Sixth Circuit Reverses Class Certification in Major Securities Fraud Case

On August 13, 2025, in a decision described by Bloomberg as a “landmark ruling,” the U.S. Court of Appeals for the Sixth Circuit reversed the certification of a securities fraud class action against S&C client FirstEnergy. S&C represented FirstEnergy in the appeal. The court clarified that a plaintiff alleging both misstatements and omissions cannot evade the more demanding evidentiary standard under Basic Inc. v. Levinson to prove that common issues of reliance predominate by characterizing the case as an omissions case under Affiliated Ute Citizens of Utah v. United States. The court also held that the district court failed to conduct the “rigorous analysis” of plaintiffs’ classwide damages methodology required by Comcast Corp. v. Behrend.

Reliance. The requirement to prove reliance would ordinarily preclude class certification in securities fraud cases because individual issues of reliance would predominate over common issues under Federal Rule of Civil Procedure 23(b)(3). But the Supreme Court has recognized two different presumptions of reliance:

1. The Basic presumption: The first reliance presumption is far more demanding for plaintiffs. The so-called Basic presumption rests on the theory that “the price of stock traded in an efficient market reflects all public, material information—including material misstatements.”[1] If plaintiffs prove that the stock in question trades in an efficient market, they are entitled to a rebuttable presumption that investors who bought the stock at the market price relied on those alleged misstatements. In several recent cases, defendants have succeeded in rebutting the Basic presumption by showing an absence of price impact—i.e., that the alleged misrepresentations did not actually impact the market price of the stock.
2. The Affiliated Ute presumption: In Affiliated Ute, the Supreme Court held that plaintiffs do not need to prove reliance in omissions cases—i.e., cases “involving primarily a failure to disclose.”[2] The Affiliated Ute presumption is based on the practical difficulties of proving reliance when no statements are made at all.

Because the Affiliated Ute standard is less demanding, plaintiffs often try to characterize cases as primarily involving omissions. Courts have thus grappled with determining whether a case involves “omissions” subject to the Affiliated Ute presumption or “misrepresentations” subject to the more demanding Basic presumption.

Damages. To certify a class, plaintiffs also must prove that damages are capable of measurement on a classwide basis. Otherwise, individual damages issues would overwhelm common issues and preclude class certification. In Comcast Corp. v. Behrend, the Supreme Court held that plaintiffs seeking class certification cannot satisfy Rule 23(b)(3)’s predominance requirement without “evidentiary proof” that “damages are capable of measurement on a classwide basis” in a manner “consistent with [their] liability case.”[3] The Supreme Court instructed district courts to conduct a “rigorous analysis” of the classwide damages methodology plaintiffs proffer at class certification to ensure that their damages methodology matches their liability theory.[4] In recent years, plaintiffs-side experts have tried to meet their evidentiary burden under Comcast by merely reciting the general standard for damages in securities cases (the “out-of-pocket” measure), and promising to develop a methodology for measuring out-of-pocket damages after the class is certified.

Factual Background & the District Court’s Certification Order. In July 2020, the price of FirstEnergy’s securities dropped after a federal criminal complaint was unsealed alleging that FirstEnergy had made payments, through 501(c)(4) organizations, benefitting political groups affiliated with Ohio House of Representatives Speaker Larry Householder in return for support for favorable legislation. In response, plaintiffs filed a securities fraud class action. The complaint alleged that 46 separate statements were false and misleading by omitting to disclose the alleged “bribery scheme.” The U.S. District Court for the Southern District of Ohio certified the class. First, it held that plaintiffs were entitled to the Affiliated Ute presumption of reliance. Second, without conducting a rigorous analysis of plaintiffs’ damages methodology, the district court stated that “predominance exists for the reasons articulated” in the court’s discussion of plaintiffs’ non-fraud claims under the Securities Act, which are subject to a statutory damages formula. The court made no findings about the methodology plaintiffs proposed for their securities fraud claims under Section 10(b) of the Exchange Act.

The Sixth Circuit reversed the district court’s class certification order on both grounds: its application of the Affiliated Ute presumption of reliance and its failure to properly examine plaintiffs’ damages methodology under Comcast.

Reliance. The Sixth Circuit joined other courts of appeals by limiting the Affiliated Ute presumption to cases primarily involving “omissions” claims.[5] In so ruling, the Sixth Circuit made three important contributions to the growing consensus.

1. The Sixth Circuit held that courts “must follow a two-step analysis” to determine whether the Affiliated Ute presumption applies: (i) “the court must classify each claim as alleging either an omission or a misrepresentation,” and (ii) determine “whether the overall case is primarily based on omissions or on misrepresentations.”[6]
2. The Sixth Circuit held that is “important” to give a “narrow legal construction of what constitutes an omission.”[7] As the court explained, “[b]ecause every misrepresentation includes some sort of ‘concealment,’ the right way to think about Affiliated Ute is as a narrow case premised on the conceptual difficulty of proving reliance on a representation that was never made.”[8] Thus, when grouping the challenged statements into omissions or misrepresentations, the court held that “half-truths and generic, aspirational corporate statements are misrepresentations,” not omissions, because they do not involve a situation where the defendant “stand[s] mute” and plaintiffs are “left ‘with absolutely nothing upon which to rely.’”[9] Although other courts have recognized that so-called “half-truths” are misrepresentations, the Sixth Circuit’s decision is the first to hold that generic statements that virtually all companies make (such as committing to act with “integrity”) are not “omissions” merely because the company fails to disclose misconduct.
3. The Sixth Circuit clarified how courts should determine whether a case involving a mix of misrepresentations and omissions qualifies for the Affiliated Ute presumption. It held that the Affiliated Ute presumption only applies if each of the following four factors are met: “(1) the omissions are not only the inverse of the misrepresentations, or the omissions are not only the truth that is misrepresented; (2) reliance is not practically possible to prove by pointing to a misrepresentation and connecting it to the injury; (3) the preponderance and primary thrust of the claims do not involve misrepresentations made by the defendant; and (4) the omissions alleged do have standalone impact apart from any alleged misrepresentations.”[10] In applying that test, the court held that plaintiffs failed to satisfy any of the four factors.[11]

Damages. The Sixth Circuit held that “[t]he district court failed to conduct any analysis at all, let alone a rigorous one,” of plaintiffs’ damages methodology.[12] Instead, the district court “rejected FirstEnergy’s objections to Plaintiffs’ experts in one sentence” and erroneously relied on the Securities Act damages formula, which is “entirely different[]” from the damages analysis required under the Exchange Act.[13] Therefore, the court “reverse[d] the district court and remand[ed] for the application of Comcast’s ‘rigorous analysis’” to plaintiffs’ Exchange Act claims.[14]

The decision continues the narrowing of the applicability of the Affiliated Ute presumption to cases that are truly based on omissions—i.e., situations where the plaintiff would be faced with the “severe evidentiary burden of proving reliance on something that was never said.”[15] Defendants in securities fraud actions should carefully scrutinize whether a complaint truly alleges omissions under the factors the Sixth Circuit identified. Indeed, in light of the Supreme Court’s holding in Macquarie Infrastructure Corp. v. Moab Partners, L.P. that “pure omissions” are not cognizable under Section 10(b) of the Exchange Act and that plaintiffs instead must identify a statement that is false or misleading,[16] it is not clear how, if at all, the Affiliated Ute presumption could ever apply.

The decision also provides a critical defense in so-called event-driven securities litigation. In such cases, plaintiffs often try to transform any negative company event (such as a data breach) into securities fraud by pointing to generic statements touching on the subject of that negative event (such as committing to protect client data). Following the Supreme Court’s 2021 decision for S&C client Goldman Sachs in Goldman Sachs Group, Inc. v. Arkansas Teacher Retirement System,[17] which clarified that the “generic nature of a misrepresentation” is “important evidence of a lack of price impact” under the Basic presumption,[18] plaintiffs have tried to seek shelter under the Affiliated Ute presumption in event-driven cases. The Sixth Circuit’s decision cuts off that path.

On the issue of damages, the decision reinforces the requirement that district courts conduct a “rigorous analysis” to determine if plaintiffs proffer “a methodology for calculating damages on a classwide basis that is susceptible of measurement across the entire class.”[19] The Fourth Circuit recently granted Rule 23(f) interlocutory review to address this issue in In re The Boeing Company Securities Litigation—another case in which S&C represents the defendants.[20] Defendants facing a class certification motion should carefully scrutinize plaintiffs’ expert’s damages report to assess potential Comcast-based arguments.