On February 27, 2013 the Supreme Court resolved a split in authority between the federal circuits and held that proof of materiality is not required for class certification in a securities fraud class action, where materiality is a critical element to the violation. The defendant corporation sought to require the plaintiff to provide evidence of materiality at the class certification stage. The Court acknowledged that materiality ultimately must be proven to win the case, but that such proof is not required to certify the class. Materiality is established by an objective standard, which is common to the class as a whole. The plaintiff class was found to be “entirely cohesive: it would prevail or fall in unison.” At the class certification stage, the issue is whether common questions predominate, and the Court held that materiality does not bear on that inquiry. The class certification stage is meant to select the best method to resolve the dispute, not to adjudicate the merits of the case.
Because certification of class actions exerts substantial pressure on defendants to settle such cases, this decision will increase the defense costs of manufacturers, even when they have done nothing wrong.