Source: https://casetext.com/case/dura-pharmaceuticals-inc-v-broudo-5
Timestamp: 2020-07-07 19:06:37
Document Index: 642815865

Matched Legal Cases: ['§ 78', '§ 78', '§ 12', '§ 525', '§ 348', '§ 110', '§ 78', '§ 78', '§ 10']

Dura Pharmaceuticals v. Broudo, 544 U.S. 336 | Casetext Search + Citator
Under this Rule, "the basic elements [of a private federal securities fraud action] include: (1) a material…
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Full title:DURA PHARMACEUTICALS, INC., ET AL. v. BROUDO ET AL
Date published: Apr 19, 2005
125 S. Ct. 1627
holding that the securities statutes have a private of action “not to provide investors with broad insurance against market losses, but to protect them against those economic losses that misrepresentations actually cause”
Argued January 12, 2005. Decided April 19, 2005.
William F. Sullivan argued the cause for petitioners. With him on the briefs were Christopher H. McGrath and Tracey L. DeLange. Deputy Solicitor General Hungar argued the cause for the United States as amicus curiae urging reversal. With him on the brief were Acting Solicitor General Clement, Dan Himmelfarb, Jacob H. Stillman, Eric Summergrad, and Allan A. Capute. Patrick J. Coughlin argued the cause for respondents. With him on the brief were Sanford Svetcov, Eric Alan Isaacson, Joseph D. Daley, Alan Schulman, Myron Moskovitz, Daniel S. Sommers, and Paul R. Hoeber
Briefs of amid curiae urging reversal were filed for the American Institute of Certified Public Accountants by Lawrence S. Robbins, Kathryn S. Zecca, and Richard I. Miller; for Broadcom Corp. by Kenneth R. Heitz, David Siegel, and Richard H. Zelichov; for the Chamber of Commerce of the United States by Neil M. Gorsuch and Robin S. Conrad; for Merrill Lynch Co., Inc., by Stephen M. Shapiro, Timothy S. Bishop, Andrew L. Frey, and Kenneth S. Getter; for the Securities Industry Association et al. by Carter G. Phillips, Richard D. Bernstein, and Jacqueline G. Cooper; for Technology Network by John R. Reese and Dale E. Barnes, Jr.; and for the Washington Legal Foundation by Michael L. Kichline, David A. Kotler, Daniel J. Popeo, and Paul D. Kamenar.
Briefs of amici curiae urging affirmance were filed for the New Jersey Dept. of Treasury et al. by Melvyn I. Weiss; for the City of New York Pension Funds et al. by Jay W. Eisenhofer, Geoffrey C. Jarvis, Leonard J. Koerner, Peter H. Mixon, David L. Muir, and Christopher W. Waddell; for the National Association of Shareholder and Consumer Attorneys et al. by Kevin P. Roddy, Deborah M. Zuckerman, and Michael Schuster; for the North American Securities Administrators Association, Inc., by Mark J. Davis; for the Regents of the University of California by James E. Hoist and Christopher M. Patti; and for James J. Hayes by Edward M. Selfe.
A private plaintiff who claims securities fraud must prove that the defendant's fraud caused an economic loss. 109 Stat. 747, 15 U. S. C. § 78u-4(b)(4). We consider a Ninth Circuit holding that a plaintiff can satisfy this requirement — a requirement that courts call "loss causation" — simply by alleging in the complaint and subsequently establishing that "the price" of the security " on the date of purchase was inflated because of the misrepresentation." 339 F. 3d 933, 938 (2003) (internal quotation marks omitted). In our view, the Ninth Circuit is wrong, both in respect to what a plaintiff must prove and in respect to what the plaintiffs' complaint here must allege.
(2) In respect to drug profits, Dura falsely claimed that it expected that its drug sales would prove profitable. See, e. g., id., at 66a-69a.
Because the Ninth Circuit's views about loss causation differ from those of other Circuits that have considered this issue, we granted Dura's petition for certiorari. Compare ibid. with, e. g., Emergent Capital Investment Management, LLC v. Stonepath Group, Inc., 343 F. 3d 189, 198 (CA2 2003); Semerenko v. Cendant Corp., 223 F. 3d 165, 185 (CA3 2000); Robbins v. Roger Properties, Inc., 116 F. 3d 1441, 1447-1448 (CA11 1997); cf. Bastian v. Petren Resources Corp., 892 F. 2d 680, 685 (CA7 1990). We now reverse.
The courts have implied from these statutes and Rule a private damages action, which resembles, but is not identical to, common-law tort actions for deceit and misrepresentation. See, e. g., Blue Chip Stamps v. Manor Drug Stores, 421 U. S. 723, 730, 744 (1975); Ernst Ernst v. Hochfelder, 425 U. S. 185, 196 (1976). And Congress has imposed statutory requirements on that private action. E. g., 15 U. S. C. § 78u-4(b)(4).
(2) scienter, i. e., a wrongful state of mind, see Ernst Ernst, supra, at 197, 199;
(6) " loss causation," i. e., a causal connection between the material misrepresentation and the loss, ibid.; cf. T. Hazen, Law of Securities Regulation §§ 12.11[1], [3] (5th ed. 2005).
We begin with the Ninth Circuit's basic reason for finding the complaint adequate, namely, that at the end of the day plaintiffs need only "establish," i. e., prove, that "the price on the date of purchase was inflated because of the misrepresentation." 339 F. 3d, at 938 (internal quotation marks and citation omitted). In our view, this statement of the law is wrong. Normally, in cases such as this one ( i. e., fraud-on-the-market cases), an inflated purchase price will not itself constitute or proximately cause the relevant economic loss.
For another thing, the Ninth Circuit's holding lacks support in precedent. Judicially implied private securities fraud actions resemble in many (but not all) respects common-law deceit and misrepresentation actions. See Blue Chip Stamps, supra, at 744; see also L. Loss J. Seligman, Fundamentals of Securities Regulation 910-918 (5th ed. 2004) (describing relationship to common-law deceit). The common law of deceit subjects a person who "fraudulently" makes a "misrepresentation" to liability "for pecuniary loss caused" to one who justifiably relies upon that misrepresentation. Restatement (Second) of Torts § 525, p. 55 (1976) (hereinafter Restatement of Torts); see also Southern Development Co. v. Silva, 125 U. S. 247, 250 (1888) (setting forth elements of fraudulent misrepresentation). And the common law has long insisted that a plaintiff in such a case show not only that had he known the truth he would not have acted but also that he suffered actual economic loss. See, e. g., Pasley v. Freeman, 3 T. R. 51, 65, 100 Eng. Rep. 450, 457 (1789) (if "no injury is occasioned by the lie, it is not actionable: but if it be attended with a damage, it then becomes the subject of an action"); Freeman v. Venner, 120 Mass. 424, 426 (1876) (a mortgagee cannot bring a tort action for damages stemming from a fraudulent note that a misrepresentation led him to execute unless and until the note has to be paid); see also M. Bigelow, Law of Torts 101 (8th ed. 1907) (damage "must already have been suffered before the bringing of the suit"); 2 T. Cooley, Law of Torts § 348, p. 551 (4th ed. 1932) (plaintiff must show that he "suffered damage" and that the "damage followed proximately the deception"); W. Keeton, D. Dobbs, R. Keeton, D. Owen, Prosser and Keeton on Law of Torts § 110, p. 765 (5th ed. 1984) (hereinafter Prosser and Keeton) (plaintiff "must have suffered substantial damage," not simply nominal damages, before "the cause of action can arise").
The statutory provision at issue here and the paragraphs that precede it emphasize this last mentioned objective. Private Securities Litigation Reform Act of 1995, 109 Stat. 737. The statute insists that securities fraud complaints "specify" each misleading statement; that they set forth the facts "on which [a] belief" that a statement is misleading was "formed"; and that they "state with particularity facts giving rise to a strong inference that the defendant acted with the required state of mind." 15 U. S. C. §§ 78u- 4(b)(1), (2). And the statute expressly imposes on plaintiffs "the burden of proving" that the defendant's misrepresentations "caused the loss for which the plaintiff seeks to recover." § 78u-4(b)(4).
We concede that ordinary pleading rules are not meant to impose a great burden upon a plaintiff. Swierkiewicz v. Sorema N. A., 534 U. S. 506, 513-515 (2002). But it should not prove burdensome for a plaintiff who has suffered an economic loss to provide a defendant with some indication of the loss and the causal connection that the plaintiff has in mind. At the same time, allowing a plaintiff to forgo giving any indication of the economic loss and proximate cause that the plaintiff has in mind would bring about harm of the very sort the statutes seek to avoid. Cf. H. R. Conf. Rep. No. 104-369, p. 31 (1995) (criticizing "abusive" practices including "the routine filing of lawsuits . . . with only [a] faint hope that the discovery process might lead eventually to some plausible cause of action"). It would permit a plaintiff "with a largely groundless claim to simply take up the time of a number of other people, with the right to do so representing an in terrorem increment of the settlement value, rather than a reasonably founded hope that the [discovery] process will reveal relevant evidence." Blue Chip Stamps, 421 U. S., at 741. Such a rule would tend to transform a private securities action into a partial downside insurance policy. See H. R. Conf. Rep. No. 104-369, at 31; see also Basic, 485 U. S., at 252 (White, J., joined by O'CONNOR, J., concurring in part and dissenting in part).
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