Legal Document

544 U.S. 336 DURA PHARMACEUTICALS, INC., ET AL.v.BROUDO AL. No. 03-932. Supreme Court of United States. Argued January 12, 2005. Decided April 19, Respondents filed a securities fraud class action, alleging that petitioners, Dura Pharmaceuticals, Inc., and some its managers directors (hereinafter Dura), made, inter alia, misrepresentations about future Food Drug Administration approval new asthmatic spray device, leading respondents to purchase at an artificially inflated price. In dismissing, the District found complaint failed adequately allege "loss causation" — i. e., causal connection between device misrepresentation economic loss, 15 U. S. C. § 78u-4(b)(4). The Ninth Circuit reversed, finding plaintiff can satisfy loss causation requirement simply by security's price time was because misrepresentation. Held: 1. An will not itself constitute or proximately cause relevant needed prove causation." basic elements private action which resembles common-law tort for deceit include, as here, erred in following approach showing loss. First, matter pure logic, moment transaction takes place, has suffered no is offset ownership share possesses equivalent value instant. And logical link any later invariably strong, since other factors may affect Thus, most logic alone permits this say suggests "touches upon" found. However, touch upon 78u-4(b)(4) requires. Circuit's holding also supported precedent. actions resemble require show only had he known truth would have acted, but actual Nor below be reconciled with views Courts Appeals, rejected causation. Finally, inconsistent important law objective. laws make clear Congress' intent permit where plaintiffs traditional allow recovery leads price, does Pp. 341-346. 2. Respondents' legally insufficient respect allegation While Federal Rule Civil Procedure 8(a)(2) requires "short plain statement claim pleader entitled relief," while assumes neither Rules nor statutes place further pleading, statement" must give defendant "fair notice what plaintiff's grounds it rests," Conley v. Gibson, 355 41, 47. here contains respondents' their consisted prices. concluded such nowhere else provides might Ordinary pleading rules are meant impose great burden on plaintiff, should burdensome suffering provide indication mind. Allowing forgo giving proximate bring very sort harm seek avoid, namely, abusive practice filing lawsuits faint hope discovery lead plausible action. 346-348. 339 F. 3d 933, reversed remanded. BREYER, J., delivered opinion unanimous Court. CERTIORARI TO THE UNITED STATES COURT OF APPEALS FOR NINTH CIRCUIT. William Sullivan argued petitioners. With him briefs were Christopher H. McGrath Tracey L. DeLange. Deputy Solicitor General Hungar States amicus curiae urging reversal. brief Acting Clement, Dan Himmelfarb, Jacob Stillman, Eric Summergrad, Allan A. Capute. Patrick J. Coughlin respondents. Sanford Svetcov, Alan Isaacson, Joseph D. Daley, Schulman, Myron Moskovitz, Daniel Sommers, Paul R. Hoeber.* JUSTICE BREYER 1 A who claims defendant's caused 109 Stat. 747, We consider courts call subsequently establishing "the price" security "on date misrepresentation." 938 (2003) (internal quotation marks omitted). our view, wrong, both plaintiffs' allege. 2 * individuals bought stock public market 15, 1997, February 24, 1998. They brought against Dura) federal court. question before us, detailed amended (181 paragraph) makes substantially allegations: 3 (1) Before during period, (or officials) made false statements concerning Dura's drug profits (FDA) device. See, e. g., App. 45a, 55a, 89a. 4 (2) profits, falsely claimed expected sales profitable. e.g., id., 66a-69a. 5 (3) FDA soon grant approval. 89a-90a, 103a-104a. 6 (4) On last day 1998, announced earnings lower than expected, principally due slow sales. Id., 51a. 7 (5) next shares lost almost half (falling from $39 per $21). Ibid. 8 (6) About eight months (in November 1998), approve 110a. 9 (7) temporarily fell fully recovered within one week. 156a. 10 Most importantly, says (and nothing significantly more following) losses attributable misstatement: "In reliance integrity market, [the plaintiffs] . paid prices securities" "damage[s]" thereby. 139a (emphasis added). 11 dismissed complaint. drug-profitability claim, held appropriate state mind, defendants acted knowingly, like. 12 Appeals reversed. portion court's decision now us concerns alleged wrote "plaintiffs establish if they shown 3d, original; internal citation It added injury occurs transaction." Since pleaded "that overstated," sufficiently identified cause, allegations sufficient. 13 Because differ those Circuits considered issue, we granted petition certiorari. Compare ibid. with, Emergent Capital Investment Management, LLC Stonepath Group, 343 189, 198 (CA2 2003); Semerenko Cendant Corp., 223 165, 185 (CA3 2000); Robbins Koger Properties, 116 1441, 1447-1448 (CA11 1997); cf. Bastian Petren Resources 892 2d 680, 685 (CA7 1990). reverse. II 14 Private based implementing regulations. Section 10(b) Securities Exchange Act 1934 forbids "use employ[ment] deceptive device," "in sale security," contravention of" Commission "rules regulations." 78j(b). 10b-5 forbids, among things, making "untrue material fact" omission fact "necessary order misleading." 17 CFR 240.10b-5 (2004). implied these damages resembles, identical to, Blue Chip Stamps Manor Stores, 421 723, 730, 744 (1975); Ernst & Hochfelder, 425 185, 196 (1976). Congress imposed statutory requirements E. 16 cases involving publicly traded purchases markets, action's include: omission), see Basic Inc. Levinson, 485 224, 231-232 (1988); 18 scienter, wrongful Ernst, supra, 197, 199; 19 security, Stamps, 730-731; 20 reliance, often referred markets (fraud-on-the-market cases) "transaction causation," Basic, 248-249 (nonconclusively presuming reflects relied long absence); 21 78u-4(b)(4); 22 ibid.; T. Hazen, Law Regulation §§ 12.11[1], [3] (5th ed. 2005). 23 argues complaint's inadequate two elements. 24 begin reason adequate, end need "establish," prove, wrong. Normally, (i. fraud-on-the-market cases), 25 For thing, loss; payment instant value. Moreover, strong. Shares normally purchased eye toward sale. But if, say, purchaser sells quickly begins leak out, led If after way into marketplace, initially mean far inevitably so. When resells shares, even reflect, earlier misrepresentation, changed circumstances, investor expectations, industry-specific firm-specific facts, conditions, events, taken separately together account all (The same true share's higher otherwise been do here.) Other things being equal, longer sale, likely so, 26 Given tangle affecting sometimes play role bringing necessary condition sense (using language used) But, insufficient. To "touch latter 27 another lacks support Judicially many (but all) respects actions. See 744; Loss Seligman, Fundamentals 910-918 2004) (describing relationship deceit). common subjects person "fraudulently" "misrepresentation" liability "for pecuniary caused" justifiably relies Restatement (Second) Torts 525, p. 55 (1976) Torts); Southern Development Co. Silva, 125 247, 250 (1888) (setting forth fraudulent misrepresentation). insisted case Pasley Freeman, 51, 65, 100 Eng. Rep. 450, 457 (1789) (if "no occasioned lie, actionable: attended damage, then becomes subject action"); Freeman Venner, 120 Mass. 424, 426 (1876) (a mortgagee cannot stemming note execute unless until paid); M. Bigelow, 101 (8th 1907) (damage "must already suit"); Cooley, 348, 551 (4th 1932) (plaintiff "suffered damage" "damage followed deception"); W. Keeton, Dobbs, Owen, Prosser Keeton 110, 765 1984) Keeton) substantial damage," nominal damages, arise"). 28 roots damages), surprising "inflated proving Capital, (inflation causation); Semerenko, (same); Robbins, 1448 Bastian, 2d, 685. Indeed, Torts, setting judicial consensus, "misrepresents financial corporation sell stock" liable relying loss" sustains "when facts become generally known" "as result" "depreciate[s]." 548A, Comment b, 107. Treatise writers, too, emphasized 767 (losses "not afford basis recovery" "brought business conditions factors"). 29 reconcile courts. uniqueness perspective validity like contours judicially law. 30 overlooks maintain confidence marketplace. O'Hagan, 521 642, 658 (1997). so deterring fraud, part, through availability Randall Loftsgaarden, 478 647, 664 (1986). available, investors broad insurance losses, protect them actually cause. Cf. S., 252 (White, joined O'CONNOR, concurring part dissenting part) ("[A]llowing face affirmative evidence nonreliance effectively convert scheme investor's insurance. There Act, Rule, citations omitted)). 31 provision issue paragraphs precede emphasize mentioned Litigation Reform 1995, 737. statute insists complaints "specify" each misleading statement; set [a] belief" "formed"; "state particularity rise strong inference required mind." 78u-4(b)(1), (2). expressly imposes proving" "caused seeks recover." 32 thereby where, By contrast, nonetheless That missing. 33 sum, find law's conduct) not, loss-related questions. B 34 Our conclude requirements. concede "a short relief." Fed. Civ. Proc. 8(a)(2). assume, least argument's sake, special rests." 47 (1957). fails simple test. 35 As pointed lengthy fairly read describing defendants' "spray device" misrepresentations. "paid Dura['s] "damage[s]." 139a. implies "artificially inflated" "prices." failure became inflation otherwise. 36 reasons Part II-A, however, device." 37 ordinary plaintiff. Swierkiewicz Sorema N. A., 534 506, 513-515 (2002). At time, allowing mind avoid. Conf. 104-369, (1995) (criticizing "abusive" practices including routine process eventually action"). "with largely groundless take up number people, right representing terrorem increment settlement value, rather reasonably founded [discovery] reveal evidence." 741. Such rule tend transform partial downside policy. 31; part). 38 reasons, reverse judgment Circuit, remand proceedings consistent opinion. 39 ordered. Notes: Briefs ofamici reversal American Institute Certified Public Accountants Lawrence Kathryn Zecca, Richard I. Miller; Broadcom Corp. Kenneth Heitz, David Siegel, Zelichov; Chamber Commerce Neil Gorsuch Robin Conrad; Merrill Lynch Co., Stephen Shapiro, Timothy Bishop, Andrew Frey, Geller; Industry Association et al. Carter G. Phillips, Bernstein, Jacqueline Cooper; Technology Network John Reese Dale Barnes, Jr.; Washington Legal Foundation Michael Kichline, Kotler, Popeo, Kamenar. amici affirmance New Jersey Dept. Treasury Melvyn Weiss; City York Pension Funds Jay Eisenhofer, Geoffrey Jarvis, Leonard Koerner, Peter Mixon, Muir, Waddell; National Shareholder Consumer Attorneys Kevin P. Roddy, Deborah Zuckerman, Schuster; North Administrators Association, Mark Davis; Regents University California James Holst Patti; Hayes Edward Selfe.

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