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Should Courts Consider the Merits of the Suit Before Class Action Certification?

Posted on November 14th, 2012

The Supreme Court has been reviewing and defining class action lawsuit certification jurisprudence lately. In the last session, in Wal-Mart v. Dukes, the Supreme Court held the would-be class of female workers alleging discriminatory practices did not satisfy the “commonality” of law and fact requirement of Federal Rule 23(a). This was another blow to class actions after the court in AT&T Mobility v. Concepcion opened the door for mega-corporations to eliminate the possibility of class action lawsuits in consumer contracts.

Besides the Comcast class action case, discussed on this blog two days ago, the Supreme Court also heard arguments in Amgen v. Connecticut Retirement Plans and Trust Funds, No. 11-1085.  Plaintiff Connecticut Retirement Plans sued pharmaceutical corporation Amgen for violations of Section 10(b) of the Securities and Exchange Act. Plaintiffs alleged the defendant made misrepresentations about the safety of two drugs to artificially inflate the stock prices. The Supreme Court will addresss the question of whether the plaintiffs must require proof of materiality (a merit-based inquiry) of the suit at the certification stage to rely on the “fraud-on-the-market” presumption.

Prior to the recent class action cases, the merits of the case did not play a significant role in the certification stage. Recently, however, merit-based arguments are becoming more important for certification of classes. Justice Scalia, the majority opinion writer in Wal-Mart v. Dukes, expressed concern in the Amgen oral arguments that ignoring the merits of a suit places defendants in an unfair position. “There is a reason for deciding it earlier, and the reason is the enormous pressure to settle once the class is certified. In most cases, that’s the end of the lawsuit,” he stated.

Justice Scalia’s viewpoint is not shared across the board, however. The Ninth Circuit, which affirmed the class action certification, held that merit-based inquiries do not belong at the certification stage, stating that plaintiffs  “need only allege materiality with sufficient plausibility to withstand a 12(b)(6) motion [to dismiss].” This puts the Ninth Circuit in line with the Seventh Circuit and in opposition to the opinions of the Second, Third and Fifth Circuits. Now, the Supreme Court will decide which reasoning among the split circuits is correct.

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