The Sixth Circuit’s Two-Step Test for Applying the Affiliated Ute Presumption in Mixed Omission / Misrepresentation Securities-Fraud Actions

1. Introduction

In Diane Owens v. FirstEnergy Corporation, the United States Court of Appeals for the Sixth Circuit confronted two foundational questions that routinely appear at the class-certification stage of federal securities litigation:

1. When, if ever, can a plaintiff class rely on the rebuttable presumption of reliance recognised in Affiliated Ute Citizens v. United States where the complaint alleges both omissions and affirmative misstatements?
2. What does the Supreme Court’s decision in Comcast Corp. v. Behrend require of district courts when they examine proposed class-wide damages methodologies under the Securities Exchange Act of 1934?

FirstEnergy investors sued after revelations that the utility secretly funnelled roughly US $60 million to Ohio politicians to secure a multi-billion-dollar legislative bailout for its failing nuclear plants (HB 6). The district court certified a Rule 23(b)(3) class and, over defendants’ objections, applied the Affiliated Ute presumption and accepted plaintiffs’ damages model wholesale. On interlocutory appeal, the Sixth Circuit vacated that certification in significant part, announcing a new, detailed framework for both reliance and damages analyses and remanding for further proceedings.

2. Summary of the Judgment

• Misapplication of Affiliated Ute. The panel held that the presumption is available in “mixed” cases only when the action is primarily omission-based. It set out a mandatory two-step inquiry and a four-factor test to make that determination. Because all four factors pointed to misrepresentations as the gravamen of plaintiffs’ case, Affiliated Ute was unavailable; the proper lens was the Basic fraud-on-the-market presumption.
• Failure to perform a Comcast “rigorous analysis.” The district court’s one-sentence adoption of plaintiffs’ Exchange Act damages model—while referencing statutory damages formulas that apply only to Securities Act claims—fell well short of the Supreme Court’s mandate. The Court of Appeals therefore vacated that portion of the certification as well.
• Limited remand. The class may yet be certified, but the district court must (a) re-examine reliance under Basic, and (b) conduct a searching damages analysis consistent with Comcast.

3. Detailed Analysis

3.1 Precedents Cited and Their Influence

• Affiliated Ute Citizens v. United States, 406 U.S. 128 (1972) – origin of the omission-based presumption of reliance.
• Basic Inc. v. Levinson, 485 U.S. 224 (1988) – fraud-on-the-market presumption for public misstatements.
• Comcast Corp. v. Behrend, 569 U.S. 27 (2013) – requirement that damages be measurable on a class-wide basis under rigorous analysis.
• Halliburton II, 573 U.S. 258 (2014) – clarified proof and rebuttal of price-impact under Basic.
• Recent statutory-interpretation decisions Macquarie Infrastructure v. Moab Partners (2024) and Thompson v. United States (2025) – used to illustrate the difference between “half-truths” and pure omissions.
• Circuit splits: 2d, 3d, 5th, 9th, 11th & D.C. Circuits limit Ute to “primarily omissions” cases; 4th Cir. (Cox) more restrictive; Sixth Circuit had been undecided.

3.2 The Court’s Legal Reasoning

3.2.1 Two-Step Framework

1. Classification. A district court must first isolate each challenged statement or non-statement and label it either an omission or a misrepresentation. “Half-truths” and broadly aspirational corporate puffery count as misrepresentations.
2. Primary-conduct Test. The court then asks whether the overall case is “primarily” about omissions, applying four decisive factors:
   • (a) Are the alleged omissions merely the inverse of the misstatements?
   • (b) Can plaintiffs, in practice, prove reliance by pointing to an affirmative misstatement?
   • (c) Do the misstatements constitute the preponderance and thrust of the pleaded misconduct?
   • (d) Do the omissions lack stand-alone impact apart from the misstatements?
   If any factor is met, the case is deemed misrepresentation-driven; Affiliated Ute is unavailable and the Basic framework governs.

3.2.2 Application to FirstEnergy

Every challenged communication—SEC filings, earnings calls, proxy materials, codes of conduct, press interviews—was a statement, often a “half-truth.” The supposed “omissions” (e.g., failure to disclose bribery risk) were simply the concealed truths underlying those statements. Because all four factors favoured the defence, the Sixth Circuit held that reliance must be addressed under Basic.

3.2.3 Rigorous Damages Analysis under Comcast

The district court imported its Securities Act analysis (where statutory formulas supply a class-wide measure) into the Exchange Act context, ignoring loss-causation proof and price-impact modelling. The appellate panel reiterated that Comcast applies regardless of whether plaintiffs plead a single theory of liability; a court must still probe whether the proposed methodology isolates damages caused by the alleged fraud and can be applied across the class.

3.3 Likely Impact of the Decision

• Clarifies Sixth Circuit law. Practitioners now have a bright-line, factor-driven test for invoking Affiliated Ute. Mixed cases will presumptively proceed under Basic unless plaintiffs clear every factor.
• National persuasive force. The decision synthesises and systematises disparate approaches in other circuits; it is likely to be cited elsewhere as a model of doctrinal clarity.
• Pleading strategy. Plaintiffs will draft complaints and class-cert motions mindful of the four factors, possibly recasting claims to sidestep them.
• Heightened burden on district courts. Courts must produce explicit, factor-by-factor findings on reliance presumptions and conduct deeper Comcast inquiries, particularly where Exchange Act claims lack statutory damages formulas.
• Corporate disclosure culture. Boards and compliance officers should note that generic “values” and codes—often dismissed as non-actionable puffery—can still be actionable misstatements if contradictory conduct exists.

4. Complex Concepts Simplified

Presumption of Reliance

A legal shortcut allowing plaintiffs to assume, rather than individually prove, that they relied on the alleged wrongdoing when purchasing or selling securities.

Affiliated Ute Presumption

Applies only when the case is chiefly about what defendants failed to say (pure omissions) and it would be nearly impossible for investors to prove reliance on a silence.

Basic (Fraud-on-the-Market) Presumption

Assumes that in an efficient market, a publicly available misstatement is incorporated into the stock price; anyone trading at that price is deemed to have relied on it.

Half-Truth

A statement that is literally correct but misleading because it omits crucial context (e.g., “We comply with all laws” said while paying bribes).

Rule 23(b)(3) Predominance

Requirement that questions common to class members outweigh questions unique to individuals—especially on reliance, loss causation, and damages.

Comcast Rigorous Analysis

District courts must scrutinise whether the proposed econometric or accounting method can measure damages attributable to the alleged misconduct for every class member in one stroke.

5. Conclusion

The Sixth Circuit’s opinion is more than a routine class-certification ruling; it articulates a structured, replicable analytical model that balances investor protection with the Supreme Court’s caution against expanding implied causes of action. By:

• Insisting on precise categorisation of omissions versus misstatements;
• Requiring plaintiffs to pass a stringent four-factor test before invoking Affiliated Ute; and
• Re-affirming the necessity of a Comcast-level damages inquiry for Exchange Act claims,

the court significantly recalibrates the class-action landscape in securities cases. Future litigants in the Sixth Circuit—and likely beyond—must now craft both pleadings and proof with these guideposts in mind. The decision underscores that powerful presumptions are “strong medicine,” reserved for the narrow circumstances that genuinely require them, and that damages models must trace the alleged wrongdoing with economic precision. As such, Diane Owens v. FirstEnergy stands as a landmark in defining the boundary lines of securities-fraud class actions.