Source: s3://data.kl3m.ai/documents/govinfo/USCOURTS/USCOURTS-ca9-13-56838/USCOURTS-ca9-13-56838-0/pdf.json

Nature of Suit Code: 850
Nature of Suit: Securities, Commodities, Exchange
Cause of Action: 

---

FOR PUBLICATION

UNITED STATES COURT OF APPEALS

FOR THE NINTH CIRCUIT

BARRY R. LLOYD,

Plaintiff,

and

JACKSONVILLE POLICE AND FIRE 

PENSION FUND,

Plaintiff-Appellant,

v.

CVB FINANCIAL CORPORATION;

CHRISTOPHER D. MYERS; EDWARD J.

BIEBRICH, JR.,

Defendants-Appellees.

No. 13-56838

D.C. No.

2:10-cv-06256-

MMM-PJW

OPINION

Appeal from the United States District Court

for the Central District of California

Margaret M. Morrow, District Judge, Presiding

Argued and Submitted

December 10, 2015—Pasadena, California

Filed February 1, 2016

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2 JACKSONVILLE PENSION FUND V. CVB

Before: Harry Pregerson, Consuelo M. Callahan,

and Andrew D. Hurwitz, Circuit Judges.

Opinion by Judge Hurwitz

SUMMARY*

Securities Fraud

The panel affirmed in part and reversed in part the 

district court’s dismissal of a putative class action under 

Section 10(b) of the Securities and Exchange Act of 1934 

and Rule 10b-5, alleging misrepresentations in defendant’s 

filings with the Securities and Exchange Commission.

The panel held that the announcement of an SEC 

investigation related to an alleged misrepresentation, 

coupled with a subsequent revelation of the inaccuracy of 

that misrepresentation, can serve as a corrective disclosure 

for the purpose of loss causation. Accordingly, the second 

amended complaint stated a claim as to two alleged 

misrepresentations.

Affirming as to other alleged misrepresentations, the 

panel held that vague, optimistic statements were correctly 

characterized as puffery and were not actionable. In context, 

there was nothing misleading about statements regarding the 

Southern California real estate market. In addition, the 

 * This summary constitutes no part of the opinion of the court. It has 

been prepared by court staff for the convenience of the reader.

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JACKSONVILLE PENSION FUND V. CVB 3

second amended complaint did not allege facts raising a 

strong inference of scienter as to statements regarding 

defendant’s accounting practices.

The panel affirmed the dismissal of claims based on an 

SEC filing of November 2009. It reversed, however, as to 

SEC filings of March and May, 2010. The panel held that 

the second amended complaint sufficiently alleged falsity 

and scienter as to statements in these SEC filings. 

Answering a question left open in Loos v. Immersion Corp., 

762 F.3d 880 (9th Cir. 2014), and agreeing with the Fifth 

Circuit, the panel held that the complaint also sufficiently 

alleged loss causation because the announcement of an 

investigation can form the basis for a viable loss causation 

theory if the complaint also alleges a subsequent corrective 

disclosure by the defendant.

COUNSEL

Timothy A. DeLange (argued), Niki L. Mendoza, Bernstein 

Litowitz Berger & Grossmann LLP, San Diego, California, 

for Plaintiff-Appellant.

George T. Conway, III (argued), David M. Murphy, Warren 

R. Stern, Wachtell, Lipton, Rosen & Katz, New York, New 

York; Scott Vick, Jason T. Riddick, Rachelle S. Torres, Vick 

Law Group, APC, Los Angeles, California, for DefendantsAppellees.

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4 JACKSONVILLE PENSION FUND V. CVB

OPINION

HURWITZ, Circuit Judge:

The last recession put the Garrett Group, a commercial 

real estate company, into serious financial trouble. In 2008, 

Garrett informed its largest creditor, CVB Financial 

Corporation (“CVB”), that it could not make payments on 

its loans. After the loans were restructured, Garrett informed 

CVB in early 2010 that it again could not make the required 

payments and was contemplating bankruptcy.

CVB nonetheless represented in 2009 and 2010 filings 

with the Securities and Exchange Commission (“SEC”) that 

there was no basis for “serious doubt” about Garrett’s ability 

to repay its borrowings. In 2010, the SEC served a subpoena 

on CVB, seeking information about its loan underwriting 

methodology and allowance for credit losses. The day after 

CVB announced receipt of the subpoena, its stock dropped 

22%, and analysts noted the probable relationship between 

the subpoena and CVB’s loans to Garrett, its largest 

borrower. A month later, CVB wrote down $34 million in 

loans to Garrett and placed the remaining $48 million in its 

non-performing category.

In this putative class action, Jacksonville Police & Fire 

Pension Fund (“Jacksonville”) alleges violations of Section 

10(b) of the Securities and Exchange Act of 1934, 15 U.S.C. 

§ 78j(b), and Rule 10b-5 promulgated thereunder, 17 C.F.R. 

§ 240.10b-5. The district court granted CVB’s motion to 

dismiss, holding that the Second Amended Complaint 

(“SAC”) failed to plausibly allege that any of the statements 

by CVB challenged in the pleading were either knowingly 

or recklessly false or caused a loss to shareholders.

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JACKSONVILLE PENSION FUND V. CVB 5

We affirm in part and reverse in part, finding that the 

SAC stated a claim as to two alleged misrepresentations. In 

doing so, we hold that the announcement of an SEC 

investigation related to an alleged misrepresentation, 

coupled with a subsequent revelation of the inaccuracy of 

that misrepresentation, can serve as a corrective disclosure 

for the purpose of loss causation. See Loos v. Immersion 

Corp., 762 F.3d 880, 890 n.3 (9th Cir. 2014) (reserving this 

question).

I. Background1

A. The September 2008 Meeting and Subsequent 

Loans

In late August or early September 2008, Garrett’s Board 

of Advisors, including its Chief Operating Officer (“COO”), 

met to discuss an upcoming meeting with CVB. According 

to the COO, whom the SAC does not otherwise identify, the 

Board was told that management planned to inform CVB 

that Garrett had laid off twenty people, reduced salaries, and 

could not make payments on its loans. At the time, Garrett 

was CVB’s largest borrower.

CVB officials and Garrett executives Paul Garrett and 

Kirk Wright, Garrett’s Chief Executive Officer, met about 

two weeks later, in the fall of 2008. Two weeks after that 

meeting, Wright confirmed to the Board that CVB had been 

informed of the layoffs and salary reductions and told that 

Garrett could not meet its current obligations, including its 

loan payments to CVB.

 1 Because this is an appeal from an order dismissing the SAC for failure 

to state a claim, we take the well-pleaded allegations in the SAC as true. 

Tellabs, Inc. v. Makor Issues & Rights, Ltd., 551 U.S. 308, 322 (2007).

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6 JACKSONVILLE PENSION FUND V. CVB

CVB subsequently made an additional $10 million loan 

to Garrett, secured by an interest in rent in fifteen properties. 

When the new loan closed, Garrett was ninety days 

delinquent on its loan payments to CVB. Garrett used a 

quarter of the new loan to get current with CVB. Garrett’s 

COO recalled that “CVB was trying to keep the house of 

cards standing.” Other Garrett employees confirmed that 

Garrett’s financial situation in 2008 and early 2009 was 

“rotten,” with rental properties vacant for years, and that 

Garrett had considered bankruptcy.

In March 2009, CVB provided Garrett with $53 million 

in refinancing. CVB also made other modifications to 

Garrett loans in 2009.

B. The November 2009 Representations

On November 5, 2009, CVB issued a quarterly report, 

known as a Form 10-Q, for the period ending September 30, 

2009. The 10-Q listed troubled loans and then stated that 

CVB was “not aware of any other loans as of September 30, 

2009 for which known credit problems of the borrower 

would cause serious doubts as to the ability of such 

borrowers to comply with their loan repayment terms, or any 

known events that would result in the loan being designated 

as non-performing at some future date.” The loans to Garrett 

were not listed.

C. The January 2010 Meeting

By the end of 2009, Garrett again became delinquent 

with CVB. According to Garrett’s COO, in late December 

2009 or early January 2010, Wright told his Board that 

Garrett needed to meet with CVB to address this situation.

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JACKSONVILLE PENSION FUND V. CVB 7

The meeting with CVB occurred one week later, in early 

January 2010. A week after that, Wright reported back to 

the Garrett Board. Wright reported that Garrett told CVB it 

would file for bankruptcy unless the loans were modified. 

Garrett also discussed two other options with CVB: selling 

assets or bringing on a new equity partner. It also provided 

CVB with the financial projections and presentation it had 

used in unsuccessful attempts to woo new investors. Wright 

told the Board that Garrett had pleaded with CVB for more 

time to resolve the loan situation, but that no agreement had 

been reached.

CVB and Garrett continued negotiations about the loans 

throughout 2010. Garrett never again became current on its 

obligations to CVB.

D. The March and May 2010 Representations

On March 4, 2010, CVB filed a Form 10-K for calendar 

year 2009. The 10-K stated that CVB was “not aware of any 

other loans as of December 31, 2009 for which known credit 

problems of the borrower would cause serious doubts as to 

the ability of such borrowers to comply with their loan 

repayment terms.” As with the previous 10-Q, this statement 

appeared after a list of non-performing or past-due loans. 

That list did not include the Garrett loans.

CVB made a nearly identical “no serious doubts” 

statement in a 10-Q filed on May 10, 2010. That statement 

differed from the previous “no serious doubts” statements 

only in that it was “as of March 10, 2010.”

E. The Alleged Disclosures

In May and June 2010, an anonymous blogger suggested 

that CVB was engaging in a “cycle of extend and pretend” 

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8 JACKSONVILLE PENSION FUND V. CVB

with its loans to Garrett and others, often restructuring the 

loans at the end of the quarter or year, before FDIC audits. 

But, other analysts did not credit these blog posts, and 

neither did the market at large; CVB’s stock price rose, 

climbing to $10.61 on July 26, 2010.

On July 26, 2010, CVB received a subpoena from the 

SEC. On August 9, 2010, after the stock market closed, 

CVB filed a form 10-Q for the second quarter of 2010, which 

disclosed receipt of the subpoena, stating:

The subpoena requests information regarding 

our loan underwriting guidelines, our 

allowance for credit losses and our allowance 

for loan loss calculation methodology, our 

methodology for grading loans and the 

process for making provisions for loan losses, 

and our provision for credit losses. In 

addition, the subpoena requests information 

regarding presentations we have given or 

conferences we have attended with analysts, 

brokers, investors or prospective investors.

The next day, CVB’s stock fell 22%, from $10.30 to $8.00 

per share, a loss of $245 million in market capitalization.

Several analysts commented on the subpoena. The 

blogger claimed that it “appear[s] to validate our overall 

concerns with the bank.” Dow Jones specifically noted a 

connection to the Garrett loans:

Discussion of CVB Financial centers on its 

largest exposure, loans to a property 

company called the Garrett Group. Skeptics 

believe this exposure is backed by collateral 

whose market value is well below that of the 

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JACKSONVILLE PENSION FUND V. CVB 9

loan amount. Some also question whether 

CVB extended a new loan to Garrett to help 

it pay existing loans, something Myers 

denies. He said the Garrett Group was 

current on its loans at the end of the second 

quarter, but the bank had reserves against the 

exposure.

Credit Suisse observed that the investigation appeared to 

pertain to the adequacy of CVB’s reserves, including those 

for its largest borrower, Garrett, and the adequacy of CVB’s 

disclosures. And, on August 11, FIG Partners wrote:

It appears the SEC is looking into whether 

CVB[] misled the Street by hiding the true 

performance of loans the company said were 

performing. In doing so, the SEC is also 

implying that company management hid the 

true nature of the loan portfolio from the 

FDIC and California Department of Financial 

Institutions (the bank’s primary regulators).

. . .

The information sought [in the SEC 

subpoena] is very similar to stories in the 

press recently that the company was 

overstating credit quality.

A month later, after the market closed on September 9, 

CVB announced that Garrett was unable to pay its loans as 

scheduled; the bank charged off $34 million in Garrett loans 

and characterized the remaining $48 million as nonperforming and impaired. CVB announced that it had $24.7 

million in reserves for credit losses and was recording an 

additional $9.3 million to account for the $34 million chargeoff. CVB also announced that it had only an equity interest, 

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10 JACKSONVILLE PENSION FUND V. CVB

and no direct liens, on the fifteen properties that served as 

collateral for the largest loan to Garrett, which had a balance 

of $42.5 million, and that it was discounting the value of its 

UCC-1 filings on those properties to zero.

The next day, Credit Suisse published an analysis of 

CVB’s announcement:

More importantly, in our view, CVB[] 

announced that it was placing its largest (and 

most controversial) loan on non-performing 

status, and writing it down to its recent 

appraisal (less assumed OREO costs).

While the SEC subpoena remains 

outstanding, we believe the announcement 

removes a major component of uncertainty in 

regards to problem loans; for which the 

subpoena also seeks to address (to a certain 

extent).

Consistent with that analysis, CVB’s stock dropped only 

slightly on September 10, from $7.05 to a closing price of 

$6.99. By the next week the stock had risen above $7.05, 

and it never again fell below that price. As another analyst 

wrote on September 13, 2010:

The company’s share price plummeted by 

~22% to $8.00 on August 10, which was the 

day after it disclosed the SEC investigation. 

Since then, the share price has drifted down 

by an additional ~13% to $6.99 on September 

10. There was only a modest decline of ~1% 

following the earnings preannouncement as 

further deterioration in credit quality and 

uncertainty surrounding the SEC 

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JACKSONVILLE PENSION FUND V. CVB 11

investigation are already reflected in the 

share price.

In January and February 2011, CVB recorded Notices of 

Default on $58 million of Garrett loans. Despite the 2010 

SEC subpoena, no formal agency proceedings were 

instituted against CVB.

F. Procedural History

In 2010, two securities fraud actions were filed against 

CVB in the United States District Court for the Central 

District of California. The district court consolidated the 

suits and appointed Jacksonville as lead plaintiff. The court 

then dismissed in turn, each time with leave to amend, the 

consolidated complaint, a First Amended Complaint, and the 

SAC. Jacksonville declined to further amend its complaint 

and requested that the district court enter judgment. The 

court did so, and Jacksonville timely appealed.

II. Standard of Review

We review a dismissal for failure to state a claim de 

novo, accepting all well-pleaded allegations as true. Metzler 

Inv. GMBH v. Corinthian Colls., Inc., 540 F.3d 1049, 1061 

(9th Cir. 2008). Securities fraud claims must satisfy the 

“exacting pleading standards of Federal Rule of Civil 

Procedure 9(b) and the Private Securities Litigation Reform 

Act (PSLRA).” Or. Pub. Emp. Ret. Fund v. Apollo Grp. Inc., 

774 F.3d 598, 604 (9th Cir. 2014).

III.Discussion

The SAC alleged that CVB, Myers, and CVB’s former 

Chief Financial Officer, Edward Biebrich (collectively, 

“CVB”) violated Section 10(b) of the Securities and 

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12 JACKSONVILLE PENSION FUND V. CVB

Exchange Act of 1934 and Rule 10b-5.2 The elements of a 

private securities fraud action under Section 10(b) and Rule 

10b-5 are: “(1) a material misrepresentation or omission by 

the defendant; (2) scienter; (3) a connection between the 

misrepresentation or omission and the purchase or sale of a 

security; (4) reliance upon the misrepresentation or 

omission; (5) economic loss; and (6) loss causation.” Erica 

P. John Fund, Inc. v. Halliburton Co., 131 S. Ct. 2179, 2184 

(2011) (citation omitted).

The complaint must plead specific facts indicating why 

any alleged misrepresentation was false or any omission 

rendered a representation misleading. 15 U.S.C. § 78u–

4(b)(1); Metzler, 530 F.3d at 1070. To plead scienter 

adequately, the complaint must “state with particularity facts 

giving rise to a strong inference,” 15 U.S.C. § 78u–

4(b)(2)(A), that “defendants engaged in knowing or 

intentional conduct,” which includes “deliberate 

recklessness,” S. Ferry LP, No. 2 v. Killinger, 542 F.3d 776, 

782 (9th Cir. 2008) (internal citation and quotation marks 

omitted). The inference of scienter must be “at least as 

compelling as any opposing inference of nonfraudulent 

intent.” Tellabs, Inc. v. Makor Issues & Rights, Ltd., 

551 U.S. 308, 314 (2007).

The SAC alleges four general categories of false and 

misleading statements:

 2 The SAC also alleged that Myers and Biebrich violated Section 20(a)

of the Securities and Exchange Act of 1934, 15 U.S.C. § 78t(a), as 

controlling employees of CVB. The parties correctly agree that, in the 

context of this appeal from an order granting a motion to dismiss, the 

control person liability claim rises or falls with the primary violation 

claim. See Zucco Partners, LLC v. Digimarc Corp., 552 F.3d 981, 990 

(9th Cir. 2009).

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JACKSONVILLE PENSION FUND V. CVB 13

1. CVB’s touting of its loan underwriting 

culture, credit metrics, and the quality of 

its loan portfolio.

2. CVB’s statement that the deteriorating 

real estate market “could” harm its 

borrowers’ ability to repay.

3. CVB’s financial statements, which 

allegedly violated Generally Accepted 

Accounting Principles (“GAAP”).

4. CVB’s assurance in its SEC filings that it 

was “not aware of any other loans . . . for 

which known credit problems of the 

borrower would cause serious doubts as 

to the ability of such borrowers to comply 

with their loan repayment terms.”3

We analyze these alleged misrepresentations to determine 

whether the SAC includes detailed allegations compelling 

the inference that each statement was false and made with 

the requisite scienter. See Tellabs, 551 U.S. at 314; S. Ferry, 

542 F.3d at 782.

A. The First Three Categories of Statements

First, the SAC alleges that CVB committed securities 

fraud by boasting that “[t]he overall credit quality of the loan 

portfolio is sound”; “CVB’s credit metrics are superior” to 

 3 The SAC also alleges that CVB committed securities fraud by 

reporting no nonperforming dairy loans throughout the alleged Class 

Period and then classifying $5.2 million in dairy loans as nonperforming. 

But, the SAC does not explain why there was not enough time between 

reporting periods for performing loans later to become non-performing. 

The allegation therefore fails the heightened pleading standards of the 

PSLRA and Rule 9(b).

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14 JACKSONVILLE PENSION FUND V. CVB

those of its peers; “strong credit culture and underwriting 

integrity remain paramount at CVB”; and CVB’s culture has 

“limited its exposure to problem credits.” The district court 

dismissed the claims based on these boasts, characterizing 

them as puffery. That decision was correct. These vague, 

optimistic statements by CVB officials are not actionable. 

See In re Cutera Sec. Litig., 610 F.3d 1103, 1111 (9th Cir. 

2010).4

Jacksonville next argues that CVB committed securities 

fraud by describing the Southern California real estate 

market in several SEC filings simply as a “risk factor” that 

“could” affect the ability of loan customers to repay “in the 

future,” when in fact that risk had already come to fruition. 

But, in context, there is nothing misleading about these 

statements, which were accompanied by information about 

CVB’s credit losses and charge-offs and a warning that 

“[w]e may be required to make additional provisions for loan 

losses and charge off additional loans in the future.”

Jacksonville also alleges that there were GAAP 

violations in CVB’s published accounting figures. But, “the 

mere publication of inaccurate accounting figures, or a 

failure to follow GAAP, without more, does not establish 

scienter.” DSAM Glob. Value Fund v. Altris Software, Inc., 

288 F.3d 385, 390 (9th Cir. 2002) (quoting In re Software 

Toolworks Inc., 50 F.3d 615, 627 (9th Cir. 1994)). To raise 

 4 Jacksonville also briefly argues that Myers committed securities 

fraud by boasting that, although ten buildings on CVB’s street each had 

a 75% vacancy rate, CVB had no loans against any of them. The SAC 

alleges that CVB “did have a loan against a building on the avenue where 

CVB is headquartered.” However, the SAC does not allege that this 

building was one of the ten Myers identified. Nor does the SAC 

adequately allege that this boast was material or made with the requisite 

scienter.

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JACKSONVILLE PENSION FUND V. CVB 15

a strong inference of scienter, the SAC must allege facts 

demonstrating that defendants “knowingly and recklessly 

engaged in an improper accounting practice,” for example, 

that a company’s external auditors counseled against a 

practice or that a company’s CFO was aware that the practice 

was improper. Metzler, 540 F.3d at 1068–69. The SAC 

contains no such allegations. Nor does it allege the role of 

the individual defendants in preparing the company’s 

accounting statements or what knowledge they had of GAAP 

principles. Accordingly, the district court correctly 

dismissed the GAAP claims.

B. The SEC Filings

The SAC alleges that, in November 2009, March 2010, 

and May 2010, CVB’s SEC filings falsely assured investors 

that Garrett had no “known credit problems” that “would 

cause serious doubts” as to its ability to repay. We examine 

each filing in turn.

1. The November 2009 10-Q

Jacksonville argues that the statement in the 10-Q filed 

in November 2009— that there was no basis for “serious 

doubts” about Garrett’s ability to pay—was false because, in 

September 2008, Garrett had expressly told CVB of its 

financial difficulties. But by November 2009, Garrett had 

been current on its loans for about a year, and the SAC does 

not allege that Garrett gave CVB any cause for concern 

during that year. A meeting a year earlier that led to 

restructuring does not compel the inference that the 

November 2009 statement was false.

The SAC also alleges that Garrett personnel continued to 

be concerned about the company’s financial position in 

2009. But it does not allege that these concerns were 

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16 JACKSONVILLE PENSION FUND V. CVB

communicated to CVB. The SAC also alleges that, in March 

2009, CVB restructured $53 million of Garrett loans by 

providing $44 million in a stand-alone second mortgage and 

$9 million in a non-purchase-money loan, for which it 

obtained security interests in at least eleven parcels of 

property, at least two of which already had tax liens. 

Additionally, it alleges that CVB provided Garrett with $4 

million in refinancing on September 23, 2009. The fact that 

CVB gave Garrett additional loans in 2009, even if some 

later turned out to be unwise, does not show that CVB had a 

basis for “serious doubts” about Garrett’s ability to repay in 

November 2009; if anything, it points to the contrary. We 

therefore affirm the district court’s dismissal of 

Jacksonville’s claims based on the November 2009 10-Q.5

2. The 2009 10-K and the May 10, 2010 10-Q

By late December 2009, Garrett was again delinquent on 

its loan payments to CVB and had no liquidity to meet its 

ongoing obligations. The SAC alleges that Garrett told CVB 

in early January 2010 that unless modifications to loan terms 

were made, Garrett could not meet its obligations and might 

file for bankruptcy.

Assuming that these allegations are true, they would 

seem to demonstrate that the “no serious doubts” statements 

 5 The SAC also alleges that, at a presentation to analysts on December 

2, 2009, Myers falsely stated that Garrett was “a fully performing asset 

in all respects,” that “we don’t have specific reserves against that,” and 

“[t]hey are paying everything. It’s performing as agreed.” The only new 

information that came to light between the November and December 

statements was the foreclosure on three Garrett properties, none of which 

were collateral for CVB. That knowledge would not make false CVB’s 

statements that Garrett was “a fully performing asset” and “paying 

everything.” We therefore agree with the district court that the SAC 

failed to state a claim with respect to the December 2009 allegations.

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JACKSONVILLE PENSION FUND V. CVB 17

in CVB’s 2009 10-Q, filed on March 4, 2010, and in CVB’s 

10-Q for the first quarter of 2010, filed on May 10, 2010, 

were false and made with knowledge of, or recklessness 

towards, their falsity. The district court discounted these 

allegations because they involved hearsay, as they were 

based on what Garrett’s COO, whom the SAC does not 

identify by name, said Wright told the Board about the 

January 2010 meeting. But “the fact that a confidential 

witness reports hearsay does not automatically disqualify his 

statement from consideration in the scienter calculus.” 

Zucco Partners, LLC v. Digimarc Corp., 552 F.3d 981, 997 

n.4 (9th Cir. 2009). Instead, we examine a confidential 

witness’s hearsay report to determine if it is “sufficiently 

reliable, plausible, or coherent.” Id. Here, the statements 

reported by the COO were specific in time, context, and 

details, and involved important communications from a 

chief executive officer to his Board. They are sufficiently 

reliable for pleading purposes.

The district court also reasoned that, because the COO 

was not present at the meeting with CVB, Wright’s 

statements to the Garrett Board cannot capture the precise 

context of the CVB meeting, leaving open the possibility that 

Garrett’s lament was understood by the lender merely as a 

negotiating tactic. The district court found this inference 

strengthened by Garrett’s discussion of alternatives to 

bankruptcy, and its active pursuit of capital investments. 

The court therefore concluded that the most plausible 

inference was that CVB did not credit Garrett’s threat of 

bankruptcy and believed Garrett would find a way to repay 

its loans.

The SAC need not allege, however, that CVB actually 

believed that Garrett was about to go bankrupt, only that 

CVB was on notice of facts that would reasonably give rise 

to “serious doubts” about Garrett’s ability to repay. The 

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18 JACKSONVILLE PENSION FUND V. CVB

SAC adequately alleges that CVB had such notice. In 

January 2010, Garrett not only told CVB that it could not 

repay its loans and was considering bankruptcy, but that it 

had fallen delinquent on its CVB loans and never again 

became current. Thus, the SAC adequately alleges that 

before May 10, 2010, CVB had been alerted to facts which 

“would cause serious doubts” about Garrett’s ability to 

repay.

The SAC also adequately alleges that the “no serious 

doubts” statement made on March 4, 2010 in CVB’s 10-Q 

was a misrepresentation. That statement assured investors 

that there was no basis for “serious doubts” about Garrett’s 

loans “as of December 31, 2009.” Technically, this may 

have been true, given that the critical meeting with Garrett 

did not take place until January 2010. But the statement was 

plainly misleading when made. By March 2010, CVB had 

known for two months that there was a basis for serious 

doubts about the ability of Garrett, CVB’s largest borrower, 

to repay. The omission of that fact, combined with the 

reassurance that everything was fine as of December 31, 

2009, meets the pleading standard for a material omission. 

See TSC Indus., Inc. v. Northway, Inc., 426 U.S. 438, 449 

(1976) (An omission is material if there is “a substantial 

likelihood that the disclosure of the omitted fact would have 

been viewed by the reasonable investor as having 

significantly altered the ‘total mix’ of information made 

available”); Operating Local 649 Annuity Tr. Fund v. Smith 

Barney Fund Mgmt., LLC, 595 F.3d 86, 92 (2d Cir. 2010) 

(“The veracity of a statement or omission is measured not by 

its literal truth, but by its ability to accurately inform rather 

than mislead prospective buyers.”); Brody v. Transitional 

Hosps. Corp., 280 F.3d 997, 1006 (9th Cir. 2002) (“To be 

actionable under the securities laws, an omission must be 

misleading; in other words it must affirmatively create an 

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JACKSONVILLE PENSION FUND V. CVB 19

impression of a state of affairs that differs in a material way 

from the one that actually exists.”).

Therefore, we conclude that the SAC sufficiently alleges 

falsity and scienter as to the “no serious doubts” statements 

in the 10-K on March 4, 2010, and the 10-Q on May 10, 

2010.

C. Loss Causation

Even when deceptive conduct is properly pleaded, a 

securities fraud complaint must also adequately plead “loss 

causation.” Erica P. John Fund, 131 S. Ct. at 2183. Loss 

causation is shorthand for the requirement that “investors 

must demonstrate that the defendant’s deceptive conduct 

caused their claimed economic loss.” Id. Thus, like a 

plaintiff claiming deceit at common law, the plaintiff in a 

securities fraud action must demonstrate that an economic 

loss was caused by the defendant’s misrepresentations, 

rather than some intervening event. Dura Pharm., Inc. v. 

Broudo, 544 U.S. 336, 343–44 (2005). The burden of 

pleading loss causation is typically satisfied by allegations 

that the defendant revealed the truth through “corrective 

disclosures” which “caused the company’s stock price to 

drop and investors to lose money.” Halliburton Co. v. Erica 

P. John Fund, Inc., 134 S. Ct. 2398, 2406 (2014).

The district court held that the SAC failed to adequately 

allege loss causation. The only significant fall in CVB’s 

share price occurred after the August 9, 2010 announcement 

of the SEC subpoena, and the district court found that the 

announcement of the subpoena could not constitute a 

corrective disclosure.

We recently held that “the announcement of an 

investigation, ‘standing alone and without any subsequent 

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20 JACKSONVILLE PENSION FUND V. CVB

disclosure of actual wrongdoing, does not reveal to the 

market the pertinent truth of anything, and therefore does not 

qualify as a corrective disclosure.’” Loos, 762 F.3d at 890 

n.3 (quoting Meyer v. Greene, 710 F.3d 1189, 1201 n.13 

(11th Cir. 2013)). But in so doing, we left open whether the 

announcement of an investigation can “form the basis for a 

viable loss causation theory” if the complaint also alleges a 

subsequent corrective disclosure by the defendant. Id.; see 

also Meyer, 710 F.3d at 1201 n.13 (reserving same 

question).

We today answer that question in the affirmative. We 

start from the premise that loss causation is a “contextdependent” inquiry, Miller v. Thane Int’l, Inc., 615 F.3d 

1095, 1102 (9th Cir. 2010), as there are an “infinite variety” 

of ways for a tort to cause a loss, Assoc’d. Gen. Contractors 

of Cal., Inc. v. Cal. State Council of Carpenters, 459 U.S. 

519, 536 (1983). Because loss causation is simply a variant 

of proximate cause, Dura, 544 U.S. at 343–46, the ultimate 

issue is whether the defendant’s misstatement, as opposed to 

some other fact, foreseeably caused the plaintiff’s loss.

Loos made clear that the announcement of a government 

investigation, without more, cannot meet the loss causation 

requirement, but much more is alleged here. About a month 

after it announced the SEC subpoena, CVB disclosed that it 

was charging off millions in Garrett loans. Although 

Garrett’s stock dropped over 20% the day after the 

announcement about the subpoena, the market reacted 

hardly at all to CVB’s bombshell disclosure about its largest 

borrower, confirming that investors understood the SEC 

announcement as at least a partial disclosure of the 

inaccuracy of the previous “no serious doubts” statements. 

See In re Take-Two Interactive Sec. Litig., 551 F. Supp. 2d 

247, 285 (S.D.N.Y. 2008) (investors’ understanding of 

disclosure is relevant, because “the pertinent inquiry trains 

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JACKSONVILLE PENSION FUND V. CVB 21

on the most plausible understanding of a given disclosure at 

the time it was made”). Under the facts of this case, loss 

causation was sufficiently pleaded. Indeed, any other rule 

would allow a defendant to escape liability by first 

announcing a government investigation and then waiting 

until the market reacted before revealing that prior 

representations under investigation were false.

Our conclusion is consistent with a recent Fifth Circuit 

decision. In Public Employees’ Retirement System of 

Mississippi v. Amedisys, Inc., the operative complaint 

alleged five partial disclosures of the Medicare fraud, 

including the announcements that the SEC, Department of 

Justice, and Senate Finance Committee had initiated 

investigations into the defendant’s billing practices. 

769 F.3d 313, 317–19 (5th Cir. 2014). The Fifth Circuit 

reasoned that, “to establish proximate causation, the plaintiff 

must prove that when the relevant truth about the fraud 

began to leak out, it caused the price of stock to depreciate 

and thereby proximately cause the plaintiff’s economic 

loss.” Id. at 321; see also In re Williams Sec. Litig.-WCG 

Subclass, 558 F.3d 1130, 1140 (10th Cir. 2009) (“To be 

corrective, the disclosure need not precisely mirror the 

earlier misrepresentation, but it must at least relate back to 

the misrepresentation and not to some other negative 

information about the company.”). The court held that, even 

if the announcements of the government investigations were 

not in themselves enough to establish loss causation, they 

were sufficient when “viewed together with the totality of 

the other alleged partial disclosures.” Amedisys, 769 F.3d at 

324.

We similarly conclude that the SAC adequately pleads 

loss causation. It plausibly alleges that: (1) CVB’s 

disclosure of the subpoena caused its stock price to drop 

precipitously; (2) the market and various analysts perceived 

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22 JACKSONVILLE PENSION FUND V. CVB

the subpoena to be related to CVB’s alleged misstatements 

about Garrett’s ability to repay; (3) the market’s fears about 

the subpoena were confirmed by CVB’s September 9 

disclosure that it was writing off $34 million in Garrett loans 

and categorizing the remainder as non-performing; and 

(4) the September 9 disclosure’s minimal effect on CVB’s 

stock price indicates that the earlier 22% drop reflected, at 

least in part, the market’s concerns about the Garrett loans. 

Thus, Jacksonville has adequately pleaded “a causal 

connection between the material misrepresentation and the 

loss.” Dura, 544 U.S. at 342. Whether Jacksonville can 

establish that causal connection is another question. See 

Amedisys, 769 F.3d at 325.

CONCLUSION

We vacate the dismissal of the SAC with respect to the 

“no serious doubts” representations made in the 10-K on 

March 4, 2010 and the 10-Q on May 10, 2010, and remand 

for further proceedings consistent with this opinion. The 

order of the district court is otherwise affirmed.

AFFIRMED IN PART, REVERSED IN PART, AND 

REMANDED.

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