportunity on remand to rebut the pleading in order to defeat certification.*
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*As for the Court's contention that I have “[s]cour[ed] the Court'sdecision in Basic” to find “some semblance of support” for my reading of the case, ante, at 23, n. 9: It does not take much scouring to come across
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SCALIA, J., dissenting
Certification of the class is often, if not usually, theprelude to a substantial settlement by the defendantbecause the costs and risks of litigating further are so high. It does an injustice to the Basic Court to presume without clear evidence—and indeed in the face of languageto the contrary—that it was establishing a regime inwhich not only those market class-action suits that have earned the presumption of reliance pass beyond the crucial certification stage, but all market-purchase andmarket-sale class-action suits do so, no matter what the alleged misrepresentation. The opinion need not be read this way, and it should not.
The fraud-on-the-market theory approved by Basic envisions a demonstration of materiality not just for substantive recovery but for certification. Today's holdingdoes not merely accept what some consider the regrettable consequences of the four-Justice opinion in Basic; it expands those consequences from the arguably regrettable to the unquestionably disastrous.
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the Court's opening statement that “[w]e granted certiorari . . . to
determine whether the courts below properly applied a presumption of
reliance in certifying the class.” 485 U. S., at 230 (emphasis added).
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THOMAS, J., dissenting
SUPREME COURT OF THE UNITED STATES
No. 11–1085
AMGEN INC., ET AL., PETITIONERS v. CONNECTICUT RETIREMENT PLANS AND TRUST FUNDS
ON WRIT OF CERTIORARI TO THE UNITED STATES COURT OF
APPEALS FOR THE NINTH CIRCUIT
[February 27, 2013]
JUSTICE THOMAS, with whom JUSTICE KENNEDY joins,and with whom JUSTICE SCALIA joins except for Part I–B, dissenting.
I The Court today allows plaintiffs to obtain certificationof securities-fraud class actions without proof that common questions predominate over individualized questionsof reliance, in contravention of Federal Rule of Civil Procedure 23(b)(3). The Court does so by all but eliminating materiality as one of the predicates of the fraud-on-themarket theory, which serves as an alternative mode of establishing reliance. See Basic Inc. v. Levinson, 485 U. S. 224, 241–250 (1988). Without demonstrating materiality at certification, plaintiffs cannot establish Basic's fraudon-the-market presumption. Without proof of fraud on themarket, plaintiffs cannot show that otherwise individualized questions of reliance will predominate, as required by Rule 23(b)(3). And without satisfying Rule 23(b)(3), class certification is improper. Fraud on the market is thus a condition precedent to class certification, withoutwhich individualized questions of reliance will defeat certification. The Court's opinion depends on the following assumption: Plaintiffs will either (1) establish materiality at the merits stage, in which case class certification was proper
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because reliance turned out to be a common question, or
(2) fail to establish materiality, in which case the claimwould fail on the merits, notwithstanding the fact thatthe class should not have been certified in the first place,because reliance was never a common question. The failure to establish materiality retrospectively confirms that fraud on the market was never established, that questions regarding the element of reliance were not common under Rule 23(b)(3), and, by extension, that certification was never proper. Plaintiffs cannot be excused of their Rule 23 burden to show at certification that questions of reliance are common merely because they might lose later on the merits element of materiality.Because a securities-fraud plaintiff invoking Basic's fraudon-the-market presumption to satisfy Rule 23(b)(3) should be required to prove each of the predicates of that theory at certification in order to demonstrate that questions of reliance are common to the class, I respectfully dissent.
A We begin with §10 of the Securities Exchange Act of1934, 15 U. S. C. §78j (2006 ed. and Supp. V).1 We “have implied a private cause of action from the text and purposes of §10(b)” and Securities and Exchange CommissionRule 10b–5, 17 CFR §240.10b–5 (2011).2 Matrixx Initia—————— 1Section 10 states, in relevant part: “It shall be unlawful for any person, directly or indirectly, by the use of any means or instrumentality of interstate commerce or of the mails, or of any facility of any national securities exchange— . . . . . “(b) To use or employ, in connection with the purchase or sale of any security registered on a national securities exchange . . . any manipulative or deceptive device or contrivance in contravention of such rules and regulations as the Commission may prescribe . . . .” 2Rule 10b–5 states: “It shall be unlawful for any person, directly or indirectly, by the use of any means or instrumentality of interstate commerce, or of the mails
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tives, Inc. v. Siracusano, 563 U. S. ___, ___ (2011) (slip op., at 9). See also Superintendent of Ins. of N. Y. v. Bankers Life & Casualty Co., 404 U. S. 6, 13, n. 9 (1971) (“It is now established that a private right of action is implied under §10(b)”). The elements of an implied §10(b) cause of action for securities fraud are “‘(1) a material misrepresentation or omission by the defendant; (2) scienter; (3) a connection between the misrepresentation or omission and the purchase or sale of a security; (4) reliance upon the misrepresentation or omission; (5) economic loss; and (6) losscausation.'” Matrixx, supra, at ___ (slip op., at 9) (quoting Stoneridge Investment Partners, LLC v. Scientific-Atlanta, Inc., 552 U. S. 148, 157 (2008)). This case concerns the reliance element of the §10(b) claim and its interaction with Rule 23(b)(3).
To prove reliance, a plaintiff, whether proceeding individually or as a class member, must show that his stock transaction was caused by the specific alleged misstatement. “[P]roof of reliance ensures that there is a proper ‘connection between a defendant's misrepresentation and a plaintiff's injury.'” Erica P. John Fund, Inc. v. Halliburton Co., 563 U. S. ___, ___ (2011) (slip op., at 4) (quoting Basic, supra, at 243).3 To satisfy this element, a
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or of any facility of any national securities exchange,
“(a) To employ any device, scheme, or artifice to defraud,
“(b) To make any untrue statement of a material fact or to omit tostate a material fact necessary in order to make the statements made,in the light of the circumstances under which they were made, notmisleading, or
“(c) To engage in any act, practice, or course of business which operates or would operate as a fraud or deceit upon any person, in connection with the purchase or sale of any security.”
3Courts have also “referred to the element of reliance as ‘transaction causation.' ” Erica P. John Fund, 563 U. S., at ___ (slip op., at 6) (quoting Dura Pharmaceuticals, Inc. v. Broudo, 544 U. S. 336, 341–342 (2005), in turn citing Basic Inc. v. Levinson, 485 U. S. 224, 248–249 (1988)). This alternative phrasing recognizes that the reliance inquiry
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plaintiff traditionally was required to “sho[w] that he was aware of a company's statement and engaged in a relevanttransaction . . . based on that specific misrepresentation.” Erica P. John Fund, supra, at ___ (slip op., at 4) (emphasisadded). In the face-to-face fraud cases from which securities claims historically arose, see, e.g., Dura Pharmaceuticals, Inc. v. Broudo, 544 U. S. 336, 343–344 (2005)(discussing common-law roots of securities-fraud actions),this requirement was easily met by showing that the seller made statements directly to the purchaser and that thepurchaser bought stock in reliance on those statements. However, in a modern securities market many, if not most, individuals who purchase stock from third parties on an impersonal exchange will be unaware of statements made by the issuer of those securities. As a result, such purchaser-plaintiffs are unable to meet the traditional reliance requirement because they cannot establish that they “engaged in a relevant transaction . . . based on [a] specific misrepresentation.” Erica P. John Fund, supra, at ___ (slip op., at 4).
This concern was the driving force behind the development of the fraud-on-the-market theory adopted in Basic. Because individuals trading stock on an impersonal market often cannot show reliance even for purposes of anindividual securities-fraud action, Basic permitted “plaintiffs to invoke a rebuttable presumption of reliance.” Erica
P. John Fund, supra, at ___ (slip op., at 5).4 Basic pre——————
is directed at determining whether a particular piece of information
caused an individual to enter into a given transaction.
4The Basic decision itself is questionable. Only four Justices joinedthe portion of the opinion adopting the fraud-on-the-market theory. Justice White, joined by Justice O'Connor, dissented from that section, emphasizing that “[c]onfusion and contradiction in court rulings areinevitable when traditional legal analysis is replaced with economic theorization by the federal courts” and that the Court is “not wellequipped to embrace novel constructions of a statute based on contemporary microeconomic theory.” 485 U. S., at 252–253 (concurring in
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sumes that “‘in an open and developed securities market,the price of a company's stock is determined by the available material information regarding the company and its business.'” 485 U. S., at 241 (quoting Peil v. Speiser, 806
F. 2d 1154, 1160–1161 (CA3 1986); emphasis added).5 “‘Misleading statements will therefore defraud purchasers of stock even if the purchasers do not directly rely on themisstatements.'” 485 U. S., at 241–242. As a result, “[a]ninvestor who buys or sells stock at the price set by themarket does so in reliance on the integrity of that price,” and “an investor's reliance on any public material misrepresentations” may therefore “be presumed for purposes of a Rule 10b–5 action.” Id., at 247 (emphasis added).
If a plaintiff opts to show reliance through fraud on themarket, Basic is clear that the plaintiff must show thefollowing predicates in order to prevail: (1) an efficient market, (2) a public statement, (3) that the stock wastraded after the statement was made but before the truth
—————— part and dissenting in part). Justice White's concerns remain valid today, but the Court has not been asked to revisit Basic's fraud-on-themarket presumption. I thus limit my dissent to demonstrating that the Court is not following Basic's dictates. Moreover, the Court acknowledges there is disagreement as towhether market efficiency is “ ‘ “a binary, yes or no question,” ' ” or instead operates differently depending on the information at issue, see ante, at 14, n. 6 (quoting Brief for Petitioners 32, in turn quoting Langevoort, Basic at Twenty: Rethinking Fraud on the Market, 2009Wis. L. Rev. 151, 167). 5 Basic “adopt[ed] the TSC Industries standard of materiality for the §10(b) and Rule 10b–5 context.” 485 U. S., at 232. That standard indicates that “ ‘[a]n omitted fact is material if there is a substantiallikelihood that a reasonable shareholder would consider it important indeciding how to vote.' ” Id., at 231 (quoting TSC Industries, Inc. v. Northway, Inc., 426 U. S. 438, 449 (1976); alteration in original). “[T]ofulfill the materiality requirement ‘there must be a substantial likelihood that the disclosure of the omitted fact would have been viewed bythe reasonable investor as having significantly altered the “total mix” ofinformation made available.' ” 485 U. S., at 231–232 (quoting TSC Industries, supra, at 449).
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was revealed, and (4) the materiality of the statement. Id., at 248, n. 27.6 Both the Court and respondent agreethat materiality is a necessary component of fraud on the market. See, e.g., ante, at 9 (materiality is “indisputably”“an essential predicate of the fraud-on-the-market theory”); Brief for Respondent 29 (“If the statement is notmaterially false, then no one in the class can establish reliance via the integrity of the market”). The materialityof a specific statement is, therefore, essential to the fraudon-the-market presumption, which in turn enables a plaintiff to prove reliance.
B Basic's fraud-on-the-market presumption is highly sig—————— 6The United States as amicus curiae invokes Rule 23(a)(3) to suggest that the third element, the timing of the relevant stock trades, is a “limit on the definition of the class.” Brief for United States 15, n. 2. But it is also necessary to establish the timing of the allegedly material,public misstatement made into an allegedly efficient market (as well aswhen the fraud ended due to entry of truth on the market) before thefraud-on-the-market theory can be evaluated under Rule 23(b)(3). Thus, the lower court opinion in Basic expressly identified “the time themisrepresentations were made and the time the truth was revealed” aspart of fraud on the market. Levinson v. Basic Inc., 786 F. 2d 741, 750 (CA6 1986). The Basic Court cited the formulation approvingly, 485
U. S., at 248, n. 27, and recently in Erica P. John Fund, Inc. v. Halliburton Co., 563 U. S. ___ (2011), the Court cited the same language aspart of the “undisputed” elements a securities-fraud plaintiff must prove to invoke Basic. 563 U. S., at ___ (slip op., at 5–6) (quoting Basic, supra, at 248, n. 27). Unless the timing of the misrepresentation andtruth is established at certification, there is no framework within which to determine whether fraud on the market renders reliance a common question. Thus, insofar as the majority recognizes that timing is afactor of the fraud-on-the-market theory, ante, at 16, n. 8, I agree. It would be incorrect to suggest that timing solely relates to Rules 23(a)(3) and (4). It is equally important to establish the timing range at certification for Rule 23(b)(3) reliance purposes. This fact undercuts the majority's attempt to isolate materiality as the only factor of fraud on the market that need not be shown at certification to demonstrate that reliance is a common question.
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nificant because it makes securities-fraud class actions possible by converting the inherently individual reliance inquiry into a question common to the class, which isnecessary to satisfy the dictates of Rule 23(b)(3).7 Rule 23(b)(3) requires the party seeking certification to prove that “questions of law or fact common to class memberspredominate over any questions affecting only individual members.” A plaintiff seeking class certification is not required to prove the elements of his claim at the certification stage, but he must show that the elements of the claim are susceptible to classwide proof. See, e.g., Wal-Mart Stores, Inc. v. Dukes, 564 U. S. ___, ___, n. 6 (2011) (slip op., at 11, n. 6) (“[P]laintiffs seeking 23(b)(3) certification must prove that their shares were traded on an efficient market,” an element of the fraud-on-the-market theory (emphasis added)). Without that proof, there isno justification for certifying a class because there is no“‘capacity of a classwide proceeding to generate common answers apt to drive the resolution of the litigation.'” Id., at ___ (slip op., at 9–10) (quoting Nagareda, Class Certification in the Age of Aggregate Proof, 84 N. Y. U. L. Rev. 97, 132 (2009)).
If plaintiffs fail to show that reliance is a common question at the time of certification, certification is improper.For if reliance is not a common question, each plaintiff would be required to prove that he in fact relied on amisstatement, a showing which is simply not susceptible to classwide proof. Individuals make stock transactions for divergent, even idiosyncratic, reasons. As the leading pre-Basic fraud-on-the-market case recognized, “[a] purchaser on the stock exchanges may be either unaware of aspecific false representation, or may not directly rely on it;he may purchase because of a favorable price trend, price
—————— 7There is no dispute that respondent meets the prerequisites of Fed. Rule Civ. Proc. 23(a).
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earnings ratio, or some other factor.” Blackie v. Barrack, 524 F. 2d 891, 907 (CA9 1975). The inquiry's inherently individualized nature renders it impossible to generate the common answers necessary for certification under Rule23(b)(3). See Basic, 485 U. S., at 242 (“Requiring proof of individualized reliance from each member of the proposedplaintiff class effectively would have prevented respondents from proceeding with a class action, since individualissues then would have overwhelmed the common ones”).
The Court's solution in Basic was to allow putative classmembers to prove reliance through the fraud-on-themarket presumption. Id., at 241–250. As the Court today recognizes, failure to establish fraud on the market “leavesopen the prospect of individualized proof of reliance.” Ante, at 17. Notably, the Court and the Ninth Circuit bothacknowledge that in order to obtain the benefit of thepresumption, plaintiffs must establish two of the fraud-onthe-market predicates at class certification: (1) that themarket was generally efficient, and (2) that the allegedmisstatement was public. See ante, at 16 (acknowledging“that market efficiency and the public nature of the allegedmisrepresentations must be proved before a securitiesfraud class action can be certified”); 660 F. 3d 1170, 1175 (CA9 2011) (same). See also Erica P. John Fund, 563
U. S., at ___ (slip op., at 5) (“It is undisputed that securities fraud plaintiffs must prove,” at certification inter alia, “that the alleged misrepresentations were publicly known . . . [and] that the stock traded in an efficient market”). The Court is correct insofar as its statements recognize that fraud on the market is a condition precedent to showing that there are common questions of reliance at the time of class certification.
Nevertheless, the Court asserts that materiality—by itsown admission an essential predicate to invoking fraud on the market—need not be established at certification because it will ultimately be proved at the merits stage.
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Ante, at 16–18. This assertion is an express admission that parties will not know at certification whether reliance is an individual or common question.
To support its position, the Court transforms the predicate certification inquiry into a novel either-or inquiry occurring much later on the merits. According to the Court, either (1) plaintiffs will prove materiality on the merits, thus demonstrating ex post that common questionspredominated at certification, or (2) they will fail to provemateriality, at which point we learn ex post that certification was inappropriate because reliance was not, in fact, a common question. In the Court's second scenario, fraud on the market was never established, reliance for each class member was inherently individualized, and Rule 23(b)(3) in fact should have barred certification long ago.8 The Court suggests that the problem created by the second scenario is excusable because the plaintiffs will lose anyway on alternative merits grounds, and the case will be
—————— 8The majority ignores this explanation of the fundamental flaw inits position, asserting that I never “explain how . . . a plaintiff class'sfailure to prove an essential element of its claim for relief will result in individual questions predominating over common ones.” Ante, at 12. But a plaintiff, who is excused from his burden of showing, at certification that reliance is a common question, fails to demonstrate thatcommon questions predominate over the individualized questions of reliance that are inherent in a securities fraud claim. A plaintiff mustcarry this burden at certification for certification to be proper. The majority does not respond to the inherent timing problem in its position. It does not explain how ignoring questions of reliance—thatundeniably will be individualized in some cases—at certification is justified by the fact that those questions will be resolved months oryears later on the merits in a way that indicates reliance was indeed an individualized question all along. Far from obeying the dictates of Rule 23(b)(3) as it claims, ante, at 12–13, the majority unjustifiably puts off acritical part of the Rule 23(b)(3) inquiry until the merits. The only waythe majority can purport to follow Rule 23(b)(3) is by ignoring the factthat, under its own analysis, reliance may be an individualized question that predominates over common questions at certification.
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over. See ante, at 17 (“[F]ailure of proof on the issue of materiality [at the merits stage] . . . not only precludes a plaintiff from invoking the fraud-on-the-market presumption of classwide reliance; it also establishes as a matter of law that the plaintiff cannot prevail on the merits of her Rule 10b–5 claim”). But nothing in logic or precedent justifies ignoring at certification whether reliance is susceptible to Rule 23(b)(3) classwide proof simply becauseone predicate of reliance—materiality—will be resolved, if at all, much later in the litigation on an independent merits element.
It is the Court, not Amgen, that “would have us put the cart before the horse,” ante, at 3, by jumping chronologically to the §10(b) merits element of materiality. But Rule 23, as well as common sense, requires class certificationissues to be addressed first. See Rule 23(c)(1)(A) (“At anearly practicable time after a person sues or is sued . . .the court must determine by order whether to certify theaction as a class action”). A plaintiff who cannot provemateriality does not simply have a claim that is “‘dead on arrival'” at the merits, ante, at 17 (quoting 660 F. 3d, at 1175); he has a class that should never have arrived at the merits at all because it failed Rule 23(b)(3) certificationfrom the outset. Without materiality, there is no fraudon-the-market presumption, questions of reliance remainindividualized, and Rule 23(b)(3) certification is impossible. And the fact that evidence of materiality goes to bothfraud on the market at certification and an independent merits element is no issue; Wal-Mart expressly held that acourt at certification may inquire into questions that also have later relevance on the merits. See 564 U. S., at ___ (slip op., at 10–11). The Court reverses that inquiry,effectively saying that certification may be put off until later because an adverse merits determination will retroactively wipe out the entire class. However, a plaintiffwho cannot prove materiality cannot prove fraud on the
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market and, thus, cannot demonstrate that the question ofreliance is susceptible of a classwide answer.
The fact that a statement may prove to be material atthe merits stage does not justify conflating the doctrinallyindependent (and distinct) elements of materiality and reliance.9 The Court's error occurs when, instead of asking whether the element of reliance is susceptible toclasswide proof, the Court focuses on whether materialityis susceptible to classwide proof. Ante, at 10 (“[T]he pivotal inquiry is whether proof of materiality is needed toensure that the questions of law or fact common to the class will ‘predominate'”). The result is that the Court effectively equates §10(b) materiality with fraud-on-themarket materiality and elides reliance as a §10(b) element. But a plaintiff seeking certification under Rule 23 bears the burden of proof with regard to all the elements of a §10(b) claim, which includes materiality and reliance. As Wal-Mart explained, “[a] party seeking class certification must affirmatively demonstrate his compliance with
—————— 9Of course, the Court's assertion that materiality will be resolved on the merits presumes that certification will not bring in terrorem settlement pressures to bear, foreclosing any materiality inquiry at all. The Court dismisses this concern, ante, at 18–20, attempting to give fraudon-the-market analysis the imprimatur of congressional enactmentinstead of recognizing it as a judicially created doctrine grafted onto animplied cause of action. But the fact that Congress has enacted legislation to curb excesses in securities litigation while leaving Basic intact, see ante, at 19–20, says nothing about the proper interpretation of Basic at issue here. The Court retains discretion over the contours of Basic unless and until Congress sees fit to alter them—a fact Congressmust also have realized when it passed the Private Securities Litigation Reform Act of 1995, 109 Stat. 737, and other legislation. The Court's entire argument is based on the assumption that the fraud-onthe-market presumption need not be shown at certification because it will be proved later on the merits; insofar as certification makes thatlater determination unlikely to occur, it at least counsels against the certitude with which the Court assures us that its gloss on Basic is correct.
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the Rule—that is, he must be prepared to prove that there are in fact sufficiently numerous parties, common questions of law or fact, etc.” 564 U. S., at ___ (slip op., at 10). If the elements of fraud on the market are not proved at certification, a plaintiff has failed to carry his burden ofestablishing that questions of individualized reliance will not predominate, without which the plaintiff class cannot obtain certification. Cf. id., at ___ (slip op., at 12) (holdingin Rule 23(a)(2) context that “[w]ithout some glue hold- ing the alleged reasons for all those decisions together, itwill be impossible to say that examination of all the classmembers' claims for relief will produce a common answer”). It is only by establishing all of the elements of the fraud-on-the-market presumption that reliance can beproved on a classwide basis. Therefore, if a plaintiff wishes to use Basic's presumption to prove that reliance is acommon question, he must establish the entire presumption, including materiality, at the class certification stage.
Nor is it relevant, as respondent argues, that requiring plaintiffs to establish all predicates of fraud on the market at certification will make it more difficult to obtain certification. See Brief for Respondent 35–38. In Basic, four Justices of a six-Justice Court created the fraud-on-themarket presumption from a combination of newly mintedeconomic theories, 485 U. S., at 250–251, n. 1 (White, J., concurring in part and dissenting in part), and “considerations of fairness, public policy, and probability,” id., at 245 (majority opinion), to allow claims that otherwise would have been barred due to the plaintiffs' inability to show reliance, id., at 242. Basic is a judicially invented doctrinebased on an economic theory adopted to ease the burden on plaintiffs bringing claims under an implied cause ofaction. There is nothing untoward about requiring plaintiffs to take the steps that the Basic Court created in an effort to save otherwise inadequate claims.
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II
The majority's approach is, thus, doctrinally incorrectunder Basic. Its shortcomings are further highlighted bythe role that materiality played in the pre-Basic development of the fraud-on-the-market theory as a conditionprecedent to showing that there are common questions ofreliance in the class-action context. Materiality, at the time of certification, has been a driving force behind the theory from the outset. This fact further supports theneed to prove materiality at the time the fraud-on-themarket theory is invoked to show that questions of reliance can be answered on a classwide basis.
A Before Basic, two signposts marked the way for courts applying the fraud-on-the-market theory. Both demonstrate that the materiality of an alleged falsehood was not a mere afterthought but rather one of the primary reasons for allowing traditional proof of reliance to be brushed aside at certification. This fact weighs strongly in favor of the conclusion that materiality must be resolved at certification when the fraud-on-the-market presumption is invoked to show that reliance can be proved on a classwidebasis. The first signpost was the Ninth Circuit's 1975 opinion in Blackie, termed by one pre-Basic court the “seminal fraud on the market case.” Peil, 806 F. 2d, at 1163, n. 16. See also Basic, supra, at 251, n. 1 (White, J., dissenting) (“The earliest Court of Appeals case adopting this theorycited by the Court is Blackie v. Barrack, 524 F. 2d 891 (CA9 1975), cert. denied, 429 U. S. 816 (1976)”). Blackie arose from a $90 million loss reported by audioequipment manufacturer Ampex Corp. in its 1972 annual report. 524 F. 2d, at 894.10 Ampex's independent auditors
—————— 10Ampex's sales for 1971 were just under $284 million. See Reckert,
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not only refused to certify the 1972 annual report but alsowithdrew certification of all 1971 financial statements “because of doubts that the loss reported for 1972 was infact suffered in that year.” Ibid. In resultant class actions, the defendants argued that reliance stood in the way of class certification under Rule 23(b)(3) because it was not a common question.
The Ninth Circuit disagreed. Instead, it relieved plaintiffs from providing traditional proof of reliance, explaining that “causation is adequately established in the impersonal stock exchange context by proof of purchase and of the materiality of misrepresentations, without direct proof of reliance.” Id., at 906 (emphasis added). The court left no doubt that the materiality of the $90 million shortfall in Ampex's financial statements was central to its determination that reliance could be presumed. It asserted that “[m]ateriality circumstantially establishes the reliance of some market traders and hence the inflation in the stock price—when the purchase is made[,] the causational chain between defendant's conduct and plaintiff 's loss is sufficiently established to make out a prima facie case.” Ibid. Materiality was not merely an important factor thatallowed reliance to be presumed at certification; materiality was the factor. It demonstrated that the defendants had committed a fraud on the market, that all putativeclass plaintiffs had relied on it in purchasing stock, and,therefore, that questions of reliance would be susceptible to common answers.11
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A. & P. Registers Deficit for First Fiscal Quarter, N. Y. Times, July 1,1972, p. 30 (discussing Ampex's revenue and net loss in its 1972 Annual Report).
11 Blackie's use of materiality to satisfy reliance for purposes of Rule23(b)(3) predominance continued to form the foundation for the fraudon-the-market concept in subsequent pre-Basic appellate cases. See, e.g., Peil v. Speiser, 806 F. 2d 1154, 1161 (CA3 1986) (“[W]e hold thatplaintiffs who purchase in an open and developed market need not
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The second fraud-on-the-market signpost prior to Basic was a note in the Harvard Law Review, which described the nascent theory. See Note, The Fraud-on-the-Market Theory, 95 Harv. L. Rev. 1143 (1982) (hereinafter Harv.
L. Rev. Note). The Sixth Circuit opinion reviewed in Basic termed the Note “[t]he clearest statement of the theory ofpresumption of reliance.” Levinson v. Basic Inc., 786 F. 2d 741, 750 (1986). Indeed, in the briefing for Basic itself, the plaintiffs, the United States, and plaintiffs' amicus cited the article repeatedly as an authoritative statement on thesubject. See Brief for Respondent 43, n. 18, 46, n. 20 (cited in Peil, supra, at 1160), Brief for Securities and ExchangeCommission as Amicus Curiae 22, n. 25, 24, n. 30, 26, n. 32, and Brief for Joseph Harris et al. as Amicus Curiae 4,
n. 2, in Basic Inc. v. Levinson, O. T. 1987, No. 86–279.
Like Blackie, the Note also hinged the fraud-on-themarket presumption of reliance on proof of materiality. Harv. L. Rev. Note 1161 (“In developed markets, which are apparently efficient, reliance should be presumed from the materiality of the deception” (emphasis added)). Ultimately, in language that will be familiar to anyone whohas read Basic, the Note formulated a “pivotal assumption” underlying the fraud-on-the-market theory as thebelief that:
“market prices respond to information disseminated (or not disseminated) concerning the companies whose securities are traded. In such a setting—often described as an ‘efficient market'—the reliance of some traders upon a material deception influences market
—————— prove direct reliance on defendants' misrepresentations, but can satisfy their burden of proof on the element of causation by showing that the defendants made material misrepresentations” (footnote omitted)); Panzirer v. Wolf, 663 F. 2d 365, 368 (CA2 1981) (“Blackie held that the materiality of a fraud creates a presumption of reliance through its presumed effect on the market. . . . Our holding is no more than an extension of Blackie”).
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prices and thereby affects even traders who neverread or hear of the deception.” Harv. L. Rev. Note 1154 (footnote omitted).
Again, the materiality of the alleged misstatement was a key component, without which the market could not be presumed to move. As a result, without materiality it is impossible to say that there has been a fraud on the market at all, and if that is not the case there is no reason to believe that the market price at which stock transactionsoccurred was affected by an alleged misstatement or, byextension, that any market participants relied on it. Materiality should thus be proved when the fraud-on-themarket presumption is invoked, or there is no commonality with respect to questions of reliance.
B Nor did the importance of materiality diminish in theSixth Circuit opinion reviewed in Basic. Rather, the court followed the path marked by the signposts discussed above. It excused plaintiffs from offering traditional evidence of reliance, so long as “a defendant is shown to have made a material public misrepresentation that, if relied on directly, would fraudulently induce an individual to misjudge the value of the stock.” Levinson, 786 F. 2d, at 750 (emphasis added). The court's analysis made clear that materiality should be demonstrated at the time the presumption was invoked: “In order to invoke the presumption of reliance based upon the fraud on the market theory, a plaintiff must allege and prove . . . that the misrepresentations were material . . . .” Ibid. (citing Blackie, 524 F. 2d, at 906).
C Finally, the briefing before this Court in Basic itself built upon this framework and the foundational principlethat materiality is an integral part of the theory. Criti17
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cally, the Basic defendants argued that the plaintiffs could not establish fraud on the market at certification even if the theory were valid because the alleged misstatement was immaterial. They “contrast[ed] the likely marketimpact of disclosure of the [$90 million Blackie loss] . . . with the disclosure of the information which respondents contend[ed] rendered Basic's statements materially misleading.” See Brief for Petitioners in O. T. 1987, No. 86– 279, p. 42. The Basic defendants concluded that “the differences between a company's $90 million loss and acompany's sporadic contacts with a friendly suitor are substantial. . . . [T]he fraud on the market theory, if it has vitality, should not be applied in a case such as this.” Id., at 43.
In response, the plaintiffs in Basic did not argue thatthe defendants misunderstood the role of materiality inthe fraud-on-the-market theory. They instead advanced a now-foreclosed interpretation of dicta from Eisen v. Carlisle & Jacquelin, 417 U. S. 156, 177 (1974):
“Petitioners' final argument—that respondents will be unable to establish that Basic's repeated false andmisleading statements impacted the price of Basicstock over a fourteen month period—represents an effort to litigate the merits of this case on the motion forclass certification. . . . As this Court held in Eisen v. Carlisle & Jacquelin, 417 U. S. 156, 177 (1974): ‘We find nothing in either the language or history of Rule23 that gives a court any authority to conduct a preliminary inquiry into the merits of a suit in order todetermine whether it may be maintained as a class action.'” Brief for Respondents in O. T. 1987, No. 86–279, p. 54.
The Court rejected this reading of Eisen two Terms ago,explaining that the very language the Basic plaintiffsquoted was “sometimes mistakenly cited” as prohibiting
18 AMGEN, INC. v. CONNECTICUT RETIREMENT PLANS AND TRUST FUNDS THOMAS, J., dissenting
inquiry into “the propriety of certification under Rules23(a) and (b).” Wal-Mart Stores, Inc., 564 U. S., at ___,
n. 6 (slip op., at 10, n. 6). That reading, the Court explained, “is the purest dictum and is contradicted by ourother cases.” Ibid. The Basic defendants' reply is consistent with Wal-Mart:
“Putative class representatives, such as respondents, should not be permitted to invoke the fraud on themarket theory while, at the same time, arguing thatcourts may not make any preliminary inquiry into theclaimed impact on the market. See, e.g., Resp. Br.,
p. 54. By seeking the benefit of the presumption, respondents necessarily invite judicial scrutiny of thecircumstances in which it is invoked.” Reply Brief forPetitioners in O. T. 1987, No. 86–279, p. 18.
Well said. The history of Basic is worth the volume of argument offered by the majority. Cf. New York Trust Co.
v. Eisner, 256 U. S. 345, 349 (1921) (majority opinion of Holmes, J.). Materiality was central to the development,analysis, and adoption of the fraud-on-the-market theory both before Basic and in Basic itself. Materiality, therefore, must be demonstrated to prove fraud on the market,and until materiality of an alleged misstatement is shown there is no reason to believe that all market participantshave relied equally on it. Otherwise individualized questions of reliance remain. This history confirms that materiality must be proved at the time that the theory isinvoked—i.e., at certification.
III I, thus, would reverse the judgment of the Ninth Circuitand hold that a plaintiff invoking the fraud-on-the-market presumption bears the burden to establish all the elements of fraud on the market at certification, includingthe materiality of the alleged misstatement.