### INTHE UNI TED S TATESCOU RT OFAPPEALS FORTHE FIFTH CIRCU IT

N o. 08- 10576

T O D D F E N E R , o n B e h a lf o f H im s e lf a n d A ll O th e r s S im ila r ly S itu a te d , e t a l., P l ai n t i f fs , B E L O C O R P O R A T I O N ; R O B E R T W. D E C H E R D , B A R R YP E C K H A M; J A M E S M . M O R O N E Y , II I, D efen da n t s- A pp el l ees,

ve r s us OPER AT I NG ENG I NEERS CONST RUCTI ON I NDU S TR Y A N D M IS C E L L A N E O U S P E N S IO N F U N D (L O C A L 6 6 ), A p p ell a n t.

A pp eal s f

rom t h e U n i t ed S t ates D i st ri ctC ou rt f ort he N or t her n D i st r i c t of Texas

B ef ore S M ITH , G A R Z A , an d C L E M E N T , C i rcui t Ju dg es. JE R R YE

. SM ITH , C i rcui t Ju dg e:
Todd F enerand ot herpl ai nt i f fs f i l ed a c l as s ac t i on agai nstB el o Cor por aUnited States Court of App eals

Fifth Circuit 

### F I L E D Aug ust12, 2009 Cha rl es R. F ulb ru g e II I ClerkN o. 08- 10576

2 t i on an d som e of

i t s of f i cers ( col l ect i vel y “ B el o” ) al l egi n g vi ol ati on s u n der t h e Securi t i es E xcha n ge A ctof 193 4. Fen er m oved forcl ass cert i f i cat i on , w h i ch the di st r i c t c o u r t d e n i e d

. H e a p p e a l s , a n d w e a f f i r m.
I

. B el o i s a m edi a com pa n y th a t ow n s te lev ision sta tion s, w e b site s, a n d n e w spa pers, incl u di n g t h e Da l l a s Mo r n i ngNe ws ( “ D MN ” )

. R e v e n u e f r o m t h e D MN
m ak es up abou t 60% of B el o’ s pu bl i shi n g revenu e an d 30% of i t s t ot alrevenu e; 90% of the D M N ’ s reven u e com es f rom adv ert i si n g sal es, w h i ch are pri ced based
o n cir c u la tio n . T h e pl ai nt i f

fs a l l e ge t hatBel o e nga ge d i n a f r aud ul e nts c he m e de s i gn ed t o i n f l ate D M N ’ s c i rcul a tion art i f i ci al l y i n t h e face of

a na t i on w i de d ow n w ard t r e nd i n ne w s pa pe r c i r c ul at i o n. Bel o a l l e ge dl y pa i d b o nus e s f o r a c hi e vi ng c i r c ul ati on t argets , ri gged au di t s of D M N ’ s ci rcul ati on , an d i m pl em en t ed a n o- ret u rn pol i c y t hat el i m i nat ed any i nce nt i ve f ordi st r i but or s t o ret urn unso l d new spapers. Th ose act i on s, t h e pl ai n t i f fs c l ai m , al l eged l y art i f i ci al l y i n creased rec orded ci rcu l a ti on , w h i ch l ed to h i gh er ad ve rti sing rev en u es f or D M N a n d l a rg er p rofi ts f or B el o. O n M a r c h 9 , 2 0 0 4 , B e lo a n n o u n c e d th a t D M N ’ s fu tu r e c ir c u la tio n w o u ld be dow n 2
. 5% on d ai l y pa pers a n d 3. 5% on the S u n da y pa per. O n A u gu st5, af t er t he N e w Yor k St o c k Exc hang e ( “ N YSE ” ) c l o s e d, Bel o i s s ue d a pr e s s r e l e as e ( “ t he press rel ease”) t h at ad m i t t ed t h at an i n t erna l i n vest i gati on h ad reveal ed qu estio n a b le cir c u la tio n p r a c tic e s . A ccor di n g t o t h e press rel ease, t h e al l eged l y f rau du l en t pract i ces resul t ed i n a 1. 5% da i l y pa per ci rcul ati on decl i n e an d a 5% Su n da y decl i n e. Th e press rel e ase n ot ed t hatt he de c l i ne s w e r e “ c o upl e d wi t h” t he c i r c ul at i o n de c l i ne s a nn ou n ced i n M arch an d w i t h l ow er anti ci pa t e d c i rcul ati on f or t h e nex t si x m on t h s; th e t ota lci rcu l a ti on de cl i n e from allof th ese an n ou n cem en ts w a s p red i cted toN o. 08- 10576

The district court designat ed Operating E ngine ers C onstructionI ndu stry and Miscel- 1 lan eo u s P en si onFu n d a s th e le a d pl aintiff

. Oth erd evelop me nts , inclu din g th e di strictc ourt’sdis mi ssal of so mec laim s a g ain st 2 th e i n dividu al defe n dants , ar e de sc rib edindis trict co urto pinio n s o nthisdis pute
. See Fener v. Belo C orp. , 42 5F. Su pp . 2 d 7 8 8(N. D. T ex . 2 0 0 6) (Fener I ); Fener v. BeloC

orp. , 513F . Supp. 2 d 73 3(N. D. T ex . 2 0 0 7) (FenerII ); Fener v. BeloC

orp. , No s. 3 :0 4 -CV -1 8 3 6 -D, 3 :0 4 -CV -1 8 6 9 -D, 3 :0 4 -CV -2 1 5 6 -D, 2 0 0 7WL4 1 6 5 7 0 9(N. D. T ex . Nov . 2 6 , 2 0 0 7) (FenerII I ). 3 be 5% f or t h e dail y pa per an d 11. 5% f or Su n da y. Th e press rel ease al so s t ated t h at B el o w ou l d begin ex erci si n g m ore st ri n gen t con t rolov er possibl e i m proper
m ani pul at i o n o f

c i r c ul at i o n. W he n t he N YSE o pe ne d t he ne xtda y, Bel o ’ s s t o c k, w hi c h had c l o s e d t he pre vi ous day a t $23. 21, dr opped t o a s l ow as $18. 0 0. I t f i ni she d t he day at $ 2 1
. 5 5 , do w n $1

. 6 6 f rom the pr e v io u s d a y ’ s cl ose . S ev era lsecu ri ti es a n a l ys ts l o w e r e d t he i r e ar ni ng e s t i m at e s f o r Bel o a nd d o w ngr ad e d i t s s t o c k. O n A ugust16, B el o a nnoun c ed th a t itw oul d c om pensa t e a dver t i se r s by ap proxi m atel y $23 m i l l i on , w i t h an add i t i on al$3 m i l l i on t o cover cost s r el ated t o an ongoi ng i nt er nali nves t i gat i on. O n Sept em ber29, B el o r evi se d i t s i ni t i al
c i r c ul at i on f

i gure s, pr oj ec t i ng a de c r eas e of 5. 1% i n dai l y c i r c ul at i on and 11. 9% f or Su n da y. Itsaid tha t m ostof the d ecl i n es w ere r el ated t o t h e overst atem en t s. P l ai n t i f fs sued on beh al f

of t h ose w h o h el d B el o’ s c om m on st ock betw een 1 M a y 1 2 , 2 0 0 3 , a n d A u g u s t 6 , 2 0 0 4 , a lle g in g th a t B e lo a n d fiv e o f its s e n io r o ffic er s a n d d i rectors had vi ol at ed § 10(b) of t he Sec uri t i es E xc hange A c t of 1934, 15 U

. S. C. § 7 8j (b) , a nd SEC R ul e 1 0b

- 5, 1 7 C. F. R. § 2 40
. 10 b- 5. The y c l ai m e d t he
c l as s m e m be r s had bo ugh t B e l o st o c k when i t s pr i c e w as a r t i f i c i al l y ( and f

r aud ul e nt l y) i nf

l at e d a s a r e s ul t o f

t he m ani pul at i o n o f

D M N ’ s r e po r t e d c i r c ul at i o n a nd
w e re i nj u red w h en B el o reveal ed t h e f rau d and i t s st ock pri ce fel l

. P la in tiffs even t u al l y m oved f or c l ass c ert i f

i cat i on un der F ederal R u l e of C i vi lP roce- 2 d u r e 2 3
. B el o opp osed cl ass c ert i f i cat i on an d p resented expert D r. P au lG om pers,N o. 08- 10576

We dis cus s G om per s’ s andHak ala’s tes tim ony mor e thor oughly infra

. 3 4 w h o te s tifie d th a t cla s s c e r tific a tio n w a s in a p p r o p r ia te b e c a u s e p la in tiffs co u ld
n ot s ho w t hatt he f

r aud ul e ntdi s c l o s ur e i n t he pr e s s r e l e as e w as t he pr i m ar y c ause of t he s t oc k pr i c e dec l i ne. Pl ai nt i f fs r es ponded w i t h a dec l ar at i on f r om ex pert D r. ScottH ak al a, w h o rej ect ed G om pers’ s test i m on y an d st ated t h at t h e decl i n e w as “ en t i rel y or al m ostenti rel y att ribu t able t o t h e revel ati on of t h e rel eva ntt r ut h i n t hi s ca s e . ” Af t e r hea r i ng f

r o m t he ex pe r t s a nd e xa m i ni ng t he o t h- 3
e r e vi de nc e , t he di s t r i c t c o ur t de ni e d c l as s c e r t i f i c at i o n.
II. “W e re v ie w cla s s c e r tific a tio n d e c is io n s fo r a b u s e o f d is c r e tio n in re c o g n it i on of t h e ess en t i al l y fact u albasi s of t h e cer t i f

i cat i on i n qu i ry an d of t h e di st ri ct
c o ur t ’ s i nhe r e ntpo w e r t o m ana ge and c o nt r o lpend i ng l i t i ga t i o n. W he t he r t he di st ri ctcourta pp l i ed t h e correc t legalstand ard

. . . , how ever, i s a l egal qu est i on th a t w e rev i ew de n ov o.” R egents of t h e Un i v. of C al. v. C redi tS u i sseFi rstB ost on (US A), I n c. , 482 F

. 3d 372 , 380 ( 5 th C ir. 2 007 ) ( ci t ati on , i n t erna lqu ot ati on
m a r k s , a n d e llip s e s o m itt e d ). “W h e r e a d is tr ic t c o u r t p r e m is e s its le g a l a n a ly s is
o n a n e r r o n e o u s u n d e r s ta n d in go f g o v e r n in gla w , it h a s a b u s e d it s d is c r e tio n .” I d. ( ci t i ng Unger v. A m edisys I n c. , 401 F

. 3d 316 , 320 ( 5th C i r. 2 005 ) )

. “Adi st ri ct
c o u r t m u s t co n d u c t a r ig o r o u s a n a ly s is o f th e ru le 2 3 p r e r e q u is ite s b e fo r e ce r tify in ga cla s s . . . . T h e p a r ty s e e k in gce r tific a tio n b e a r s th e b u r d e n o f p r o o f.” C ast an o v. A m . T

oba cco C o. , 8 4 F .3d 7 3 4 , 7 4 0 (5t h C ir. 1 9 9 6 ). “[ C ] l as s c er t i f

i c at i on c r eat es i nsur m ount abl e pr es sur e o n defendant s to settl e, w h ere a s i n d i vid u a ltri a l s w ou l d n ot. ” I d. at 746 ( c i t at i o n om i t t e d)

. “ The
r i s k o f fac i ng an al l

- o r - no t hi ng ve r di c t pr e s e nt s t o o hi gh a r i s k, e ve n when t he p rob a b i l i ty of an ad ve rse jud gm en t i s l ow . ” I d. (c ita tio n o m itt e d ). T h is r i s k is pa rt i cul arl y h i g h in secu ri t i es- f rau d cl ass act i on s, i n w h i ch the current “ cl ass-N o. 08- 10576

See J a n etC oo pe r Alex a n de r, Doth e Me ri ts Ma t t er ? ASt u d y of Set t le me n ts inSec u ri

4 tiesClass Act ions , 43S TAN . L. R EV . 497 , 50 1 ( 19 91 ) (“[T]he actu al distrib utio n of th e settlement funds sugge sts that the present sy stem doe s no t re ally ben efit the small investors who are presumed to b e th e b ene ficiaries of cl ass action s, an d itmayactually foreclose more effici ent clie nt- co ntrolle d liti g ationb yl arge inv es to rs .”). Vince nt E

. O’ B ri en , The Class-Act ion Sh akedown Racket , WALL S T . J., Sept. 1 0, 1 991 , 5 at A2 0. Castano , 84F .3d at 7 46.

6 5 b a sed com p en sa tory d a m a ge s reg i m e i n th eo ry i m p ose s rem ed i es th a t are so catastr oph i cal l y l arge t h at defen da n t s are u n w i l l i n g t o go t o t ri al even i f t h ey belie v e th e ch a n c e o f b e in gfo u n d lia b le is s m a ll.” J a n e t C o o p e r A le x a n d e r , R et hi nki ng D am ag es i n Se c ur i t i e s Cl as s Ac t i o ns , 48 S TAN
. L. R EV
. 1487, 1511 (1 9 9 6 ). S o m e h a v e o b s e r v e d th a t s e e k in gcla s s ce r tific a tio n to fo r c e fa v o r a b le set t l em en t s does n o t b en ef i t sm al li n vest ors bu t i n st ead res em bl es a shak e- 4 d o w n o r “ju d ic ia l b la c k m a il.”

5 6

III. I n se c uri t i es f

r aud ca se s, t he pl ai nt i f f m ustpr ove (1 ) a m a te r ia l m is r e p r e s e n ta tio n (o r o m is s io n ); (2 ) s c ie n te r , i. e ., a w rongfulstat e of m i n d; (3) a con n ect i on w i t h the p u rchase or s al e of a s e c u r ity ; (4 ) r e lia n c e , o fte n re fe r r e d to in ca s e s in v o lv in gp u b lic securi t i e s m ar ke t s (f

r aud

- o n- t he

- m ar ke tc as e s ) a s “ t r ans act i on causat i o n” ; ( 5) ec o no m i c l o s s ; and ( 6) “ l o s s ca us at i o n, ” i

. e . , a c aus alc o nn e c tio n b e tw e e n th e m a te r ia l m is r e p r e s e n ta tio n a n d th e lo s s . D ur a Pha r m s . , I

nc . v . Br o udo , 5 4 4 U .S

. 3 3 6 , 3 4 1 -4 2 (20 0 5 ) ( cita tion s o m itted ). I n B asi c v. L evi n son , 485 U

. S

. 224 ( 198 8) , t h e C ou rthel d that r equ i ri n g proof of

“ act u alrel i an ce” w as und ul y bur de n som e t o pl ai n t i f fs, an d i n st ead i t “ recogni zed th e se cu ri ti es frau d the ory of frau d -on -t h e-m a rk et. ” G ree nbe rg v . Cr o s s r o ads S ys. , I n c. , 364 F

. 3d 657 , 661 ( 5th C i r. 200 4) ( ci t ati on om i t t ed). U n der t h at t h eory, pl ai n t i f

fs c an cr eate a rebu t t able presum pti on of rel i an ce i f

t h ey can showN o. 08- 10576

I n Oscar P

rivateEquit

y I nvest ments v. Allegiance T elecom, I nc. , 487F .3d 2 61 (5thC ir. 7 200 7), we furth er d etailed our requirements for loss c ausation : We now r equire more than proof of amate rialmisstat ement ; we r equire proof that th e mi sstatement act ually movedth e market. Th at is, th e pl aintiff may recover under the frau d on the market theo ry if h e can prove th at the defen dant’s non- dis clos ure m ater ially aff ect ed the mar ke t pri ce of the sec urit y. Esse ntial ly, we require pl aintiffs toestabli sh loss causation in order to trigge r th e fraudon-th e- m ar k etpre sumption . Our most recent statement of this rul e was in Greenb erg , wh ich he ldth at totri g gerth e pr es u mp tiono f re li a ncep laintiff s must demonstrate that thecause of the declin e in price is due to the revelation of th e truthan d not the rele ase of th e u nrel ated negative information

. Id

. at 2 6 5(fo otn ot es , inte rn al qu ot ationmark s, ellips es , a n d b rack et s o mitt ed). 6 “ (1 ) t h e d e fe n d a n t m a d e p u b li c m a t e r ia l m is r e p r e s e n t a t io n s , (2 ) t h e d e fe n d a n t ’s sha res w ere t raded in an ef f i ci en t m arket, an d ( 3) t h e pl ai n t i f fs t raded shares bet w ee n t he t i m e t he m i sr epr es ent at i ons w er e m ade a nd t he t i m e t he t r ut h w as rev ea l ed

. ” I

d. ( c i t at i on om i t t ed)

. W hen pro vi ng r el i ance , “ pl ai nt i f fs c annot t r i gg e r th e p r e s u m p tio n . . . b y s im p ly o ffe r in g e v id e n c e o f a n y d e c r e a s e in p r ic e fo ll ow i n g t he r el eas e o f negat i ve i nf

or m at i on. . . . [ Th ey i nst ead] m usts how t hat t he fal s e s t at e m e ntc aus i n g t he i nc r e as e w as r e l at e d t o t he s t at e m e ntc aus i ng th e d ecre a se.” Id . a t 6 6 5
. T h is la s t r e q u ir e m e n t fo r fr a u d -o n -th e -m a r k e t r e lianc e i s kno w n a s l o s s c aus at i o n, a c o nc e ptt hati s a t t he he ar t o f t h e i ns t ant
case. 7 Pr o vi ng l o s s c aus at i o n “ r e qui r e [ s ] a pl ai nt i f f ad di t i o nal l y t o ‘ pr o ve t hatt he d e fe n d a n t ’s n o n -d is c lo s u r e m a t e r ia ll y a ffe c t e d t h e m a r k e t p r ic e o f t h e s e c u r it y .’” A l ask a El e c . Pe ns i o n Fund v

. Fl o w e r s e r v e Cor p. , 5 7 2 F. 3 d 2 2 1 , 2 009 W L 1740648, at*4 ( 5t h C i r . June 19, 2009) ( perc uri am ) ( c i t i ng Nat he ns o n v . Zo nagen Inc. , 2 67 F. 3d 4 00 , 4 14 ( 5t h Ci r . 2 00 1) )

. A p l ai nt i f f m us t s ho w “ ( 1) t hatt he
n e g a tiv e tr u th fu l in fo r m a tio n c a u s in g th e d e c r e a s e in p r ic e is r e la te d to a n a lle g e d l y fa ls e , n o n -c o n fir m a to r y p o s itiv e s ta te m e n t m a d e e a r lie r a n d (2 ) th a t it
w as m ore probable t h an not t h at i t w as t h i s nega t i ve st atem en t , an d n ot ot h er
u n r e la te d n e g a tiv e s ta te m e n ts , t h a t c a u s e d a s ig n ific a n t a m o u n t o f th e d e c lin e .”N o. 08- 10576

Se eLormand

v. U S Unwired, In c. , 5 6 5F

. 3 d2 2 8 , 2 5 5

- 5 8( 5 thC ir . 2 0 0 9) ( di s c u s s i ng 8 pl ea din gst a n dard s f

orl os s c au sation). See Oscar , 48 7 F .3d at 266-7 0 (establishingthat this ex amin atio n is appropriate a s 9 parto f th e cl a ss ce rtif ic ationin quiry). See id. at 2 6 9n .4 0(“Thisi s nott o say th at lo ss cau sation , a s a n el em ent of a1 0b -5 10 cl aim , can n otb e re ex a mi n edat su mmaryj u dgme nt. ”)

. Th e partie s s ub mitt ede xte n siv e le tt er s r egard ing th e im pacto f Lor mand , which, 11 however, e xa mines what is re quired und er Federal Ruleof Civil Procedure 8 to surviveth e plea ding s stage. To the degre e those standards ar e e asierto meet than are our requirements fo r cl a ss ce rtif

ic ation , Lor manddoe s no t inform our decision. 7 5 7 2 F

. 3 d at ___, 2 0 0 9 W L 1 7 4 0 6 4 8 , a t *4 (i n tern a lq u ota ti on m a rk s a n d bra ck ets
om i t t ed) ( c i t i ng G ree n berg , 3 64 F

. 3d a t 6 66). “[ L ] oss cau sati on as an i ssue ofpredom i n an ce m u stbe est abli shed at t h e cl ass c ert i f i cat i on st age by a prep on derance of al l adm i ss i bl e evi denc e. ” 572 F. 3d at

___, 2009 W L 1740 648, at*5 ( c i t ation s o m itted ). Aco u r t c a n e x a m in e lo s s c a u s a tio n a t t h e p le a d in g s s ta g e , th e cla s s ce r ti- 8 f i cat i on st age, on su m m ary j u dg m en t , o r a t t ri al

. Th e proof need ed f

or l oss 9 1 0
ca u sa ti on at th e p l ea d i n gs stag e sh ou l d n ot b e con fl a ted w i th the req u i rem en ts
ne e de d a t t he cl as s ce r t i f i c at i o n st ag e . W e m us t e xa m i ne w he t he r t he s e pl ai n- 11 t i f fs have pr es ent ed e nough i nf or m at i on t o s how l os s c ausat i on under r ul e 2 3.

I V. A

. A s a th resh old i ssu e, w e a d d ress plain ti ffs’arg u m en t t h a t St o ne r i dgeInvest m ent Part n ers , L LCv . Sc i e n t if i c-A t l an t a, I

n c. , 552 U

. S

. 148 ( 200 8) , overrul ed
so m e o f ourea r l i eropi ni ons , s pec i f i c al l y G ree n berga nd O s c arPr i v at e Equi ty Inv e s tm e n ts v . A lleg ia n c e T e le c o m , In c ., 4 8 7 F .3d 2 6 1 (5t h C ir. 2 0 0 7 ). P la in tiffs c anno t di r e c t us t o a ny m e nt i o n o f e i t he r c as e i n St one r i dge or t o an y di scussi on of t h i s ci rcui t ’ s f

rau d-on- t h e- m arket t h eory. T h ey poi n t on l y t o St one r i dge ’ s g e n-N o. 08- 10576

Of th os e hu n dr edp a ges , ei ghtywe re th e re su me s of th e lawyer s at F en er’sl aw f ir m. 12 Th at info rm ationi s noth elpf ul fo r th e cl a ss ce rtif

ic ationmo tion . We re fe r tothisp arto f th e pr es s r el ea sea s “th e fr au dule nt di sc lo sure .” 13 8 eralsum m ary of

t h e f rau d-on- t h e- m arket t h eory, urg in g t h at t h at di scussi on som eh ow i n di cat es t h at the S u prem e C ou rtm ean t t o st ri ke d ow n our rec en t sec u r i t i e s f

r a u d c a s e l a w. P l ai n t i f fs are m i st ak en . Fir st , w h en t h e Su prem e C ou rtdi s c u sses a gen era l le g a l s ta n d a r d a n d cit e s its e a r lie r ca s e la w o n p o in t, it d o e s n o t n e c e s s a r ily
o v e r r u le in te r v e n in gd e c is io n s o f th e lo w e r co u r ts
. M o r e o v e r , B asi c “ al l ow s each of t h e circu i ts room to de ve l op i ts ow n f ra u d -on -t h e-m a rk et ru l es.” O s c ar , 487 F. 3d at264 ( quot i ng A bel l v. Pot om ac Ins. Co. , 8 58 F

. 2d 110 4, 111 7- 18 (5t h C i r. 1 9 8 8 ), v ac at e d o n o t he rg r o unds , 4 92 U

. S. 9 14 ( 19 89 ) )

. I n G ree n berga nd O s c ar , w e u s e d th is “r o o m ” t o d e v e lo p s p e c ific ru le s . St one r i dge an d i t s general di scussi on of t h e f rau d-on- t h e- m arket t h eory do not af fectt h ose r u l es.
B

. R eco gn i zing tha t St one r i dge do e s no t c hang e o urf r aud

- o n- t he

- m ar ke t a nal ysi s, w e turn to w h et h er p l ai n t i f fs m et ou r requ i rem en t s f or p rovi n g l oss cau sati on at t h e cl ass c ert i f i cat i on st ag e . P lai n t i f fs f i l ed thei r c ert i f

i cat i on m ot i on
w i t h abou t one h u n dred p ages of sup port. T h e rel evan t i n f orm ati on consi st ed 12 of ex cerpt s f

rom B el o’ s S E C F orm 1 0- Kfortw o years, B el o’ s hi st ori calst ock pri ces, B el o’ s SE C S

- 3 f

orm s f rom 1 996 to 2006 , f

i n an ci aldata f

rom Y ah oo! f

i n an ce, and a c hartof

B el o’ s dai l y shar e pri c e. Pl ai nt i f fs subm i t t ed no expe r t t es t i m ony. I n re spo nse , B el o pr es ent ed G om per s’ s t es t i m ony and an eve nt s t udy t hat he ha d c o n d u c t e d

. Go m p e r s a r g u e d t h a t t h e p r e s s r e l e a s e c o n t a i n e d n o t o ne pi ece of i n f orm ati on bu t t h ree s epa rat e i t em s of n e w s: D M N ’ s c i rcul ati on dec r e a s e r e s u lt e d fr o m (1 ) f r a u d u le n t o v e r s t a t e m e n t s ; (2 ) c h a n g e s in D M N ’s 13N o. 08- 10576

We re fe r to part s 2 a n d 3o f th e pr es s r el ea sec olle ctivelya s “th e n on -f rau dule nt di s- 14 cl os ure s.” Gompers submitted arespo nse to Hakala’s study challe nging his co nclusio ns and an- 15 aly sis. Ultimately , howeve r, we do not n eed to e xa mine Gompers’s re ply , be cau se his initi al study

SSrath er thanHakal a’s

SSdi sc u sse s the pr op erwayinwhicht o ex a mi n e B elo’ s dis cl os ure s. We als o cl arifi edth at thisin quiryi s app ro priateat th e cl a ss ce rtif ic ationst a ge. See 16 Oscar , 48 7 F .3d at 2 66-7 0. 9 m e th o d o log y ; a n d (3) i n d u s t r y - w i d e d e c l i n e i n n e w s p a p e r c i r c u l a t i o n . G o m- 14 pers’ s event s t u dy exam i n ed 13 2 an al yst report s an d f ou n d that t h e st ock pri ce de c l i ne w as pr i m ar i l y r e l at e d t o t he no n- f r aud ul e nt di s c l o s ur e s i ns t e ad o f t he f rau du l en t one. Pl ai nt i f fs r e s po nde d wi t h H ak al a’ s t e s t i m o ny and e ve nts t u d y . Tha t s t udy
c onc l uded t hat B el o’ s st oc k w as ef f i c i ent l y t r aded duri ng t he cl as s per i od, t hat
revenu e at D M N w as cl osel y t i ed t o ci rcul ati on , t h at B el o’ s s t ock m oved i n cl ose conn ect i on w i t h t h e i n du st ry’ s ot h er st ocks, an d t h at i t s s h are pri ce had m oved si gn i f i can t l y w h en i t i ssued t h e press rel ease. M ore i m portantl y, h e d isp u t ed G om pers’ s c on cl u si on t h at the press rel ease cou l d be separated i n t o t h ree part s, cl ai m i n g i n st ead t h at t h e f rau du l en t a n d n on - f rau du l en t p art s of

the press r el e as e ha d t o b e e xa m i ne d t o ge t he r as one di s c l o s ur e . Fi nal l y, he a l l e ge d t hatt he
m ar ke t ha d a l r e ad y ab s o r be d t he no n- f r aud ul e ntdi s c l o s ur e s ’i nf o r m at i o n, a nd t h u s onl y t h e f

rau du l en t di scl osure af fect ed B el o’ s s t ock pri ce. 15 W he t he r w e v i e w t he pr e s s r e l e as e as o ne c o m pl e t e di s c l o s ur e o r t hr e e s e par at e o ne s i s i m po r t ant
. I n O s c ar , 487 F

. 3d at 266 , w e speci f i ed h ow p a rties
m ustpr ove l os s c ausat i on i n c as es i n w hi c h “ m ul t i pl e i t em s of negat i ve i nf

or m at i on w er e re l eas ed t oge t herw i t h t he cor r ec t i ve di sc l os ure . ” “ I n suc h m ul t i

- l ayered l oss- cau sati on i nqui ri es, ” w e requi re t h at t h e pl ai n t i f f show s t h at “ i t i s m ore proba bl e t h an not t h at i t w as t h i s nega t i ve st atem en t , an d n ot other u n rel ated
n e g a tiv e s ta te m e n ts , th a t ca u s e d a s ig n ific a n t a m o u n t of th e d e c lin e .” I

d. ( ci t- 16N o. 08- 10576

Th e re lev a nt parto f th e pr es s r el ea ser ea dsa s f ollo ws: 17 B elo Corp. annou nced todayth at [DMN], a wh olly-o wned subsidi ary , willreport a great er thanexpected decline in its Septemb er 200 4 circulation. An intern al investigatio n, whichis ongoin g, has disclo sed practice s an d pro cedur es that led to an overstate ment in circulation, primarilyinsin gl e co py sales. B elo estimat es th e de clin e in circulation related to this matter to be approximate ly 1.5 percent daily and five percent Su nday . This decline, coupl ed witha reduc

tionin state circulation that was first c ommunicate d publiclyonMarch 9, 2 004 , of app ro xim ate ly2 .5 pe rc ent dailyan d 2 .5p erce nt Su n day , a n d a nticipate d lo wer circulation vo lumes for the sixmonth perio d en ding Sep tember30 , 20 04, will resu lt in a totaldeclin e in circulation of approximate lyfive percent dailyan d 1 1 .5p erce nt Su n day. . . . 10 i ng G ree n berg , 3 6 4 F .3 d a t 6 6 6 ). T h u s , if w e v ie w th e p r e s s re le a s e a s m u ltip le pi eces of

i n f orm ati on , pl ai n t i f

fs m u stprove t hatt he f r aud ul e ntdi s c l osure caused a si gn i f i can t am ou n t of

t h e decl i n e. B y i t s pl ai n l an gu age, t h e p ress rel ease con si st s of three separate pi eces o f i nf o r m at i o n, a nd

SS c o nt r ar y t o pl ai nt i f fs and H ak al a’ s bel i ef

SS G om pers di d n ot i nve ntt hatt hr e e - pa r t c l as s i f i c at i o n. The pr e s s r e l e as e f i r s t di s c us s e s t he 17 frau d u l en t “ ov ersta tem en t” a n d the estim a ted “de cl i n e i n ci rcu l a ti on related to t h i s m att er. ” I t t h en recogni zes t h at t h e di scl osure i s “ coup l ed w i t h ” t h e earl i er
r educ t i on announcem entand t he “ ant i c i pat ed l ow erc i r c ul at i on” o ve r a s i xm o nt h pe r i o d. Thus , t he r e l e a s e divi de s t he ne w s i nt o f r aud ul e nta nd n o n- f

r aud

u l en t i n f

orm ati on rel ated t o possibl e f u t u re c i rcul ati on decl i n es. P l ai n t i f fs asser t , how ever, t h at even i f t h e new s c an be di vi ded i n t o t h ree p a rts, th ey sti l lm ee t O s c ar ’ s requ i rem en t of show i n g t h at t h e f rau du l en t di scl osu re cau sed a sign i fi ca n t red u cti on i n B elo’ s stock pr i ce. A s an i n i ti a lpo i n t, pl ai nt i f fs’ or i gi nal m ot i on f

or c er t i f i c at i on doe s notm ee t ours t andards f orpr ovi n g l oss cau sati on . Th ey sub m i t t ed on l y S E C report s, st ock- pri ce c h art s, an al yst
r epo r t s, and ot hers i m i l ari nf or m at i on; t hey di d noti ncl ude ex per t t es t i m ony. As we s t at e d i n O s c ar , t h ese i t em s c on t ai n “ l i t t l e m ore t h an w el l

- i n f orm ed sp ecu l a ti on . ” I

d. a t 27 1. Al t ho ugh ana l ys t r e po r t s and s t o c k p r i c e s a r e he l pf ulN o. 08- 10576

Like the court in Oscar , “[w]e will not attempt to quantify what fraction of adeclin e 18 (c ontinu ed

.. .) 11 i n a n y i n qu i ry, the t est i m on y of an expert
SS al ong w i t h so m e ki nd of anal yt i c al
r e s e ar c h o r e ve nts t udy

SS is r e q u ir e d to s h o w lo s s ca u s a tio n . S e e id

. F or allof t he r e as o ns s t at e d i n G ree n berga nd O s c ar , stoc k p ri ces an d an al yst report s,
w i t h ou t m ore, are i n suff i ci en t at t h e cl ass c ert i f i cat i on st age. E ven consi deri n g t h e p l ai n t i f fs’a n al yst com m en t ary an d st ock pri ce i n form ati on t ogether w i t h H ak al a’ s t est i m on y an d even t stud y, t h e m ot i on f or c l ass c e r tific a tio n s till fa lls s h o r t. A s th e d is tr ic t c o u r t c o r r e c tly h e ld , H a k a la ’ s te s tim on y w as fatal l y f

l aw ed; h e w edd ed hi m sel f t o t h e i dea t h at t h e p re ss rel ease
w a s o n ly o n e p iec e of n e w s a n d co n d u cte d h is e v e n t stu d y b a se d o n th a t b e li e f. W e rej ectan y even t st u dy t h at s h o w s o n l y h ow a “ st ock react ed to t h e enti re b u n d leo f

ne ga t ive i nf

orm ati on , ” rat h er t h an exam i n i n g t h e “ evi denc e l i nki ng t he culpable d i sclosu re to th e stock -price m ov em en t. ” I d. B e c a u s e H a k a la b a s e d h is st u dy on that i n corr ectassum pti on , i t cann ot be used t o sup port a f i n di n g of

l oss c a u s a tio n . W i t h ou t t h e ev en t stud y, the restof H ak al a’ s t est i m on y rel ates t o an al yst
o pi ni o ns a bo utBel o ’ s s t o c k de c l i ne . A ga i n, t hi s “ w e l l

- i nf o r m e d s pe c ul at i o n” c ann ot sup port a f

i n di n g of

l oss cau sati on “ w i t h ou t ref erence t o an y post- m ort em d a ta [t h e a n a l ys ts] h a ve re view ed o r con d u cted

. ” I d. Th u s, once w e di sregard H ak al a’ s f

l aw ed even t st u dy , t h e res t of hi s t est i m on y i s i n suff i ci en t t o prove l oss c aus at i o n. Pl ai nt i f fs ’o t he r a r gu m en t s a r e a l s o f l awed. Fi r s t , t he y ar gue t hatt he press r el ease rec ogn i zes t h at t h e f rau du l en t d i scl osure w ou l d resul t in a 1. 5% t ot aldail y pa per decl i n e an d a 5% Su n da y decl i n e. Th i s, t h ey cl ai m , i s nearl y on eth ir d o f th e to ta l d a ily d e c lin e a n d o v e r 4 0 % o f th e to ta l S u n d a y d e c lin e fr o m a ll t hre e di sc l os ure s. Ass um i ng argue ndo th a t on e -th ir d o f a g iv e n s to c k d e c lin e is
a “ s i gni f

i c ant a m o unt ” o f

t he t o t al , w e do no t ne e d t o a ns w e r t hatq ue s t i o n, 18N o. 08- 10576

(...continu ed) 18 is ‘si gnificant.’” Oscar , 48 7 F .3d at 2 70. 12 b e ca u se pl ai n t i f

fs fai lt o un derst an d w h i ch decl i n e w e are exam i n i n g. Acourt sh o u ld e x a m i n e t h e decl i n e i n t h e st ock pri ce r e l at e d t o t he di s c l o s ur e , no t t he d e c lin e in th e cir c u la tio n . Conc e i va bl y , DM N’ s f r a u d u l e ntpr ac t i c e s c o ul d ha ve r e s ul t e d i n 9 0% o f t he ci rcul ati on decl i n e, bu t i f t h e st ock pri ce f

el lbecau se t h e m arket w as concerned
o n ly w i t h t h e reason f or t h e ot h er 10% , l oss cau sati on coul d n ot be proven

. B el o ’ s f r a u d r e g a r d i n gDMN wa s s i g n i f i c a n t , b u t f

o r l o n g - t e r m i n v e s t o r s , n e ws about t he subs t ant i al and c ont i nui ng dec l i ne i n nat i onw i de new spape r c i r c ul at i o n c o ul d b e m uc h m o r e di s c o nc e r t i ng t han w e r e t he f r aud ul e ntpr ac t i c e s . I f i nve s t o r s s o l d Bel o ’ s s t o c k be c aus e o f t hat l o ng- t e r m t r e nd, a nd n o t b e c aus e o f t he f r aud , t he r e i s no l o s s c aus at i o n. P l ai n t i f fs’onl y rem ai n i n g argu m en t i s prem i sed on H ak al a’ s al l egati on t hatt he m ar ke t a l r e ad y kn ew a bouta nd h ad a bs o r be d t he i m pa c t o f t he no nfr a u d u le n t d is c lo s u r e s . If th a t is s o , th e p la in tiffs a r g u e , O scar doe s notappl y, t h e st ock drop a f

t er t h e press rel ease i s r el ated t o onl y t h e one f rau d u l en t di scl osure, an d the drop i n st ock pri ce al on e pro v e s l oss cau sati on . W e di sagree.

“ Ther e i s no r e as o n why t he c o nc e r ns s t at e d i n O s c ardo n ot equ al l y ap pl y t o cases i n w h i ch o n l y on e n eg a ti ve d i sclosu re is at i ssu e.” L u sk in v. In ter v o ice -B rite Inc. , 261 F. A pp’ x 697, 702 ( 5t h C i r . 2008)

. Pl ai nt i f fs st i l l m ust pro ve l os s c ausat i o n t hr o ugh t he s am e r i go r o us pr o c e s s t hatw e e s t ab l i s he d i n O s c ar , e v e n if t he r e i s o nl y o ne ne ga t i ve di s c l o s ur e . “ [ P] l ai nt i f fs c anno t t r i gg e r t he pr e s um pt i o n o f r e l i anc e b y s i m pl y o f fe r i ng e vi de nc e o f anyde c r e as e i n pr i c e f o l l o w i ng t he relea se o f n eg a ti ve i n form a ti on . ” G ree n berg , 3 6 4 F .3 d a t 6 6 5
. U n der an al t erna t i ve syst em , w ere a defen da n t t o rel ease a cor rect i ve di scl osure on a parti cul arl y vol ati l e m arket d ay, it s stoc k cou l d p l u m m et regardl ess of w h et h er t h e m ark e t c a red abou t t h e di scl osure. Su ch a d rop, even coupledN o. 08- 10576

Basic, 48 5 U .S. at25 2 (White , J., conc urring in part and dissenting inpart) (citation 19 om itte d)

. Hakal a also fail ed to submit enou ghevide nce to prove th at the stock market absorb ed 20 the othe r pi eces of information . He admitte d that his analy sis was inc omplete , an d th e co nclusion s hedid reach lack analytical support. 13 w i t h t he di s c l o s ur e , i s i ns uf f i c i e nt , ho w e ve r , unl e s s t he r e i s a s ho w i ng t hatt he di scl osure act u al l y cau sed t h e decl i n e. Acl ass a ct i on m ay n ot proceed aga i n st a def endant w hos e o nl y faul t i s r el eas i ng a di sc l os ure on a vol at i l e t r adi ng day. Se c ur i t i e s f

r aud l i t i ga t i o n i s n ot “ a s c he m e o f i nve s t o r ’ s i ns ur anc e ” b ut 19 i n st ead i s desi gn ed to pro t e c tt hose w h o bu y st ock at f rau du l en t l y i n f

l ated pri ces. If t h e f rau d d i d n ot caus e th e pri ce of t h e st ock t o i n crease, an d i t s di scl osure does n ot cause t h e pri ce t o go dow n , no i nj u ry h as occu rred. Th u s, regardl ess of t he num be r o f

di s c l o s ur e s , pl ai nt i f fs m us t e s t ab l i s h t he c o nne c t i o n b e t w e e n t he di scl osure an d the decl i n e i n pri ce. 20

V

. In sum m ary, t h e di st ri ctcourtd i d n ot a bu se i t s di scr et i on i n den yi n g cl ass c e r t i f i c at i o n. Pl ai nt i f

fs ’fai l ur e t o pr e s e nta n e xp e r t w i t ne s s w i t h a n e ve nts t udy
o r o th e r a n a lyt ica l e v id e n c e of los s c a u sa tion ru n s a fou l of O s c ar . Th e order d e n y i n gc l a s s c e r t i f

i c a t i o n i s A F F I RMED.