8 - After Dura: Causation in Fraud-on-the-Market Actions

Summary

Legal causation is sometimes called “proximate cause” or in recent years “loss causation” in federal securities cases. We have already observed that the proliferation of terms to describe causation in the federal securities law is not helpful. … What other field of law alternatively refers to causation in terms of an “in connection with” element; cause in fact; causal nexus; transactional causation; loss causation; legal cause; proximate cause; but for causation; or simply causation? This etymological mishmash is a breeder of confusion concerning both the cause in fact and the legal causation elements.

The Supreme Court decision in Dura was notable for … how limited its impact is likely to be on future securities class actions. … The question is not must the plaintiff plead and prove that the defendant was responsible for the plaintiff's loss, but rather, how does the plaintiff plead and prove such responsibility. Here Dura is strikingly limited in its significance.

On April 19, 2005, the Supreme Court announced its unanimous opinion in Dura Pharmaceuticals, Inc. v. Broudo, concerning what a plaintiff must show to establish causation in a Rule 10b-5 fraud-on-the-market suit for damages. The opinion had been awaited with considerable anticipation, being described at the time of oral argument in the Financial Times, for example, as the “most important securities case in a decade.” After the opinion was handed down, a representative of the plaintiffs' bar lauded it as a “unanimous ruling protecting investors' ability to sue.”