Class certification under FedRCivP 23(b)(3); Liability under § 10 of the Securities Exchange Act (15 USC § 78j(b)) & Securities & Exchange Commission (SEC) Rule 10b-5 (17 CFR § 240.10b-5); Applicability of the “presumption of reliance” analysis applied under Affiliated Ute Citizens of UT v United States in a case alleging both omissions & misrepresentations; Basic Inc v Levinson; “Rigorous analysis” of whether plaintiff class established that “damages are susceptible of measurement across the entire class”; Comcast Corp v Behrend

In this interlocutory appeal, the court held that the district court erred by granting plaintiffs in this securities case class certification where it applied the Affiliated Ute presumption of reliance. The legal standard should be to analyze a “mixed” case (one based on both omissions and misrepresentations) “under Affiliated Ute only if it is primarily based on omissions.” The district court “abused its discretion when it incorrectly applied that standard and concluded that in this case ‘the communications at issue are primarily omissions-based.’” Rather, the allegations here “make up a mixed case that is primarily based on misrepresentations.” Thus, it was “subject to analysis under Basic, not Affiliated Ute.” Plaintiffs moved for class certification on behalf of a group of defendant-FirstEnergy’s bondholders and stock purchasers. The court found that the district court erred by granting plaintiffs class certification on their Exchange Act § 10(b) and SEC Rule 10b-5 claims. The Supreme Court has limited use of Affiliated Ute to “cases involving ‘primarily’ omissions[.]” The court held that a federal court in this circuit, “in assessing what a mixed case is ‘primarily’ based on, must follow a two-step analysis. First, it must classify each claim or group of claims as alleging either an omission or a misrepresentation. Both half-truths and generic, aspirational corporate statements are classified as misrepresentations. Second, it must characterize whether the overall case is primarily based on omissions or on misrepresentations by analyzing whether any of these four factors are satisfied: (1) the alleged omissions are only the inverse of the misrepresentations, i.e., the only omissions are the truth that is misrepresented; (2) reliance is in fact possible to prove by pointing to an alleged misrepresentation and connecting it to an injury; (3) the preponderance and primary thrust of the claims involve alleged misrepresentations made by the defendant(s); or (4) the alleged omissions have no standalone impact apart from any alleged misrepresentations. If even one of these four factors is satisfied, the mixed case is primarily based on misrepresentations and thus subject to analysis under the Basic presumption.” Only if none of them are satisfied, is the mixed case “primarily based on omissions and thus subject to analysis under the Affiliated Ute presumption.” The court found that this mixed case was “primarily based on misrepresentations” and thus, the analysis should have been under Basic, not Affiliated Ute. It also held that “the district court incorrectly overlooked Comcast’s rigorous-analysis requirement in its damages analysis of” the Exchange Act claims. Vacated and remanded.