Class Action Cases Divide U.S. High Court

In wake of Wal-Mart, Amgen case could erect new barrier for suits by shareholders.

Two class action disputes divided the U.S. Supreme Court yesterday as companies looked to build on the victory they won last year when the justices threw out a nationwide gender-bias suit against Wal-Mart Stores Inc.

Hearing two arguments in Washington, the court’s Republican-appointed majority questioned separate efforts to press an antitrust suit against Comcast Corp., the nation’s largest cable television company, and a securities fraud case targeting Amgen Inc., the world’s largest biotechnology company.

Both cases test the standards for determining whether lawsuits can proceed on a group basis. Of the two, the Amgen case may have the greater impact, potentially erecting a new barrier for shareholders who accuse companies of making misleading statements that affect stock prices.

Amgen is fighting claims that the company and its executives misled investors for more than three years about safety questions involving its Aranesp and Epogen anemia drugs. Amgen says it didn’t mislead shareholders and that information about drug-safety questions was widely known.

The question for the Supreme Court is whether investors seeking to press a class action case must first prove “materiality” -- that is, that the allegedly misleading information affected the company’s stock price. A federal appeals court in San Francisco said investors could wait to make that showing at trial.

The court’s four Democratic appointees suggested that approach made sense. Justice Elena Kagan said that in determining whether a case can go forward as a class action, a judge focuses on whether the members of the group bear enough similarities to one another. In this sort of securities fraud case, the answer to the materiality question will be the same for everyone, so it doesn’t help resolve whether the plaintiffs are similar enough to sue as a group, she said.

“There is class cohesion as to materiality,” she said. “People win or lose on materiality together.”

Justice Antonin Scalia said class action status puts “enormous pressure to settle” on the company being sued. Forcing defendants to provide materiality at the class certification would reduce some of that pressure, he said.

“There is a reason for deciding it earlier,” Scalia said.

The Obama administration is backing the investors in the Amgen case, arguing that a 1995 law created other safeguards to reduce settlement pressures.


Comcast Clash

Comcast is seeking to stop an antitrust lawsuit that seeks $875 million on behalf of as many as 2 million Philadelphia-area customers.

The suing customers contend that Comcast engaged in a practice known as “clustering,” swapping territories and subscribers with its competitors to ensure it could control the Philadelphia market and charge higher prices. Comcast has denied the allegations.

Comcast contends a federal judge improperly certified the case as a class-action lawsuit without first resolving whether proof of damages could be determined for the plaintiffs as a group. A Philadelphia-based federal appeals court let the case go forward.

Justice Anthony Kennedy was among those who questioned that ruling today. He said a trial judge must make “some factual inquiries as to the damages alleged and the cause of the injury,” as well as “whether or not there’s a commonality.”

The court’s Democratic appointees expressed doubt that any disagreement existed on that point. Kagan said the trial judge used the legal standard sought by Comcast when he concluded that the plaintiffs’ expert witness had shown that damages could be proven.

“I am still in search of a legal issue that anybody disagrees about here,” Kagan said.

The U.S. Chamber of Commerce is supporting both Comcast and Amgen, arguing that limits on class actions are crucial to reducing legal expenses.

The Wal-Mart ruling, a 5-4 decision, said the lawyers pressing the case failed to point to a common corporate policy that led to gender discrimination at thousands of stores across the country.

Those lawyers have since filed four separate regional cases, seeking smaller classes. None of the cases has reached class certification. Lawsuits in the Florida and Tennessee regions were filed last month.

Wal-Mart last month won dismissal of a class action filed on behalf of women who worked in stores in the Texas region. The retailer lost a bid to dismiss a similar gender class action in California in September.

The Supreme Court cases are Comcast v. Behrend, 11-864, and Amgen v. Connecticut Retirement Plans, 11-1085.


Bloomberg News


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