The Sixth Circuit in In Re FirstEnergy Corp. Sec. Litig., No. 23-3940, 2025 WL 2331754 (6th Cir. Aug. 13, 2025) recently reversed and remanded the district court’s class certification ruling in a securities class action on two independent bases: (1) that the district court applied the wrong standard when granting the plaintiffs a presumption of reliance under Affiliated Ute Citizens of Utah v. United States, 406 U.S. 128 (1972) in a case not primarily based on an omission; and (2) that the district court did not properly conduct a “rigorous analysis” under Comcast.
The Sixth Circuit clarified the correct standard to apply in securities class actions involving both omissions and misrepresentations (i.e., mixed cases) when determining whether plaintiffs should be granted a presumption of reliance, an important issue both for stating a claim under section 10(b) of the Securities Exchange Act and for establishing predominance under Federal Rule of Civil Procedure 23(b)(3). The Sixth Circuit held that, in mixed cases, federal courts must follow a two-step analysis to determine whether the case is “primarily” based on an omission or a misrepresentation. If the case is primarily based on a misrepresentation, the presumption is analyzed under Basic Inc. v. Levinson, 485 U.S. 224 (1988). If the case is primarily based on an omission, the presumption is analyzed under Affiliated Ute, under which it is generally much easier to establish a presumption of reliance.
Under this two-step analysis, first, each group of claims must be classified as an omission or misrepresentation. Second, a court must characterize whether the entire case is primarily based on omissions or misrepresentations by determining whether a single one of the following factors is present: “(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.” Applying these factors, the Sixth Circuit determined that this case was primarily a misrepresentation case, and that the district court improperly applied Affiliated Ute in granting the plaintiffs a presumption of reliance.
The Sixth Circuit also reversed the district court based on its failure to properly analyze the plaintiffs’ damages model under Comcast Corp. v. Behrend, 569 U.S. 27 (2013). In Comcast, the Supreme Court held that a plaintiff must establish “that damages are capable of measurement on a classwide basis.” While these damages need not be exact, courts still must conduct a “rigorous analysis” into whether a plaintiff’s damages case is consistent with its liability case. The Sixth Circuit determined that conclusory statements by the district court as to predominance did not satisfy Comcast’s rigorous-analysis requirement and remanded the case back to the district court to properly conduct a damages analysis.
The Sixth Circuit’s decision is significant because it clarifies how courts are to apply the presumption of reliance in securities class actions, which necessarily impacts the predominance analysis. It is also an important example of an appellate court strictly interpreting the rigorous-analysis requirement from Comcast.