Supreme Court Issues Unanimous Ruling Protecting Investors’ Ability to Sue for Securities Fraud
Lerach Coughlin Stoia Geller Rudman & Robbins LLP issued the following release to comment upon the Supreme Court’s decision in the Dura Pharmaceuticals litigation issued earlier today.
In a unanimous decision issued this morning, the Supreme Court reaffirmed the importance of investors’ ability to recover damages for securities fraud. In Dura Pharmaceuticals v. Broudo, S. Ct. No. 03-932, the Court ruled that in order to successfully plead “loss causation” – that the investors suffered recoverable damages from defendants’ actions – investors need only allege a “short and plain statement” of the loss and how defendants' fraudulent actions caused it. According to the Court: “[I]t should not prove burdensome for a plaintiff who has suffered an economic loss to provide a defendant with some indication of the loss and the causal connection that the plaintiff has in mind." Importantly, the Court did not accept defendants’ position that to recover damages a plaintiff must show an explicit disclosure of the previously misrepresented information followed by an immediate stock-price drop.
In its decision the Court stressed that, at the pleading stage, victims of securities fraud face no “special” or enhanced pleading burden in alleging loss causation. The Court emphasized that “ordinary pleading rules are not meant to impose a great burden upon a plaintiff” and that all a “plaintiff who has suffered an economic loss [must do is] to provide a defendant with some indication of the loss and the causal connection that the plaintiff has in mind.”
In so ruling, the Supreme Court rejected the defense bar’s demand to impose a rigid loss causation rule in securities cases that would require plaintiffs to tie directly a stock price decline to a particular defendants’ prior misrepresentations. According to the Supreme Court, “the loss requirement [is] that a plaintiff prove that a defendants’ misrepresentation (or other fraudulent conduct) proximately caused the plaintiff’s economic loss.”
Patrick Coughlin, the Lerach Coughlin Stoia Geller Rudman & Robbins LLP partner who argued the Dura case for the plaintiffs in the Court, stated “This is a clear win for investors. We are extremely gratified by the Supreme Court’s opinion. The Court recognized the federal laws seek to maintain public confidence in our nation’s securities markets by deterring fraud, in part through the availability of private securities fraud suits like this case. By adopting a commonsense and easily satisfied pleading rule, the Supreme Court has assured that victims of securities fraud will continue to have access to the federal courts to seek damages when they are cheated by fraudulent public companies, accounting firms or investment banks.” Coughlin continued, “In any legitimate securities fraud case, the plaintiff will be able to plead a relationship between the decline in the price of the stock and the alleged misrepresentations or other fraudulent conduct involved in the case. Certainly, we will be able to do that in the Dura suit when it is remanded to the district court.”