Goldman Sachs Group, Inc. v. Arkansas Teacher Retirement System

In this securities-fraud class action, the plaintiffs alleged that Goldman Sachs made false statements about its conflicts-of-interests policies and practices, in violation of section 10(b) of the Securities Exchange Act of 1934 and SEC Rule 10b-5. The plaintiffs moved class certification under Federal Rule of Civil Procedure 23(b)(3).  To satisfy the Rule’s requirement that common questions predominate over individual ones, the plaintiffs invoked the presumption of reliance under Basic Inc. v. Levinson, 485 U.S. 224 (1988), which provides that when securities are traded in an efficient market, it can be presumed that all investors relied on public, material misrepresentations regarding those securities. Defendant Goldman Sachs opposed class certification, arguing that the alleged misstatements were “too generic” to be relied upon by a reasonable investor and were incapable of influencing securities prices as a matter of law because of their generic character. The district court certified the class, however, and the court of appeals affirmed. Goldman Sachs then petitioned the Supreme Court for review.

In the Supreme Court, Public Citizen filed an amicus curiae brief in support of the plaintiffs. The brief explained that a categorical rule precluding class certification because of the assertedly generic nature of a misstatement would misconstrue Rule 23(b)(3)’s predominance requirement and overrule Amgen, Inc. v. Connecticut Retirement Plans & Trust Funds, 568 U.S. 455 (2013), which held that arguments that an alleged misrepresentation is immaterial may not be resolved at the certification stage. Whether a statement is incapable as a matter of law of price impact because it is too generic to be relied upon by a reasonable investor is one of common merits questions that a class action exists to resolve. The brief also explained that a court may consider factual evidence regarding the generic nature of a misstatement at the certification stage only to the extent that such evidence bears on the existence and predominance of common issues meriting classwide resolution.

The court held that the generic nature of a misrepresentation often is important evidence of price impact that courts should consider at class certification, even though the same evidence may be relevant to materiality, which is an issue to be considered at the merits phase of a securities-fraud class action. It further held that the defendants bear the burden of proving a lack of price impact by a preponderance of the evidence at the certification stage.