|  | | 2007 News and Press Releases | | |
HEADLINE NEWS:
Pleading The Loss Causation Link, 'Dura' and 'Twombly' play out on motions to dismiss.
Steven R. Paradise and Ari M. Berman
New York Law Journal. December 3, 2007
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EXCERPT: THE STOCK MARKET'S recent tumult has coincided, not surprisingly, with an increase in the filings of securities fraud class action lawsuits. Unfortunately for companies that have had to live through it, the following scenario has become all too familiar: a stock price decline followed by a putative class action lawsuit alleging securities fraud claims. In response to such allegations, defendants will likely argue, among other things, that plaintiffs failed to plead 'loss causation,' i.e., a 'direct causal link between the misstatement and the claimant's economic loss,' [FN1] which is an element of any claim under §10(b) of the Securities Exchange Act of 1934. [FN2] Defendants' quivers, however, have been filled with new arrows as a result of U.S. Supreme Court decisions that direct district courts to engage in a more rigorous analysis of complaints at the motion to dismiss stage. Thanks to the Supreme Court's decisions in Dura Pharm., Inc. v. Broudo [FN3] and Bell Atlantic Corp. v. Twombly, [FN4] as well as subsequent lower court cases applying the Court's opinions, lower courts have carefully considered competing explanations at the motion to dismiss stage, such as economic conditions that existed around the time of a stock price decline, both for conduct that plaintiffs allege to be fraudulent and the decline in the stock's value. While, on its face, Twombly addressed pleading requirements for certain antitrust claims, as predicted, courts, including the Second Circuit, have applied Twombly 's 'plausibility' test in other contexts, including securities fraud actions. And, recently, courts specifically have extended Twombly 's rationale to the loss causation analysis, boosting defendants' chances of obtaining early dismissal of securities fraud lawsuits. In many ways, Dura set the stage for Twombly, which held that dismissal is warranted unless, to use the Court's colorful formulation, a plaintiff 'nudges' its claims 'across the line from conceivable to plausible.' [FN5] While Twombly 's retirement of the Supreme Court's longstanding 'no set of facts' [FN6] maxim may not have been a pleading requirement revolution, it sent a clear message that complaints will be met with additional scrutiny due to the Court's commitment to weed out weak actions, including securities fraud lawsuits, which 'present a danger of vexatiousness different in degree and in kind from that which accompanies litigation in general.' [FN7] At bottom, Twombly 's plausibility analysis, coupled with Dura 's strict interpretation of loss causation, encourage defendants to call to a court's attention general market factors and industry-wide declines to rebut attenuated causal links. |
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