Securities fraud; class actions; loss causation
Securities fraud plaintiffs need not prove loss causation in order to obtain class certification.
It is undisputed that securities fraud plaintiffs must prove certain things in order to invoke Basic ’s rebuttable presumption of reliance. According to the Court of Appeals, EPJ Fund had to prove the separate element of loss causation in order to trigger the presumption. That requirement is not justified by Basic or its logic. This Court has never mentioned loss causation as a precondition for invoking Basic ’s rebuttable presumption. Loss causation addresses a matter different from whether an investor relied on a misrepresentation, presumptively or otherwise, when buying or selling a stock.
The Court has referred to the element of reliance in a private Rule 10b–5 action as “transaction causation,” not loss causation. Dura Pharmaceuticals, Inc. v. Broudo , 544 U. S. 336 . Consistent with that description, when considering whether a plaintiff has relied on a misrepresentation, the Court has typically focused on facts surrounding the investor’s decision to engage in the transaction. Loss causation, by contrast, requires a plaintiff to show that the misrepresentation caused a subsequent economic loss. That has nothing to do with whether an investor relied on that misrepresentation in the first place, either directly or through the fraud-on-the-market theory. The Court of Appeals’ rule contravenes Basic ’s fundamental premise—that an investor presumptively relies on a misrepresentation so long as it was reflected in the market price at the time of his transaction.
597 F. 3d 330, vacated and remanded.
09-1403 Erica P. John Fund, Inc. v. Halliburton Co.