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Lloyd v. CVB Fin. Corp.

Lloyd v. CVB Fin. Corp.

United States Court of Appeals for the Ninth Circuit

December 10, 2015, Argued and Submitted, Pasadena, California; February 1, 2016, Filed

No. 13-56838

Opinion

 [*1202]  HURWITZ, Circuit Judge:

The last recession put the Garrett Group, a commercial real estate company, into serious financial trouble. In 2008, Garrett informed its largest creditor, CVB Financial Corporation ("CVB"), that it could not make payments on its loans. After the loans were restructured, Garrett informed CVB in early 2010 that it again could not make the required payments and was contemplating bankruptcy.

CVB nonetheless represented in 2009 and 2010 filings with the Securities and Exchange Commission ("SEC") that there was no basis for "serious doubt" about Garrett's ability to repay its borrowings. In 2010, the SEC served a subpoena on CVB, seeking information about its loan underwriting methodology and allowance for credit losses. The day after CVB announced receipt of the subpoena, its stock dropped 22%, and analysts noted the probable relationship between the subpoena and CVB's loans to Garrett, its largest borrower. A month later, CVB wrote down $34 million in loans to Garrett and placed the remaining $48 million in its non-performing category.

In this putative [**4]  class action, Jacksonville Police & Fire Pension Fund ("Jacksonville") alleges violations of Section 10(b) of the Securities and Exchange Act of 1934, 15 U.S.C. § 78j(b), and Rule 10b-5 promulgated thereunder, 17 C.F.R. § 240.10b-5. The district court granted CVB's motion to dismiss, holding that the Second Amended Complaint ("SAC") failed to plausibly allege that any of the statements by CVB challenged in the pleading were either knowingly or recklessly false or caused a loss to shareholders.

We affirm in part and reverse in part, finding that the SAC stated a claim as to two alleged misrepresentations. In doing  [*1203]  so, we hold that the announcement of an SEC investigation related to an alleged misrepresentation, coupled with a subsequent revelation of the inaccuracy of that misrepresentation, can serve as a corrective disclosure for the purpose of loss causation. See Loos v. Immersion Corp., 762 F.3d 880, 890 n.3 (9th Cir. 2014) (reserving this question).

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811 F.3d 1200 *; 2016 U.S. App. LEXIS 1657 **; Fed. Sec. L. Rep. (CCH) P99,011

BARRY R. LLOYD, Plaintiff, and JACKSONVILLE POLICE AND FIRE PENSION FUND, Plaintiff-Appellant, v. CVB FINANCIAL CORPORATION; CHRISTOPHER D. MYERS; EDWARD J. BIEBRICH, JR., Defendants-Appellees.

Prior History:  [**1] Appeal from the United States District Court for the Central District of California. D.C. No. 2:10-cv-06256-MMM-PJW. Margaret M. Morrow, District Judge, Presiding.

Lloyd v. CVB Fin. Corp., 2012 U.S. Dist. LEXIS 196076 (C.D. Cal., Jan. 12, 2012)

Disposition: AFFIRMED IN PART, REVERSED IN PART, AND REMANDED.

CORE TERMS

loans, alleges, announcement, disclosure, subpoena, serious doubt, causation, misrepresentation, borrower, district court, repay, stock, investors, omission, largest, scienter, securities fraud, non-performing, corrective, misleading, analysts, filings, drop, credit loss, reserves, pleaded

Civil Procedure, Pleading & Practice, Pleadings, Complaints, Defenses, Demurrers & Objections, Motions to Dismiss, Failure to State Claim, Appeals, Standards of Review, De Novo Review, Heightened Pleading Requirements, Fraud Claims, Securities Law, Postoffering & Secondary Distributions, Securities Exchange Act of 1934 Actions, Heightened Pleading Requirements, Securities Exchange Act of 1934 Actions, Elements of Proof, Scienter, Accounting Irregularities, Recklessness, Implied Private Rights of Action, Scienter, Materiality, Causation, Regulators, US Securities & Exchange Commission, Administrative Proceedings