Dura Pharmaceuticals v. Broudo, 125 S. Ct. 1627 (2005)

Facts

Broudo and others purchased stock in Dura on the public market.  Broudo alleges Dura made false statements concerning profits and future FDA approval of an asthma device.

Procedural History

The Ninth Circuit held that the complaint adequately alleged loss causation because they have shown that the price on the date of purchase was inflated due to the misrepresentation.

Issue(s)

Did the Ninth Circuit err in holding loss causation was adequately pled?

Holding(s)

Yes.

Reasoning/Analysis

The Court found that the view of the Ninth Circuit was wrong in its statement of the law.  An inflated purchase price will not itself constitute or proximately cause the relevant economic loss.  At the moment the transaction take place, the plaintiff has suffered no loss.  Given the common law roots of the securities fraud action, it is not surprising that other circuits have rejected the Ninth Circuit’s analysis.  The statute makes clear private securities fraud actions are only where plaintiffs adequately allege and prove the traditional elements of causation and loss.

Judgment/Outcome

The Court reversed the judgment of the Court of Appeals.