Securities Law Prof Blog

Editor: Eric C. Chaffee
Univ. of Toledo College of Law

Monday, January 10, 2011

Supreme Court Accepts Cert to Address Loss Causation Standard

Since the U.S. Supreme Court's opinion in Dura Pharmaceuticals, Inc. v. Broudo, 544 U.S. 336 (2005), the lower federal courts have wrestled with the issue of loss causation, particularly as what it requires at the class-certification stage.  The Fifth Circuit has adopted the most rigorous standard, requiring plaintiffs, at the class certification stage, to prove loss causation by a preponderance of all admissible evidence, Oscar Private Equity Investments v. Allegiance Telecom, Inc., 487 F.3d 261 (5th Cir. 2007).  The Supreme Court has now accepted certiorari to address this issue in Erica P. John Fund Inc. v.  Halliburton Co. (09-1403).  The 5th Circuit's opinion is reported, under the name of Archdiocese of Milwaukee Supporting Fund, Inc. v. Halliburton Co., 597 F.3d 330 (5th Cir. 2010).  In that opinion the 5th Circuit affirmed the district court's denial of class certification for failure to prove the requisite causal relationship, i.e., that the corrected truth of the former falsehoods actually caused the stock price to fall and resulted in the losses.  Accordingly, plaintiff has to show "(1) that an allegedly corrective disclosure causing the decrease in price is related to the false, non-confirmatory positive statement made earlier, and (2) that it is more probable than not that it was this related corrective disclosure, and not any other unrelated negative statement, that caused the stock price decline."

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