Court Opinion

ID: 9795896
Source: CourtListenerOpinion
Date Created: 2023-08-31 03:41:39.681648+00
Date Added: 2024-06-11T08:40:32.990294
License: Public Domain

BROWN, J., Concurring and Dissenting.
Like the majority, I agree that California law does not categorically preclude a cause of action for fraud or *201negligent misrepresentation alleging that the plaintiff refrained from selling stock due to the defendant’s misrepresentations. (See maj. opn., ante, at pp. 173-183.) I also agree that plaintiff did not state such a cause of action because he failed to plead actual reliance with adequate specificity. (See id. at pp. 184-185.) In particular, plaintiff failed to “allege actions, as distinguished from unspoken and unrecorded thoughts and decisions, that would indicate that [he] actually relied on the misrepresentations.” (Id. at p. 184.) I also agree with Justice Baxter that plaintiff, in order to allege damages with sufficient particularity, “must plead and prove an actual, realized loss which can be directly attributed, in a specified amount, to the fraud and its disclosure.” (Conc. opn. of Baxter, J., ante, at p. 200.) Nonetheless, I write separately because I believe plaintiff does not and cannot allege a causal relationship between the alleged misrepresentations and damages. Accordingly, I would affirm the trial court’s decision to sustain defendants’ demurrer without leave to amend.
I
As a threshold matter, this court may address the issue of whether plaintiff adequately pled damage causation even though neither the trial court nor the Court of Appeal considered it. First, the parties had ample opportunity to address the issue. Various amici curiae raised the issue of damage causation, and plaintiff had an opportunity to respond. Moreover, the parties specifically briefed the court on the issue of “whether, in light of the so-called efficient capital markets hypothesis, the complaint sufficiently alleges a causal relationship between the alleged misrepresentations and any alleged nonspeculative damages.” Thus, our resolution of the issue of damage causation should come as no surprise.
Second, upon reviewing a judgment of dismissal following the sustenance of a demurrer, the reviewing court may affirm “on any grounds stated in the demurrer, whether or not the [lower] court acted on that ground.” (Carman v. Alvord (1982) 31 Cal.3d 318, 324 [182 Cal.Rptr. 506, 644 P.2d 192].) “ ‘[I]t is the validity of the court’s action, and not of the reason for its action, which is reviewable.’ “ (E.L. White, Inc. v. City of Huntington Beach (1978) 21 Cal.3d 497, 504, fn. 2 [146 Cal.Rptr. 614, 579 P.2d 505], quoting Weinstock v. Eissler (1964) 224 Cal.App.2d 212, 225 [36 Cal.Rptr. 537].) The trial court in this case sustained defendants’ general demurrer, which alleged, among other things, that plaintiff failed to “state facts sufficient to constitute a cause of action.” (Code Civ. Proc., § 430.10, subd. (e).) Thus, we must affirm the judgment of dismissal if the complaint, for any reason, fails to state a cause of action. (See Aubry v. Tri-City Hospital Dist. (1992) 2 Cal.4th 962, 967 [9 Cal.Rptr.2d 92, 831 P.2d 317] [“The judgment must be *202affirmed ‘if any one of the several grounds of demurrer is well taken’”].) Because damage causation is an essential element of any cause of action for fraud or negligent misrepresentation, I see no reason to remand for further proceedings if plaintiff cannot sufficiently plead this element. And I do not believe he can.
II
“In an action for [common law] fraud, damage is an essential element of the cause of action.” (Committee on Children’s Television, Inc. v. General Foods Corp. (1983) 35 Cal.3d 197, 219 [197 Cal.Rptr. 783, 673 P.2d 660] (Committee on Children’s Television).) “Misrepresentation, even maliciously committed, does not support a cause of action unless the plaintiff suffered consequential damages.” (Conrad v. Bank of America (1996) 45 Cal.App.4th 133, 159 [53 Cal.Rptr.2d 336].) “A ‘complete causal relationship’ between the fraud or deceit and the plaintiff’s damages is required.” (Williams v. Wraxall (1995) 33 Cal.App.4th 120, 132 [39 Cal.Rptr.2d 658], quoting Garcia v. Superior Court (1990) 50 Cal.3d 728, 737 [268 Cal.Rptr. 779, 789 P.2d 960].) At the pleading stage, the complaint “must show a cause and effect relationship between the fraud and damages sought; otherwise no cause of action is stated.” (Zumbrun v. University of Southern California (1972) 25 Cal.App.3d 1, 12 [101 Cal.Rptr. 499, 51 A.L.R.3d 991 (Zumbrun).)
Like any other element of fraud or negligent misrepresentation, damage causation “must be pled specifically; general and conclusory allegations do not suffice.” (Lazar v. Superior Court (1996) 12 Cal.4th 631, 645 [49 Cal.Rptr.2d 377, 909 P.2d 981].) “Allegations of damages without allegations of fact to support them are but conclusions of law, which are not admitted by demurrer.” (Zumbrun, supra, 25 Cal.App.3d at p. 12.) If the existence—and not the amount—of damages alleged in a fraud pleading is “too remote, speculative or uncertain,” then the pleading cannot state a claim for relief. (Block v. Tobin (1975) 45 Cal.App.3d 214, 219 [119 Cal.Rptr. 288]; see also Agnew v. Paries (1959) 172 Cal.App.2d 756, 768 [343 P.2d 118].) And “ ‘the policy of liberal construction of the pleadings . . . will not ordinarily be invoked to sustain a pleading defective’ ” in alleging damages caused by the alleged misrepresentations. (Committee on Children’s Television, supra, 35 Cal.3d at p. 216, quoting 3 Witkin, Cal. Procedure (2d ed. 1971) Pleadings, § 574.)
In this case, plaintiff alleges that defendants’ misrepresentations induced him to forbear from selling his stock in Fritz Companies, Inc. (Fritz). Plaintiff claims he suffered damages from this induced forbearance because, *203absent the misrepresentations, he would have sold his stock at a price higher than the price of the stock on the day defendants revealed their misrepresentations. As explained below, plaintiff cannot sufficiently allege a causal relationship between the alleged damages and the alleged misrepresentations.
Because we must “ ‘accept as true all the material allegations of the complaint’ ” (Charles J. Vacanti, M.D., Inc. v. State Comp. Ins. Fund (2001) 24 Cal.4th 800, 807 [102 Cal.Rptr.2d 562, 14 P.3d 234], quoting Shoemaker v. Myers (1990) 52 Cal.3d 1, 7 [276 Cal.Rptr. 303, 801 P.2d 1054, 20 A.L.R.5th 1016]), I assume, for purposes of this appeal, that Fritz stock traded in an efficient market.1 In an efficient market, “the market price of shares . . . reflects all publicly available information, and, hence, any material misrepresentations.” (Basic Inc. v. Levinson (1988) 485 U.S. 224, 246 [108 S.Ct. 978, 991, 99 L.Ed.2d 194], fn. omitted.) “[PJublicly available information relevant to stock values is so quickly reflected in market prices that, as a general matter, investors cannot expect to profit from trading on such information.” (Stout, Are Takeover Premiums Really Premiums? Market Price, Fair Value, and Corporate Law (1990) 99 Yale L.J. 1235, 1240, fn. omitted.) “The [efficient] market not only reflects publicly available information with great rapidity, it also anticipates formal public announcements of much information.” (Saari, The Efficient Capital Market Hypothesis, Economic Theory and the Regulation of the Securities Industry (1977) 29 Stan. L.Rev. 1031, 1050 (The Efficient Capital Market Hypothesis).) Therefore, such a market, by definition, is “efficient in assimilating the information available to it.” (Id. at p. 1056.)
With this in mind, I now turn to plaintiffs damage allegations. Plaintiff claims as damages the difference between the price of Fritz stock on the date he would have sold the stock if defendants had timely reported Fritz’s true third quarter results on April 2, 1996, and the price of Fritz stock on July 24, 1996—the date defendants actually announced Fritz’s true third quarter results. In other words, plaintiff seeks to recover some portion of the $15.25 drop in Fritz stock price that occurred on July 24—the day defendants publicly corrected the alleged misrepresentations they made in April. Although the complaint is less than clear, plaintiff appears to claim that this drop in stock price is recoverable as damages because it was caused by: (1) the content of defendants’ misrepresentations; (2) the timing of the announcement of Fritz’s true third quarter results, which coincided with the announcement of Fritz’s disappointing fourth quarter results; (3) the loss of *204investor confidence in Fritz’s management resulting from the delayed disclosure of the bad news; and (4) intervening causes with no connection to the misrepresentations, i.e., portions of the fourth quarter results. Plaintiffs theories of damage causation, however, cannot support a claim for fraud or negligent misrepresentation.
First, plaintiff suffered no injury due to the content of the alleged misrepresentations.2 All of the alleged misrepresentations concerned public information that defendants had to disclose. In an efficient market, the market price of a stock reflects all publicly available information. (Basic Inc. v. Levinson, supra, 485 U.S. at p. 246 [108 S.Ct. at p. 991].) Therefore, the price of Fritz stock after the April 2 misrepresentations was unlawfully inflated. If Fritz had timely reported its true third quarter results on April 2, then the market price of Fritz stock would have reflected this information and would have dropped accordingly. (See Arent v. Distribution Sciences, Inc. (8th Cir. 1992) 975 F.2d 1370, 1374 (Arent) [“But if everyone had known this adverse fact, then the stock’s value would have reflected the adversity”].) Even assuming plaintiff would have sold his stock immediately after a timely announcement of Fritz’s true third quarter results, he would have suffered a drop in share price commensurate to the inflation in share price caused by the content of the misrepresentations. Because the market accurately and efficiently assimilates all public information (see The Efficient Capital Market Hypothesis, supra, 29 Stan. L.Rev. at p. 1044), this drop in share price would have been equal to any drop in share price attributable to the representations made on July 24 (see Chanoff v. U.S. Surgical Corp. (D.Conn. 1994) 857 F.Supp. 1011, 1018, affd. (2d Cir. 1994) 31 F.3d 66 (Chanoff) [“plaintiffs cannot claim the right to profit from what they allege was an unlawfully inflated stock value”]). As such, plaintiff could not have profited from a timely announcement of Fritz’s third quarter results absent “insider trading in violation of the securities laws.” (Crocker v. Federal Deposit Ins. Co. (5th Cir. 1987) 826 F.2d 347, 351, fn. 6 (Crocker); see also Levine v. Seilon, Inc. (2d Cir. 1971) 439 F.2d 328, 333, fn. omitted [plaintiff “could hardly be heard to claim compensation . . . from some innocent victim if he had known of the fraud and the buyer did not”].) Thus, as a matter of law, plaintiff suffered no damages due to the misrepresentations themselves. (See Arnlund v. Deloitte & Touche LLP (E.D.Va. 2002) 199 F.Supp.2d 461, 489 (Arnlund) [finding that stockholders who allegedly held their stock in reliance on the defendant’s public misrepresentations cannot, as a matter of law, state a common law fraud claim, because they failed “adequately to plead causation between the misrepresentation and the harm”].)
*205Second, plaintiff suffered no cognizable injury from the timing of the announcement of Fritz’s true third quarter results. (See Chanoff, supra, 857 F.Supp. at p. 1018 [rejecting claim that the timing of the disclosure caused damage].) Plaintiff contends the drop in Fritz’s stock price was more dramatic on July 24 because Fritz simultaneously announced its restated third quarter and disappointing fourth quarter results. Plaintiff, however, ignores his own allegations. According to plaintiff, defendants concealed the costs of Fritz’s acquisitions on April 2 and did not reveal these costs until July 24. Specifically, plaintiff alleged that defendants deliberately concealed that Fritz would have to take an $11 million charge in the third quarter and an additional $11.5 million charge in the fourth quarter. Thus, even if Fritz had timely announced these charges on April 2, the announcement would have not only resulted in lower reported third quarter earnings, but also presaged Fritz’s fourth quarter loss. Indeed, when Fritz announced these charges on July 24, it expressly acknowledged that these charges reduced its previously reported third quarter earnings and caused the reported fourth quarter loss. As such, any psychological effect allegedly caused by the timing of the announcement would have occurred even if defendants had timely reported the information allegedly concealed by Fritz’s management for three months. Any damages attributable to the combined effect of the negative third and fourth quarter earnings announcement on July 24 are therefore illusory.
In any event, plaintiff forgets that stock prices in an efficient market “react quickly and in an unbiased fashion to publicly available information.” (The Efficient Capital Market Hypothesis, supra, 29 Stan. L.Rev. at p. 1044, italics added.) Stock prices in an efficient market “are by definition ‘fair’ . . . [and] it is impossible for investors to be cheated by paying more for securities than their true worth.” (Id. at p. 1069, fn. omitted.) The true worth of Fritz’s stock on July 24 necessarily reflected the fact that the restated third quarter results should have been reported on April 2. Thus, the price of Fritz stock on July 24 was, by definition, the same price the stock would have had on that date if defendants had reported Fritz’s true third quarter results on April 2. (See ibid.)
Third, any drop in stock price due to an alleged loss in investor confidence in Fritz management caused by the delayed announcement is either illusory or too speculative to constitute cognizable damages.3 While loss of investor confidence in management may adversely affect a stock’s price, the July 24 announcement would have caused investors to lose confidence in Fritz’s management even if it had been made on April 2. As alleged in the *206complaint, Fritz’s management made a series of acquisitions. During these acquisitions, Fritz touted its ability to seamlessly integrate these acquisitions into its existing infrastructure and claimed that these acquisitions would improve Fritz’s financial performance. However, the July 24 announcement—which stated that previously unreported acquisition costs had lowered Fritz’s third and fourth quarter earnings—refuted these claims. As such, the July 24 announcement established that Fritz’s management had miscalculated its strategy, mismanaged the acquisitions and failed to achieve its corporate objectives regardless of its timing. Thus, the contents of the July 24 announcement had, by itself and irrespective of any fraudulent delay in reporting these contents, already destroyed investor confidence in Fritz’s management. Indeed, the analyst reports cited in plaintiffs supplemental brief verify this.
Moreover, any drop in stock price attributable to the additional loss of investor confidence resulting from investor suspicion of fraud induced by the delay in the announcement is too remote and speculative to support cognizable damages. As an initial matter, the allegedly fraudulent nature of the delay could not have affected Fritz’s stock price. When Fritz made the July 24 announcement, Fritz did not announce that it had intentionally or negligently concealed the acquisition costs or misrepresented its third quarter earnings on April 2. Rather, Fritz announced that it had failed to account for certain acquisition costs, which lowered its previously reported third quarter earnings and caused a fourth quarter loss. Unlike recent cases of corporate fraud, nothing in this record even suggests that the public attributed the three-month delay in announcing these acquisition costs to fraud or negligence at the time of the announcement or that public suspicion of fraud somehow resulted in a greater drop in stock price than would have otherwise occurred. Thus, any deliberate or negligent concealment of these costs by defendants could not have influenced Fritz’s stock price on July 24.
Investors could certainly speculate that Fritz’s management engaged in wrongdoing or acted incompetently in delaying the announcement. But such investor speculation could occur in every case in which a company announces bad news or issues a negative correction. Thus, any drop in stock price allegedly caused by investor speculation that earlier company statements were dishonestly or incompetently false will occur regardless of whether the defendants acted fraudulently. As such, defendants’ alleged misrepresentations could not have caused the drop in stock price resulting from such investor speculation. In any event, any claim that the mere possibility of fraudulent conduct by defendants may have caused a greater drop in investor confidence and a correspondingly greater drop in stock price than would have otherwise occurred is highly speculative and should not be *207cognizable as a matter of law. (See Marino v. Coburn Corp. of America (E.D.N.Y., Feb. 19, 1971, No. 70-C-960) 1971 WL 247, *4 [in determining damages, courts should ignore “fanciful speculation about the psychology of investors”].)
Indeed, recognizing such a theory of damages would subject a company to securities fraud claims, including buyer or seller claims, whenever that company announces bad news or issues a negative correction. In order to escape dismissal, the securities plaintiffs would merely have to allege a loss of investor confidence due to investor speculation that the bad news resulted from fraud or incompetence. As such, companies would be forced to expend considerable resources defending against claims of fraud or negligent misrepresentation regardless of their merits. Rather than make California the locale of choice for securities class actions, I would refuse to recognize such speculative damages.
Finally, to the extent plaintiff claims injury due to drops in the stock price unrelated to the misrepresentations, i.e., the announcement of fourth quarter losses, he does not allege the requisite causal relationship. “Remote results, produced by intermediate sequences of causes, are beyond the reach of any just and practicable rule of damages.” (Martin v. Deetz (1894) 102 Cal. 55, 68 [36 P. 368]; see also Hotaling v. A. B. Leach & Co., Inc. (1928) 247 N.Y. 84, 87 [159 N.E. 870, 871 57 A.L.R. 1136] (Hotaling) [“defendants [guilty of securities fraud] should not be held liable for any part of plaintiffs loss caused by subsequent events not connected with such fraud”].) Plaintiff, as a matter of law, cannot establish that any portion of the drop in Fritz’s stock price on July 24 was caused by defendants’ alleged misrepresentations. (See ante, at pp. 204-207.) Consequently, plaintiff cannot claim any drop in Fritz’s stock price attributable to other causes as damages in his fraud and negligent misrepresentation claims. (See Martin, at p. 68; Service by Medallion, Inc. v. Clorox Co. (1996) 44 Cal.App.4th 1807, 1818-1819 [52 Cal.Rptr.2d 650] [no causal connection between damages caused by termination of contract and fraud which induced plaintiff to enter into contract]; cf. Carlson v. Richardson (1968) 267 Cal.App.2d 204, 208 [72 Cal.Rptr. 769] [no unjust enrichment where the increase in property value “resulted from market conditions rather than from any act or forbearance to act” on the part of plaintiff].)
Plaintiffs inability to allege this requisite causal connection simply reflects the speculative nature of these damages. Plaintiff alleges that he would have avoided drops in Fritz’s stock price unrelated to the misrepresentations because he would have sold his stock at some indefinite date after April 2—the date defendants should have reported Fritz’s true third quarter results. *208Plaintiff, however, alleges no facts indicating when he would have sold his stock. He does not allege any facts suggesting that he was planning or considering such a sale before the misrepresentations. He does not even allege that he sold his Fritz stock after defendants revealed the fraud on July 24. (See Blake v. Miller (1922) 178 Wis. 228 [189 N.W. 472, 476] [absent allegation that plaintiff was considering some sort of action, allegation of forbearance is wholly speculative].) Because the date on which plaintiff would have sold his shares is, at best, conjectural, it is impossible to ascertain which drops in stock price he would have avoided. Thus, the existence of any damages due to intervening causes unrelated to the misrepresentations is too remote, speculative and uncertain to support a fraud claim. (See Crocker, supra, 826 F.2d at p. 351 [claim that plaintiff would have sold his stock at some indefinite date is too speculative to state an injury]; Seibu Corp. v. KPMG LLP (N.D.Tex. Oct. 2, 2001, No. 3-00-CV-1639-X) 2001 WL 1167317, *7 [rejecting claim that fraud negatively affected the timing and quantity of plaintiffs stock sales in some indefinite manner as too speculative to state a claim for damages]; Himes v. Brown & Co. Securities Corp. (Fla.Dist.Ct.App. 1987) 518 So.2d 937, 938-939 [holding that lack of evidence indicating when plaintiff would have sold the stock renders his claim of damages too speculative to recover]; see also Calistoga Civic Club v. City of Calistoga (1983) 143 Cal.App.3d 111, 119 [191 Cal.Rptr. 571] [finding fraud claim too speculative and uncertain because there was no determinable basis for ascertaining damages].)
In concluding that plaintiff failed to adequately plead damage causation, I would not preclude all fraud or deceit claims premised on induced forbearance. As the majority notes, California courts have long recognized that plaintiffs may suffer cognizable damages from forbearance induced by fraud or deceit. (See, e.g., Marshall v. Buchanan (1868) 35 Cal. 264, 268 [allegations that defendant’s face-to-face misrepresentations induced plaintiff not to enforce a judgment stated a claim for fraud].) Holding that plaintiff failed to allege damage causation would not diminish the vitality of those cases. Rather, I merely apply timeworn principles governing fraud claims to the unique context of securities allegedly trading in an efficient market.
Indeed, my conclusion would not preclude stockholders who allegedly held stock in reliance on another’s misrepresentations from stating a cause of action for fraud or deceit. Under a different set of facts, these stockholders may be able to allege cognizable damages. Indeed, the out-of-state cases cited by plaintiff—which are distinguishable from the facts of this case— offer examples of such facts. For example, many of these cases involved *209individual or face-to-face misrepresentations made directly to the investor.4 Unlike the public misrepresentations alleged in this case, these private misrepresentations would not be immediately reflected in the market price of the stock. Thus, the investors in these out-of-state cases could have profited from accurate information and therefore suffered cognizable damages.5 (See The Efficient Capital Market Hypothesis, supra, 29 Stan. L.Rev. at p. 1053 [investors with access to nonpublic information may generate superior returns].)
Likewise, the investors in many of these out-of-state cases alleged facts indicating that they were preparing to sell or considering the sale of their stock or property and that the misrepresentations induced them not to sell prior to the revelation of the truth.6 Unlike' plaintiff, these investors did not simply allege that they would have sold their stock or property at some indefinite date after the revelation of the truth absent the misrepresentations; they alleged facts indicating a specific date on which they would have sold prior to the revelation of the truth. Thus, the claim of these investors that they would have avoided certain drops in market price due to intervening causes unrelated to the misrepresentations was neither speculative nor uncertain.7
*210Finally, the investors in most of the out-of-state cases cited by plaintiff alleged that the misrepresentations induced them to purchase and retain their stock or property.8 These investors not only paid more than they should have for the stock or property but also would have avoided subsequent drops in market price because they would not have otherwise purchased the stock or property. In other words, the date of purchase established a clear and definite point at which the defendants’ fraud subjected these investors to risks—i.e., drops in market price due to intervening causes—that they would not have otherwise faced. The proper measure of damages was therefore the difference between the amount of the fraudulently induced investment and the value of the stock or property “after the fraud ceased to be operative.” (Duffy, supra, 32 A. at p. 372; see also Marbury, supra, 629 F.2d at p. 708; Hotaling, supra, 247 N.Y. at pp. 87-88 [159 N.E. at p. 873]; Singleton, supra, 152 Misc. at p. 324 [272 N.Y.S. at p. 906]; Kaufmann, supra, 224 A.D. at p. 30 [229 N.Y.S. at p. 547].)
In contrast, plaintiff, as a matter of law, cannot recover any losses from a drop in market price caused by the misrepresentations. (See ante, at pp. 204-207.) Moreover, the misrepresentations did not induce plaintiff to subject himself to the risk of drops in market price due to intervening causes unrelated to the misrepresentations. Plaintiff agreed to take this risk before the misrepresentations. Under these circumstances, he can hardly claim damages based on the fruition of these risks, especially where, as here, the date on which he would have sold the stock is wholly speculative. Any contrary conclusion would make defendants the unpaid insurers of plaintiffs risk. Accordingly, I would follow those courts that have dismissed fraud and negligent misrepresentation claims virtually identical to plaintiffs and affirm the dismissal of plaintiffs complaint. (See, e.g., Arent, supra, 975 F.2d *211at p. 1374; Arnlund, supra, 199 F.Supp.2d at p. 489; Chanoff, supra, 857 F.Supp. at p. 1019.)
I also see no reason to remand in order to give plaintiff an opportunity to amend the complaint to allege damage causation. Although the sustaining of a demurrer without leave to amend is generally an abuse of discretion “ ‘if there is any reasonable possibility that the defect can be cured by amendment,’ ” “ ‘the burden is on the plaintiff to demonstrate that the trial court abused its discretion.’ ” (Goodman v. Kennedy (1976) 18 Cal.3d 335, 349 [134 Cal.Rptr. 375, 556 P.2d 737], quoting Cooper v. Leslie Salt Co. (1969) 70 Cal.2d 627, 636 [75 Cal.Rptr. 766, 451 P.2d 406].) “ ‘Plaintiff must show in what manner he can amend his complaint and how that amendment will change the legal effect of his pleading.’” (Goodman, at p. 349, quoting Cooper v. Leslie Salt Co., supra, at p. 636.) Although defendants raised the damage causation issue in their first demurrer, and plaintiff had two opportunities to amend, nothing in the record suggests plaintiff can amend his complaint to allege damage causation. Plaintiff’s supplemental briefs— which specifically addressed the issue of damage causation—confirm this. In his briefs, plaintiff claims that his complaint adequately pleads damage causation premised on the loss of investor confidence in Fritz’s management. In espousing this theory of damage causation, however, he offered no alternative if the court rejected his theory and never asked for an opportunity to amend the complaint to allege damage causation. Because “[n] either the record nor the tenor of [plaintiffs] briefs or oral argument indicates any ability upon [his] part to plead and prove facts which would establish” the element of damage causation, the trial court did not abuse its discretion by refusing leave to amend. (Goodman, at pp. 349-350.)
In reaching this conclusion, I remain true to the purpose behind the heightened pleading standard for fraud claims. “The pleading of fraud . . . is . . . the last remaining habitat of the common law notion that a complaint should be sufficiently specific that the court can weed out nonmeritorious actions on the basis of the pleadings.” (Committee on Children’s Television, supra, 35 Cal.3d at pp. 216-217.) This weeding out process is especially important in the securities context. As the United States Supreme Court recognized over 25 years ago, securities fraud litigation “presents a danger of vexatiousness different in degree and in kind from that which accompanies litigation in general.” (Blue Chip Stamps v. Manor Drug Stores (1975) 421 U.S. 723, 739 [95 S.Ct. 1917, 1927, 44 L.Ed:2d 539].) Because “a complaint which by objective standards may have very little chance of success at trial has a settlement value to the plaintiff out of any proportion to its prospect of success at trial so long as he may prevent the suit from being resolved against him by dismissal or summary judgment,” the danger of *212nuisance or strike suits is significant. (Id. at p. 740 [95 S.Ct. at pp. 1927-1928].) The potential disruption of a defendant’s normal business activities (ibid.), the disproportionate discovery burden on the defendant (id. at p. 741 [95 S.Ct. at p. 1928]), and the fact that these claims often turn on the oral testimony of the plaintiff (id. at p. 742 [95 S.Ct. at pp. 1928-1929]), render these lawsuits ripe for abuse. Accordingly, I believe we must vigorously enforce our well-established standards for pleading damage causation in fraud cases and would therefore affirm the judgment of dismissal.
Chin, J., concurred.

In doing so, I neither accept nor reject the so-called efficient capital markets hypothesis. (See Mirkin v. Wasserman (1993) 5 Cal.4th 1082, 1101, fn. 7 [23 Cal.Rptr.2d 101, 858 P.2d 568].)

Although plaintiff acknowledged that he may not recover all of the drop in stock price that occurred on July 24, he did not eschew recovery of some of the declines in stock price allegedly caused by the misrepresentations.

In reaching this conclusion, I do not, as Justice Kennard suggests, rely on the efficient capital market hypothesis. (See conc. opn. of Kennard, J., ante, at p. 190.)

(See, e.g., Marbury Management, Inc. v. Kohn (2d Cir. 1980) 629 F.2d 705, 707 (Marbury) [defendant made individual misrepresentations directly to plaintiffs which induced them to buy and hold securities]; Gutman v. Howard Sav. Bank (D.N.J. 1990) 748 F.Supp. 254, 260, 266 [defendants made individual misrepresentations directly to plaintiffs which allayed their concerns about defendants’ misleading public statements]; Fottler v. Moseley (1901) 179 Mass. 295 [60 N.E. 788, 788] [defendant made face-to-face misrepresentations which induced plaintiff to hold his stock]; Duffy v. Smith (1895) 57 N.J.L. 679 [32 A. 371, 372] (Duffy) [same]; Rothmiller v. Stein (1894) 143 N.Y. 581, 586-587 [38 N.E. 718, 719] [same]; Seideman v. Sheboygan Loan & Trust Co. (1929) 198 Wis. 97 [223 N.W. 430, 432] (Seideman) [same].)

Many of these cases predate federal securities laws which defined required disclosures to the public and prohibited insider trading.

(See, e.g., David v. Belmont (1935) 291 Mass. 450 [197 N.E. 83, 85] [evidence established that plaintiff intended to sell his stock until he saw the misrepresentations]; Fottler v. Moseley, supra, 60 N.E. at p. 788 [defendant broker knew that plaintiff had given him a sell order]; Continental Ins. Co. v. Mercadante (1927) 222 A.D. 181, 182 [225 N.Y.S. 488, 489] [defendants knew plaintiffs were planning to sell the bonds if the obligor’s financial condition deteriorated]; Rothmiller v. Stein, supra, 38 N.E. at p. 719 [defendants knew plaintiff had received two offers for his stock and was considering a sale]; Seideman, supra, 223 N.W. at p. 432 [plaintiff informed defendants that she wanted a refund of her investment].)

Because these cases predate federal securities law, their specific facts are unlikely to arise in today’s highly regulated world of securities trading. Perhaps the only modem analogy is the situation where an investor tells his or her broker to sell a company’s stock if it drops below a specific price. Due to the company’s misrepresentations, however, the stock price never falls below that price and the investor either cancels the sell order or allows it to lapse. Following the revelation of the truth, the company’s stock price falls below the price at which the investor had previously intended to sell. Like the investors in the cited cases, this investor *210can identify a specific drop in stock price that he or she would have avoided absent the misrepresentations and can therefore allege damage causation.

(See, e.g., Marbury, supra, 629 F.2d at p. 710 [emphasizing that plaintiffs did not merely allege an inducement to hold, but to both purchase and retain, stock]; Primavera Familienstifung v. Asian (S.D.N.Y. 2001) 130 F.Supp.2d 450, 504-507, amended on reconsideration on other grounds, 137 F.Supp.2d 438 [complaint alleging induced purchase and retention of stock stated cognizable damages]; Zivitz v. Greenburg (N.D.Ill. Dec. 3, 1999, No. 98-C-5350) 1999 WL 1129605, *1 [fraud induced plaintiffs to “buy and hold stock”]; Kaufman v. Chase Manhattan Bank, N.A. (S.D.N.Y. 1984) 581 F.Supp. 350, 354 [finding damage causation where the fraud induced plaintiff to purchase and retain the investment]; Freschi v. Grand Coal Venture (S.D.N.Y. 1982) 551 F.Supp. 1220, 1230 [claim that fraud induced purchase and retention of investment alleged ongoing fraud]; Duffy, supra, 32 A. at p. 372 [fraud induced plaintiff to both purchase and retain stock]; Hotaling, supra, 247 N.Y. at pp. 86, 91-92 [159 N.E. at pp. 871, 872-873] [fraud induced plaintiff to purchase and retain bonds]; Singleton v. Harriman (1933) 152 Misc. 323, 324 [272 N.Y.S. 905, 906] (Singleton) [fraud induced plaintiff to purchase and retain stock for investment]; Kaufmann v. Delafleld (1928) 224 A.D. 29, 30-31 [229 N.Y.S. 545, 546-547] (Kaufmann) [fraud induced plaintiff to purchase and retain investment].)