* The Honorable Sandra Day O’Connor, Associate Justice of the United States Supreme Court (Ret.), sitting by

designation pursuant to 28 U.S.C. § 294(a).

IN THE UNITED STATES COURT OF APPEALS

FOR THE FIFTH CIRCUIT

No. 07-11303 c/w 08-10071

ALASKA ELECTRICAL PENSION FUND; MASSACHUSETTS STATE CARPENTERS PENSION FUND
Pl aint iffs - Appellants v. FLOWSERVE CORPORATION; C SCOTT GREER; RENEE J HORNBAKER; BANC OF AMERICA SECURITIES LLC; PRICEWATERHOUSECOOPERS LLP; CREDIT SUISSE FIRST BOSTON LLC Defendants - Appellees

Appeal from the United States District Court fo r the Northern District of Texas

Before O’CONNOR, Associate Justice (Ret.), * and WIENER and STEWART, Circuit Judges. PER CURIAM: Pl aint iffs-Appellants Alaska Electrical Pension Fund and Massachusetts State Carpenters Pension Fund (collectively, “Alaska”) brought a p utative class action against DefendantsAppellees Flo wserve Corporation, Scott Greer, Renee Hornbaker, Banc of America Securities LLC, PricewaterhouseCoopers LLP, and Credit Sui sse First Boston LLC (collectively, “Flo wserve”) fo r v io lat io ns of §§ 10 and 20 of the Securities Exchange Act of 1934 (the “Exchange Act”), 15 U.S.C. §§ 78j and 78t, and §§ 11 and 15 of the Securities Act of 1933 (the United States Court of Appeals

Fifth Circuit 

## F I L E D June 19, 2009 Charles R. Fulbruge III Clerk

### 2

“Securities Act”), 15 U.S.C. §§ 77k and 77o. The district court denied Alaska’s motion for class certificat io n, which rul

ing is before us in appeal number 07-11303, and grant ed the def endants summary judgment on all claims, which ruling is before us in appeal number 08-10071. In 07-11303, Alaska claims th at the district court erred when it refused to certify Alaska’s proposed class, because in reaching it s de cisions the court (1) conducted the Federal Rule of Civil Procedure 23 certificat io n hearin g under a preponderance-of-the-evidence standard, rather th an under a reasonable-trier-o f-fact standard, and (2) applied an incorrect standard of lo ss causation to Alaska’s Exchange Act claims, resul ting in an erroneous “predominance” determ

inat io n under Rule 23(b)(3). In 08-10071, Al aska asks us to reverse the district court’s grant of Flo wserve’s mo tion fo r summary j udgment on the m erits of Alaska’s actions, contending th at th e court (1) was precluded f rom acti ng on the m

erits of Alaska’s claims during th e pendency of it s class-certificat io n appeal in 07-11303, (2) erroneously concluded that th e mer it s of Alaska’s Exchange Act claim were resolved by the court’s own resolution of loss causation fo r class-certification purposes, and (3) ignored the presumption of lo ss causation fo r Securities Act claims. Flo wserve counters that even if the district court thus erred, its judgment should be affirmed because (1) th e safe-harbor provision of the Private Securities Litigation Re fo rm Act (the “PSLRA”), 15 U.S.C. § 78u-5(c)(1)(A)-(B), applies to the forward-looking proj ections at issue, and (2) th e Securities Act’s one-year statute of l imit ation, 15 U.S.C. § 77m , bars Alaska’s §§ 11 and 15 claims. We reverse in part, vacate in part, and remand for further proceedings in the district court. I. FACTS AND PROCEEDINGS Flo wserve Corporation manufactures pumps, seals, and valves, alo ng wit h providing flo w management services. In January 2000, the company made C. Scott Greer its CEO. Any honeymoon fo r Greer was brief: On February 9, 2000, Flowserve reported net earnings of $12.2 millio n fo r fiscal year (“FY ”) 1999, a 70% decl ine from it s 1998 earnings, after which its stock clo sed at a 52-week low. To help address it s financial difficult ies, Flo wserve undertook acquisitions in 2000 and 2002 th at were designed to create synergies and to yield other benefits in a consolidating industry. Flo wserve acquired Ingersoll Dresser Pump Company (“IDP”) in August 2000 for $775 millio n and th e Flow Control Divisio n of Invensys plc (“IFC”) in May 2002 for $5351 1 The registration statem

ents filed in connection wit h these stock of ferings fo rm the basis of Alaska’s claims against Banc of America, Credit Suisse First Boston, and PricewaterhouseCoopers, as well as the Securities Act claims against Flowserve Corp., Greer, and Hornbaker. 2 Flo wserve projected that FY2002 earnings would range from $1.90-$2.30 per share. 

### 3 millio n. To f

inance these acquisitions, Flowserve entered into a $1.1 billio n credit agreement and twice offered public stock, once in November 2001 and again in April 2002. 1 The parties’ versions of Flo wserve’s conduct diverge from there . Alaska claims that Greer, Renee J. Hornbaker, th e CFO during the class period, and Flo wserve Corp. th roug h it s
o f ficers schemed to misrepresent th e com pany’s financial condition by making “inext ricably related” false statements concerning (1) earnings forecasts, (2) historical financial performance, (3) past and f

uture int egration costs and savings related to the acquisitions of IDP and IFC, and (4) debt-covenant compliance. Flowserve disputes this characterization. A s an example of this alleged scheme, Alaska points to a press release issued on the date th at it selected to beg in the putative class period, February 6, 2001. Flowserve’s release reported earnings of $13.2 m

illio n fo r FY2000, in which its true earnings were $5.4 million (140% lower th an reported) , a fact not known publ icly unt il Flo wserve restated its earnings in 2004. The

same press release announced reduced fo urth-quarter 2000 earnings and a FY2001 proj ection lo wer th an analyst s’ expectations. According to Alaska, the FY2001 projection included fraudulent misst atem

ents designed to increase exp ectations about integration synergies from the IDP acquisition; yet , Flo wserve’s stock price declined 8% in response to the inflat ed earnings estimat e. In addition to a variety of Flo wserve’s other public statements that Alaska claims were fraudulent, it highlight s an April 24, 2001 announcement of positive fir st-quarter 2001 earnings th at overstated earnings and understated costs, in response to which Flo wserve’s stock climbed 8%. Th e second-quarter 2001 earnings statement, released on July 24, 2001, was inflated as

w ell, but also reduced 2001 earnings guidance, causing the stock to slip 10.8% (although it rebounded by 7.7% th e next day). According to Alaska, Flowserve again engaged in fraud when it knowingly released overly optimist ic FY2002 earnings guidance on October 22, 2001, the

same day th at it released inaccurate thir d-quarter 2001 results. 2 Flo wserve’s stock rose 6.8% in response to these releases.3 The Ju ly r evision projected FY2002 earnings of $1.70-$1.90 per share. The September revision

proj ected $1.45-$1.55 per share. 

### 4 Aft er repeating th e same FY2002 guidance on February 4, 2002

— th e same day th at i t had released misst ated fo urth-quarter 2001 results, including a 600% understatement of lo ss — Flo wserve downward ly r evised its FY2002 guidance in July and September 2002. 3 Aft er the July downward revision of th e FY2002 guidance, Flo wserve's stock decl ined 37.4%, and declined another 38.3% aft er the Septem ber disclosure. Both releases blamed the reduced earnings on industry and market factors and did not di sclose facts that Alaska contends were the real reasons fo r th e decline, nam ely Flo wserve’s failure to comply with debt covenants, misst ated hist orical financial performance, and problems in extracting synergies from Flo wserve’s acqu isit io ns. Alaska introduced expert testimony to show that statistically significant p r oportions of th ose declines in share price were attri butable to com

pany-specific factors, not to market-wide factors. On February 3, 2004, Flo wserve announ ced that it would downwardly restate earnings fo r 2000-2003 by $11 millio n. No stati sti cally significant decline in share price occurred after this disclosure. The actual amount of the eventual restatement total ed al mo st $60 m

illio n, and Flo wserve admitted that it had not been in compliance with its debt covenants. Alaska filed suit in federal district court against Flo wserve Corp., Gr eer, and Hornbaker

on August 7, 2003. An amended complaint filed on May 14, 2004 named as additional defendants (1) Banc of America and Credit Sui sse First Boston, two of Flo wserve’s underwriters fo r th e stock of

ferings made during the class period, and (2) Pricewaterho useCoopers, Flo wserve’s auditor during the class period. Alaska filed its final amended complaint o n Febru ary 22, 2005, suing Flowserve, Greer, and Hornbaker under § 10 of the Exchange Act and 1 7 C.F.R. § 240.10b-5; suing Greer and Hornbaker under § 20 of the Exchange Act and § 15 of th e Securities Act as controlling persons; and s uing all defendants under § 11 of the Securities Act for making stock offerings under a defective registration statement. All defendants mo ved to dismis s Alaska’s com plaint under Federal Rules of Civil Procedure 9(b) and 12(b)(6). The district court denied these motions and, in a detailed o pinio n, denied th e defendants request to file an int erlocutory appeal. Ryan v. Flowserve, 444 F. Supp. 2d 718, 730 (N.D. Tex. 2006). Alaska then moved to certify a class on May 30, 2006. It defined4 In fact, th e district court onl y granted Flowserve summary judgment on the Securities Act claims. It determ ined th at Alaska’s Exchange Act claims were “mo ot” because of the court’s lo ss-causation rul ing during the class-certification hearing and dismissed them. 5 Alt hough Al aska m

oved for class certification of both its Exchange Act claims and its Securities Act claims, th e district court denied ce rti fication of only the Exchange Act claims. We thus leave th e Securities Act claims to the district court on remand. 

### 5 th e cl ass as “[a]ll persons who purchased the publicly-traded equity securities of Flowserve Corporation between February 6, 2001 and Sept ember 27, 2002,” subj ect to the customary exclusions. The district court conducted a class-certification hearing after which it denied certificat io n in an opinio n filed on November 13, 2007. Ryan v. Flowserve, 245 F.R.D. 560, 577 ( N.D. Tex. 2007). In that same opinion, the court granted the defendants’ pendin g summaryjudgment mo tions, th ereby resolving the case on the m erits as well. 4 On December 26, 2007, we granted Alaska’s timely mo tion in 07-11303 for perm issio n t o appeal the denial of class certificat io n under Rule 23(f). On January 4, 2008, the district court entered final judgment on th e merit s, dismissing all of Alaska’s claims, f rom which judgment Alaska timely appealed in 08-10071. We consolidated the two appeals here. II. ANALYSIS We review th e district court’s decision not to certi fy t he putative class for abuse of discretion, but legal questions implicat ed by th at deci sio n are considered de novo. Gene & Gene LLC v. Bio Pay LLC, 541 F. 3 d 318, 325 (5th Cir. 2008). We review a grant of summary judgment de novo, applying th e sam e legal standard as the district court. Miller v. Gorski Wladysla w Estate, 547 F.3d 273, 277 (5th Ci r. 2008). Sum

mary judgment is appropriate if the record demonstrates th at “t here is no genuine issue as to any mat e ri al fact and that the movant is entitled to judgment as a matter of law.” F ED
. R. C IV
. P. 56(c). A. Class certification. Alaska’s Exchange Act claim requires it to show, in connection with the purchase or sale of a security , that the defendants made (1) a misstatement or omission, (2) of a material fact, (3) wit h scienter, (4) on which Alaska relied, and (5) th at proximately caused Alaska’s lo ss. Greenberg v. Crossroads Sy s., Inc., 364 F.3d 657, 661 (5th Cir. 2004). Al aska’s class certi fication appeal concerns the application of Rule 23(b)(3)’s “predominance” requirement t o th e reliance element of Alaska’s Exchange Act claims. 5

### 6 Class certificat io n requires th at “questions of law or fact com mo n t o cl ass members predominat e over any questions affecting only individual members.” Rule 23(b)(3)(c). As t o th e reliance element of Ala ska’s claims, “[i]f the circumstances surrounding each [class member’s] alleged reliance” on the purported m isrepresentations differ, “then reliance is an issue th at will have to be proven by each plaint iff, and th e proposed cl ass fails [the] predominance requirement.” Unger v. Amedisys Inc., 401 F.3d 316, 322 (5th Cir. 2005). Alaska can “establish a class wide rebuttable presumption of reliance” using “the fraud on the market theory” o f collective reliance. I

d

. at 322. “Under thi s theory , . . . it i s assumed that all public information concerning a com

pany is known to the market and reflected in the market price of the company’s stock.” Greenberg. 364 F.3d at 661 n.6. Thus, “when someone purchases a company’s stock,” a court “can presume th at he relied on the supposition th at the market pri ce [was] validly set and th at no unsuspected manipulation ha[d] artificially inflated the price.” I d. (int ernal quotation marks omitted). To establish th e rebuttable presumption, the Supreme Court has explained, a pl aint iff must prove th at: “(1) th e defe ndant made publ ic mat erial misrepresentations, (2) the defendant’s shares were traded in an efficient market, and (3) the plaintiffs traded shares between the time th e misrepresentations were made and the time the truth was revealed.” I d

. at 661 (di scussing Basic Inc. v. Levinson, 485 U.S. 224 (1988) ). We have “tighten[ed] the[se] requirements.” Oscar Private Equity Invs. v. Allegiance Telecom , Inc., 487 F.3d 261, 265 (5th Cir. 200 7). Most notably, we require a plaint iff add it io nally t o “prove that the defendant’s non-disclosure mat erially affected th e market price of the security.” Nathenson v. Zo nagen Inc., 267 F.3d 400, 414 (5th Cir. 2001) (quoting Abell v. Potomac Ins. Co., 858 F.2d 1104, 1120-21 (5th Ci r. 1988). As we have explained, this essentially requires a plaint iff to demonstrate “lo ss causation.” Oscar, 487 F.3d at 265. To establish loss causation, a plaint iff must prove “(1) that the negative ‘truthf ul’ info rmation causing the decrease in price [was] related to an allegedly false, no nconfirmatory positive statem ent made earlier and (2) th at i t i s mo re probable than not that it was this negative statem

ent, and not oth er unrelated negative statements, that caused a significant

amo unt of the decline.” Greenberg, 364 F.3d at 666.

### 7 The district court concluded th at Ala ska failed to prove loss causation and that Alaska

thus was not entitled to th e rebuttable presum ption of class wide reliance. Consequently, it held, Alaska did not sati sfy Rule 23(b)(3)’s predom inance requirement. It i s this holding that Alaska challenges on appeal. We conclude that the district court failed to apply the proper legal standard, and we remand the case so that it may do so.

1. Alaska was required to prove loss causation by a preponderance of the evidence. Befor e addressing the merits of Alaska’s class certification appeal, we address its argument th at th e district court applied an erro neous standard of proof . The district court required Alaska to prove lo ss causation by a preponderance of the evidence. Alaska contends th at th e court should inst ead have inquired whether a reasonable trier of fact could have found lo ss causation by a preponderance of the evidence—a substantially less stringent standard. Our precedents fo reclo se that position. In Oscar Private Equity Investments v. Allegiance Telecom , Inc., we held “that loss causation [as an issue of predominance] must be established at th e class certificat io n stage by a preponderance of all admissible evidence.” 487 F.3d, at 269; see also Teamsters Local 445 Freight Divisio n Pension Fund v. Bom bardier, Inc., 546 F.3d 196, 202 (2d Cir. 2008) (“[T]he prepo nderance of th e evidence standard applies to evidence prof

fered to establish Rule 23’s requirements.”); In re Hydrogen Peroxide Ant it rust Lit igation, 55 2 F.3d 305, 320 (3d Ci r. 2008) (“Factual determinations necessary to make Rule 23 findings must be made by a preponderance of the evidence.”). And “the plain t ext of Rule 23 requires th e court to find

. . . th e facts favor ing cl ass certification,” Unger, 401 F.3d at 321, not to inquire whether a jury reasonably could do so. Alaska contends th at reading our cases “so broadly” would create “conflict wit h Rules 23 and 56” and would have “t he potenti al fo r int ruding on plaint iffs ’ [Seventh Amendm ent] right to a jury tri al.” Appellants’ Opening Brief 63. Its argument proceeds as follows: When assessing a defendant’s Rule 56 mo ti on for sum mary judgment, a district court is required to inquire whether

a reasonable jury could find lo ss causation by a preponderance of the evidence. But a plaintiff cannot present th at evidence to th e jury if the district court denies class certificat io n under Rule 23 fo r lack of predom

inance. Thus, if the district co urt m ay assess predominance at the class

### 8

certificat io n stage under a higher standard of proof th an th at required under Rule 56, the plaint iff may be denied the opportunity to present sufficient evidence to the jury. This argument fails because it conflates the issue of lo ss caus ati on for purposes of establishing predom

inance under Rule 23 wit h the issue of loss causation on the merits. “ ‘In determining t he propriety of a class action, the question is not whether the plaintiff or plaint iffs have stated a cause of action or will prevail on the merits, but rather whether the requirement s of Rule 23 are met .’ ” Ei sen v. Carlisle & Jacquelin, 417 U.S. 156, 178 (1974) (quoting Miller v. Mackey International, 452 F.2d 424, 427 (CA5 1 9 71) (Wisdom, J.)); see also Appellants’ Opening Brief 64 (“ ‘an evaluation of the probable outcome on the merits is not properly part of th e certi fication decision’ ” (quoting FE D
. R. C IV
. P. 23(c) advisory com mit tee’s notes)). The Rule 23 analysis “must fo cus on th e requirements of the rule, and if findings made in connection wit h th ose requirements overlap findings th at wi ll have to be made on the merits, such overlap is only coincidental.” Bell v. Ascendant Solutions, Inc., 422 F.3d 307, 312 (5th Cir. 2005). The deni al o f class certification does not prevent a plaintiff from proceeding individually. And “the court’s det ermination for class certification purposes may be revised (or wholly rejected) by the ult imat e factfinder.” Unger, 401 F.3d at 323; s ee also Oscar, 487 F.3d at 269 n.40 (“[L]oss causation, as an element of a 10b-5 claim, can [] be reexamined at sum mary judgment.”). In short, Alaska bore th e burden of establishing loss causation by a preponderance of the evidence in order to obtain certificat io n of it s proposed class. This burden was independent of Alaska’s obligation to establ ish reliance on the merits, and the Rule 23 requirement does nothing to

com prom ise Alaska’s opportunity to meet that distinct obligation. 2. The district court applied an improper standard for assessing loss causation. Loss causation requires proof of a causal connection between a misstatement and a subsequent decline in a stock’s price. In Dura Pharms., Inc. v. Broudo, the Supreme Court explained th at, th ough neces sary, evidence that a stock was purchased at a fraudulently inflated price is insufficient to prove causation. 544 U.S. 336, 342 (2005). A plaint iff must also establish th at aft er the purchase and before the loss there was a disclosure of negative “truthful” info rmation th at was “related to [the] allegedly false, non-confi rm atory , positive statement made earlier.” Oscar, 487 F.3d at 266; s ee Lormand v. US Unwired, Inc.,

__ F.3d __, 2009 WL 941505, at *25 n.20 (5th Ci r. 2009) (explaining that our “related to” test is in harmo ny wit h

### 9

Dura ’s “relevant to” standard). The loss must be caused because this t ruth “ma[de] its way int o th e marketplace,” not as a result of “changed econom ic circumstances, changed investor expectations, new industry -specific or firm-specific facts, conditions,” or other factors independent of the fraud. Dura, 544 U.S. at 342–43. The central dispute between the parties conce rns the definition of relevant corrective info rmation fo r purposes of asses sing loss causation. Flowserve argues, and the district court largely agreed, that a pl aint iff must show a “fact-for-fact” disclosure of information that fully corrected prior misst atem ents. Joint Brief of Appellees Flowserve Corporation, C. Scott Greer, and Renee J. Hornbaker 23; see also Ryan v. Flowserve Corp., Civ. No. 3:03-CV-1769-BECF (ND Tex. Nov. 13, 2007) (m emo randum order). In other words, under this theory a fraud causes

a lo ss only if th e lo ss fo llo ws a corrective statem ent th at specifically reveals the fraud. The only statem ents th at meet this definit io n were made in 2004, whe n Flo wserve restated its earnings and announced th at it had not been in com pliance wit h it s debt covenants. Because no stati stically

s ignificant decline in Flowserve’s share price followed those disclosures, they did not cause Alaska any lo s s. Thus, under Flowserve’s view of relevant disclosures, Alaska has failed to establish loss causation. Alaska contends th at lo ss causation may result when the “true financial condition” of a

com pany becomes known—regardless of whether th e di sclosure of the company’s true financial condition corrects past misst atem ents. So long as the difference between the market’s erroneous perce pti on of the f

inancial condition of the company and the company’s true financial condition is a consequence of th e fraud, Alaska argues, a loss that results from a revelation of the

com pany’s true financial condition is caused by the fraud. Under this view, any disclosure of Flo wserve’s weakening financial condition would relate to its earlier misstatements. Neither party is correct; the true standard lies in the middle. Flowserve’s posit io n effectively does away with the fraud-on-the-market theory of reliance. If a fact-for-fact dis clo sure were requi

red to establ

ish lo ss causation, a defendant could defeat liability by refusing to admit th e falsi

ty of it s prior misstatements. In re Worlds of Wonder Sec. Litig., 35 F.3d 1407, 1422 (9th Cir. 1994). And if a “complete” corrective disclosure were required, defendants could “immunize th emselves wit h a protracted series of parti al disclosures.” Freeland v. Iridium Wo r l d Com

mc’ns, Ltd., 233 F.R.D. 40, 47 (D. DC 2006). Thus, “[t]o be corrective, [a]

### 10

disclosure need not preci sely mirror [an] earlier misrepresentation.” In re Williams Sec. Lit ig.—WCG Subclass, 558 F.3d 1130, 1140 (10th Cir. 2009). Alaska’s position similarly is untenable, bec ause undi sclosed information cannot drive down th e market price of a stock. Only info rmation known to the market can cause a loss. For this reason, only info rmation known to the market is relevant under the fraud-on- th e-market th eory of class wide r eliance. As we have explained, to establish loss causation this disclosed info rmation must reflect part of th e “relevant truth”—the truth obscured by the fraudulent statem ents. Our cases illustrate the application of this standard. For example, in Greenberg v. Crossroads Sy stems, Inc., 364 F.3d 657 (5th Cir. 2004), the plainti ffs argued that they relied to th eir detriment on several alleged misst atem ents. Amo ng them were (1) statements repo rting the defendant’s financial results for the first quarter of Fiscal Year 2000 and detailed analysts earnings estimates for the f iscal second quarter, and (2) statements pertaining to the defendant’s thir d quarter earnings. I d

. at 667–69. These statements caused a substantial loss, plaintiffs argued, when t he stock price fell in part because of a subsequent press release predicting a significant revenue shortfall fo r th e de fendant’s thi rd fiscal quarter. We explained that the press release wa s related to the l atter category of statem ents, but not the former. As to the former,

“ th ere [was] no rel ationship between” the allegedly false statements and the subsequent release. Id . at 668. The release did not “report any concern th at [the defendant’s] fir st and second quarter earnings [were] inco rrect.” I d. To the contrary , it “ ma[de] no reference at all to [t he] first and second fiscal quarters.” I d. Thus, the first category of statements could not support a p resumption of loss causation. The second category of purported misstatements pertained to thir d quarter earnings. “Because the . . . release clearly concerned a significant revenue shortfall fo r [the] thir d fiscal quarter, th e plaint iffs [had] sho w n the requisite link between the [release] and th[ose] earlier statements.” Id . at 669. Lormand v. US Unwired, Inc.,

__ F.3d __, 2009 WL 941505, provides a d dit io nal guidance. The defendant in Lormand, US Unwired, Inc., uttered two general classes of misst atem ents. First, it touted becoming a Type II affiliate of Sprint, when in fact it had been fo rced int o th at arrangement by Sprint —and Ty pe II affiliat io n posed significant financial risks th at were not disclosed. I d

. at *10–*11. Second, US Unwi red misled the public about the

### 11

e xpectations it had fo r success aft er Sprint fo rced the com pany to enter the subpr ime cellular service market. I

d

. at *11–*13. We discussed a series of disclosures through which some truth leaked out. Generally, th e disclosures made increasingly clear that there were substantial problems in th e subprime market and th at expe cted subscri ber growth in that market was unlikely to materi alize. I d

. at *27. Upon detailed examination of these disclosures, we

con cluded that none related to US Unwired’s conversion to Type II affiliation, and that US Unwired thus failed to e stablish loss causation with respect to the misstatements pertaining to th at conversion. I

d

. at *28. On the other hand, the disclo sures did relate to US Unwired’s misst atem ents about th e subprime market. I d

. at *28–*29. For thi s reason, the plaintiffs co uld dem onstrate that thei

r losses were caused by those misstatements when the relevant truth leaked out. Id . at *29. Here, th e district court appears to have demanded mo re of Alaska th an is required by Greenberg or Lormand

. For example, the district court held that the reductions in July ($1.70- $1.90 per share) and Septem ber 2002 ($1 .45-$1.55 per share) of th e FY2002 earnings guidance did no t rev eal the “relevant truth” concerning the inaccuracy of the October 2001 FY2002 earnings proj ection ($1.90-$2.30 per share). It m ust have reasoned that the July and September 2002 statem

ents need not have simply reduced Flo wserve’s earnings-per-share guidance, but had directly to reveal th at th e October 2001 guidance was fraudulent. That is not required; it was enough th at th e market learned th at the October 2 001 guidance was wrong and that other negative info rmation unrelated to t he reduced FY2002 guidance did not cause the decline in Flo wserve’s share pric e. See In re Williams Sec. Litig.—WCG Subclass, 558 F.3d at 1140 (“Loss causation is easiest to show when a corrective disc lo sure reveals the fraud to the public and the price subsequently drops—assuming, of course, that the plaintiff could isolate the effect s from any oth er int ervening causes th at coul d have contributed to the decline.”). Alaska offered expert testimo ny on th e lat ter point , and t he district court did not find that Alaska had failed to segregate lo ss caus ed by the “relevant truth” leaking out from loss caused by unrelated factors. Instead, th e district court fo und th at the July and Septem ber 2002 guidance did not relate to (or, in Dura ’s terms, was not “relevant” to) the October 2001 guidance or any other alleged misst atem ents. This conclusion was erroneous.

### 12 Flo wserve com plains th at our approach turns the Exchange Act int o a “scheme of investor insurance.” Dura Pharm., Inc. v. Broudo, 544 U.S. at 345 (internal quotation marks

om it ted). It ignores the Exchange Act’s scienter requirement. Flowserve was free to be wrong in it s October 2001 earnings guid ance and even fo r such error to cause invest ors lo ss when it was revealed in July and Septem ber 200 2—so l ong as Flowserve did not commit fraud. Only if Flo wserve’s October 2001 guidance (or another alleged misst atem ent ) was fraudulent would any lo ss it caused Alaska be actionable. The Exchange Act is not investor insurance, but neither is th e possibility of recovery for fraud tantamount to insurance. The market may never have learned the “relevant truth” of Flo wserve’s allegedl y fraudulent st atements concerning it s past financials, acquisition synergies, and debt-covenant

com pliance from the July and September 2002 reduction-in-earnings guidance. Clearly, t he market unde rstood th at there was some problem with Flowserve’s business (or its business environment) when the company reduced earnings guidance and the market reacted by driving down Flo wserve’s share price. But loss caused solely by a general impression in the market that “something is wrong” is insufficient to establish causation. S ee In re Williams Sec. Lit ig.—WCG Subclass, 558 F.3d at 1138 (“The inabilit y to point to a single corrective disclosure does not relieve th e plaintiff of showing how the truth was revealed; he cannot say, ‘Well, th e market mu st h ave known.’ ”). Were this not so, we could have concluded that the subprime market info rmation in Lormand related to the misst atements about Ty pe II affiliation because that af

filiat io n was the reason US Unwired was enmeshed in the subprime cellular market in th e fir st pl ace. Similarly, we could have concluded in G reenberg th at the disclosure of reduced thir d-quarter earnings related to misst atem ents ab out f

ir st- and second-quarter earnings because th e earlier shortfalls were surely som e cause of the thi

rd-quarter shortfall. If Alaska cannot prove by a preponderance of the evidence th at the market learned more than that Flo wserve’s earnings guidance was lo wer and so it s business seemed less valuable, it cannot establish th at it s lo ss was caused by Flo wserve’s misst atem ents pertaining to past financials, acquisition synergies, or debt-covenant compliance. Finally, t he district court concluded without analysis that twenty-one of Flowserve’s

m isstatem ents were confirmatory and therefore not actionable. We have held that “[i]f the market price was not actually affected by th e statement, rel iance on the market price does not of

### 13

it self become reliance on the statement.” Nathenson, 267 F.3d at 419. We have also said that “info rmation already known to th e market” will not change a stock’s pri ce. Greenberg, 364 F.3d at 663. But, those of Flowserve’s statements to which the market “actually” responded by pushing up th e price of Flo wserve’s stock are not confirmatory under this standard. I d

. at 665. If Alaska has proved posi ti ve “actual effect” on the price of the stock after a statement issued, th at statem

ent is not merely confirmatory be cause the market’s valuation demonstrates that the statem ent revealed new, positive info rmation. We leave it to the district court on remand to apply this framework in order to determ ine which state ments were confirmatory and which were not. Because th e district court conducted it s Rule 23 hearing under an erroneous legal standard fo r proving lo ss causation, and we cannot discern the basis of it s holding that some of Flo wserve’s statem

ents were confirmatory, w e vacate i ts denial of class certification on Alaska’s Exchange Act claims and remand for a new class certification hearing. B. Summary judgment. 1. The district court had jurisdiction to enter summary judgment. Before turning to th e meri ts of the district court’s grant of summary judgment, we must address Alaska’s argument th at th e court lacke d jurisdiction to enter that order. “The filing o f a notice of appeal is an event of ju ri sdictional significance—it confers jurisdiction on the court of appeals and divests th e district court of it s control over th ose aspects of the case invo lved in th e appeal.” Griggs v. Provident Co nsumer Discount Co, 459 U.S. 56, 58 (1982). But “the di strict court may still pro ceed with matters not involved in the appeal.” Alice L. ex rel. R.L. v. Dusek, 4 92 F.3d 563, 564–65 (5th Ci r. 2007) (per curi am). Alaska asserts that after we granted it permission to appeal t he district court’s denial of class certification, that court lost jurisdiction

over th e merit s of th e Exchange Act an d Securities Act cl aims and thus had no authority to enter summary judgment. This argument rests on Alaska’s contention that Flowserve’s negativecausation def

ense to Al aska’s Securities Act claim was “involved in” Alaska’s unsuccessful effo rt to certify th e putative class because certificat io n was denied on th e basis of Alaska’s failure to establish lo ss causation. In short, the district court lacked j uri sdiction to address Flo wserve’s negative-causation defense, Alaska posits , because the i ssue of loss causation was on appeal to this court in connection with the denial of class certification.

### 14 We disagree. As a mat ter of law, a district court’s findings in connection with a holding

on class certificat io n do not resolve lo ss-causation issues on the merits, even when—as here—the two issues are practically identical. “The findings made for resolving [the] class action certificat io n mo tion serve[d ] th e court onl y in it s determination of whether the requirements of Rule 23 [were] demonstrat ed.” Bell v. Ascendant Sol utions, Inc., 422 F.3d 307, 312 (5th Ci

r. 2005); s ee also Unger, 401 F.3d at 323 (“the court’s determ inat io n fo r cla s s certi ficat io n purposes may be revised (or wholly rejected) by the ultimate factfinder”). When it denied class ce rti fication, the district court did not touch on the issue of loss causation for purposes of th e merit s of Alaska’s claims. Thus, t here is no i ssue on appeal of the summary judgment order th at was “invo lv ed in” the deni al o f class certification. C f

. Ry. Labor Executives’ Ass’n v. Cit y of Galveston, Tex., 898 F.2d 481, 481 (5th Ci r. 1990) (a di strict court
can proceed to resolve th e merit s of a case during the pendency of an int er lo cutory appeal from th e grant or denial of a preliminary injunction).

2. The entry of summary judgment was erroneous. (a) Exchange Act Claims The district court held th at it s “lo ss causation holding in it s denial of class certi fication [was] dispositive of Pl aint iffs’ Exchange Act claims as a matter of l aw.” Order at 1, Ry an v. Flo wserve, 245 F.R.D. 560 (N.D. Tex. 2008). For the reasons we have now twice explained, that holding is erroneous. Even if, contrary to our conclusion, we had found no error in the district court ’s class-certificat io n decision, its loss causation holdings under Rule 23’s preponderance requirement would not govern th e merit s of Ala ska’s cl aims. Further, we are convinced that a genuine fact issue exists on th e materi al element of lo ss causation under the Exchange Act becaus e a reasonable trier of fact could at the least conclude that the October 2001 statement concerning Flo wserve’s FY2002 earnings caused som e portion of Alaska’s lo ss aft er th e “relevant truth” began to leak out in July and September 2002. We therefore reverse the district court’s grant of summary judgment in favor of Flo ws erv e Corp., Greer, and Hornbaker on Alaska’s Exchange Act claims. This ruling does not hamstring the district co urt duri ng th e class certificat io n proceedings on re mand. The di strict court m ust make an independent finding on loss causation for purposes of class certification under the preponderance-of-the-evidence standard.

### 15 (b) Securities Act Claims

Once a plaint iff establishes a prima facie case under the Securities Act, lo ss causation is presumed. McMahan & Co. v. Wherehouse Ent m’t , Inc., 65 F.3d 1044, 1048 (2d Ci r. 1995). Section 11(e) provides a means of rebutting th at p resumption. 15 U.S.C. § 77k(e) (2006). If a defendant can show th at “any portion or all of such dama ges represents other than the depreciation in value of [the] security resulting from [the material misstatement] of the registration statem

ent,” id ., th e presumption is rebutted fo r so much of th e lo ss as i s not at tributable to the m

isst atem ent. The burden on the defendants to prove the affirmative defense in § 11(e) is “heavy” and arises out of “Congress’ desire to allocate the risk of uncertainty to the defendants in th ese cases,” but it is not insurmountable. Akerman v. Oryx Commc’ns, Inc., 810 F.2d 336, 341 (2d Ci

r. 1987). Thi s defense is frequently referred to as “negative causation.” E.g., In re Adams Golf, Inc. Sec. Litig., 381 F.3d 267, 277 (3d Cir. 2004). The district court erroneously placed the burden of proving loss causation for the Securities Act claims on Alaska, even th ough it recognized the affirmat ive nature of the defense. For example, it held th at “[w] hile the evidence establishes that the July and September Releases had a negative effective on th e price of Flo wserve stock, the Releases, standing alone, do not demonstrate a corrective effect on the price of Flowserve stock.” Ryan v. Flowserve Corp., 245 F.R.D. at 579. It l ater held that a “single question is not significant probative evidence and fails to sati sfy Pl aint iffs’ summary judgment burden. Providing a scint illa o f evidence is not enough; th ere must be evidence on which the j ury could reasonably find for the plaintiff.” I d

. at 581 (int ernal quotation marks omitted). The Jul y and September 2002 releases may not have had a corrective effect, but the defendants were required to prove th at no reasonable juror could believe th at any portion of Alaska’s Jul

y and Septem

ber 2002 losses was caused by the defendants’ alleged misrepresentations in th e registration statem ents, i.e ., the lo sses we re caused by another factor. This poses quite a different question th an the one posed by the lo ss-causatio n issue under the Exchange Act, even at the Rule 56 stage of proceedings. In short, even if we were to accept th at the defendants may have proved that the July and Septem ber 2002 releases did not cause lo ss attri butable to any misrep resentations in t he registration statem

ents, th at does not prove th at the July and September losses were unrelated to

### 16

th e registration statem

ents. For example, there is analyst commentary in the record (although not necessarily believed by th e analyst discussing it ) th at suggests concerns about debt-covenant

com pliance and perhaps some concern about Flowserve’s financials. This might not have been enough evidence to avoid summary judgment if Alaska had the burden o f proving loss causation, but it is sufficient to defeat th e def endants’ argument that all reasonable jurors must conclude th at th e defendants were not responsible fo r any of Alaska’s lo ss. We therefo re vacate the distric t court’ s grant of summary judgment dismissing Alaska’s Securities Act claims. We vacate, rather th an reverse, because f urther proceedings might lead to a finer partitioning of

c ulpability among the different defendants. For example, Greer, Hornbaker, and Flowserve Corp. engaged in different acts th an th ose engaged in by Bank of America and Credit Sui sse First Boston, which in turn engaged in acts different from those engaged in by PricewaterhouseCoopers. On the briefs and record before us, we are no t p ositioned to invest igate di fferences between these defendants’ acts. Consequently, to the extent that any defendant can shoulder th e burden of pro ving negative causation as an affirmative defense at the summary-judgme nt stage, the district court is not precluded from reinstating its judgment on remand as to that defendant.

3. We decline to reach the defendants’ alternative grounds for affirmance. Defendant s argue th at Alaska’s Securities Act claims are barred by the statute of limit ations and th at any fo rward-looking statem ents they issued are protected by the Private Securities Lit igation Reform Act’s safe-harbor provis io n. Thei r arguments implicate disputed factual issues and are best addressed by the district court in the first instance. III. CONCLUSION To be successful, a secu ri ti es class-action plaintiff must thread the eye of a needle made smaller and smaller over th e years by judicial decree and congressional action. Those ever higher hurdles are not, however, int ended to p revent viable securities actions from being b rought. For the foregoing reasons, we REVERSE the district court’s grant of summary judgment on Alaska’s Exchange Act claims, VACATE th e district court’s deni al o f classcertificat io n and the remainder of its grant of summary judgment, and REMAND this case for further proceedings consistent with this opinion.

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