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• W298679118 abstract "I. INTRODUCTION At the 15th Institute for Law and Economic Policy (ILEP) conference in Scottsdale, Arizona, Compensation of Plaintiffs in Mass Securities Litigation, I had the privilege of sitting on panel that presented papers by Frank Partnoy (Dura Fraud)1 and Allen Ferrell and Atanu Saha (Securities Litigation and the Housing Market Downturn)2. From different perspectives, both papers try to come to terms with the aftershocks of the Supreme Court's causation holding in Dura Pharmaceuticals, Inc. v. Broudo.3 The holding was unambiguous: inflated purchase price will not itself constitute or proximately cause the relevant economic loss needed to demonstrate causation.4 I contend that there is no basis for the lower federal courts to interpret Dura as creating major roadblock in the ability of plaintiffs to demonstrate causation. From this perspective, I provide the following comments on each Article. II. DURA FRAUD BY FRANK PARTNOY Pleading causation requires demonstrating the existence of a causal connection between the material misrepresentation and the loss.5 However, as Professor Partnoy correctly points out, Dura has made it possible for corporate management to strategically disclose information that purposely obscures the causal connection.6 He refers to this behavior as Dura fraud strategic behavior.7 For example, in strategy which Professor Partnoy refers to as simultaneous disclosure, company purposely releases material good news on the same day that it provides the market with corrective disclosure regarding concealed risk.8 If the two news items cancel each other out, then there will be no effect on the stock price. But if there is no significant decline in the stock price from the disclosure of the fraud, then it is very difficult for plaintiffs to demonstrate that the material misrepresentation caused investors an economic loss. A different type of Dura fraud strategy is what Professor Partnoy calls leakage.9 This strategy relies on leaking information so that there is no obvious explanation for how the truth was revealed and how market participants acted on that information.10 To make matters worse, Professor Partnoy speculates that corporate management may have fiduciary duty to the corporation to engage in such strategies in order to minimize potential litigation costs to the corporation.11 This type of fiduciary duty is unacceptable, and I can only hope that the courts recognize this strategic behavior for what it is: breach of management's duty of loyalty and good faith owed to their investors, both current and former. Professor Partnoy's novel solution to Dura fraud strategic behavior is to expand the kinds of allegations that survive motions to dismiss based on causation at the pleading stage, depending on whether there are allegations suggesting that defendants engaged in [such behavior].12 The result is an exception to providing evidence of large price drop when pleading causation. I am sympathetic to Professor Partnoy's goal of minimizing the effects of Dura fraud behavior and thereby reducing the number of meritorious cases dismissed because of it. However, to do what he suggests requires fact-specific inquiry based on developed record. Under the Private Securities Litigation Reform Act of 1995 (PSLRA), all discovery is stayed until the pendency of motion to dismiss.13 Therefore, plaintiffs would have to rely on public information and insider witnesses willing to come forward in order to make non-spurious allegations of Dura fraud behavior. This may be very difficult evidentiary hurdle to overcome. Moreover, I am not sure how receptive the courts would be to making securities class action litigation-already complex and document intensive-that much more complex when overseeing motion to dismiss. However, if these issues can be overcome, I would welcome the enhanced ability to overcome Dura fraud behavior. …" @default.
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• W298679118 date "2009-10-01" @default.
• W298679118 modified "2023-09-22" @default.
• W298679118 title "Coming to Terms with Loss Causation after Dura: A Response to Professors Partnoy, Ferrell, and Saha" @default.
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