Opinion ID: 66401
Heading Depth: 4
Heading Rank: 2

Heading: Securities Act Claims

Text: Once a plaintiff establishes a prima facie case under the Securities Act, loss causation is presumed. McMahan & Co. v. Wherehouse Entm’t, Inc., 65 F.3d 1044, 1048 (2d Cir. 1995). Section 11(e) provides a means of rebutting that presumption. 15 U.S.C. § 77k(e) (2006). If a defendant can show that “any portion or all of such damages represents other than the depreciation in value of [the] security resulting from [the material misstatement] of the registration statement,” id., the presumption is rebutted for so much of the loss as is not attributable to the misstatement. 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 these cases,” but it is not insurmountable. Akerman v. Oryx Commc’ns, Inc., 810 F.2d 336, 341 (2d Cir. 1987). This 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 though it recognized the affirmative nature of the defense. For example, it held that “[w]hile the evidence establishes that the July and September Releases had a negative effective on the price of Flowserve 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 later held that a “single question is not significant probative evidence and fails to satisfy Plaintiffs’ summary judgment burden. Providing a scintilla of evidence is not enough; there must be evidence on which the jury could reasonably find for the plaintiff.” Id. at 581 (internal quotation marks omitted). The July and September 2002 releases may not have had a corrective effect, but the defendants were required to prove that no reasonable juror could believe that any portion of Alaska’s July and September 2002 losses was caused by the defendants’ alleged misrepresentations in the registration statements, i.e., the losses were caused by another factor. This poses quite a different question than the one posed by the loss-causation issue under the Exchange Act, even at the Rule 56 stage of proceedings. In short, even if we were to accept that the defendants may have proved that the July and September 2002 releases did not cause loss attributable to any misrepresentations in the registration statements, that does not prove that the July and September losses were unrelated to 15 the registration statements. For example, there is analyst commentary in the record (although not necessarily believed by the analyst discussing it) that suggests concerns about debt-covenant compliance and perhaps some concern about Flowserve’s financials. This might not have been enough evidence to avoid summary judgment if Alaska had the burden of proving loss causation, but it is sufficient to defeat the defendants’ argument that all reasonable jurors must conclude that the defendants were not responsible for any of Alaska’s loss. We therefore vacate the district court’s grant of summary judgment dismissing Alaska’s Securities Act claims. We vacate, rather than reverse, because further proceedings might lead to a finer partitioning of culpability among the different defendants. For example, Greer, Hornbaker, and Flowserve Corp. engaged in different acts than those engaged in by Bank of America and Credit Suisse First Boston, which in turn engaged in acts different from those engaged in by PricewaterhouseCoopers. On the briefs and record before us, we are not positioned to investigate differences between these defendants’ acts. Consequently, to the extent that any defendant can shoulder the burden of proving negative causation as an affirmative defense at the summary-judgment 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. Defendants argue that Alaska’s Securities Act claims are barred by the statute of limitations and that any forward-looking statements they issued are protected by the Private Securities Litigation Reform Act’s safe-harbor provision. Their arguments implicate disputed factual issues and are best addressed by the district court in the first instance.