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Mineworkers' Pension Scheme v. First Solar Inc. - 881 F.3d 750 (9th Cir. 2018)


The Securities Exchange Act of 1934, codified at 15 U.S.C.S. §§ 78a et seq., imposes statutory requirements on a judicially-implied private damages action rooted in common law tort actions for deceit and misrepresentation. The Act defines "loss causation" as the plaintiff's burden of proving that the act or omission of the defendant alleged to violate this chapter caused the loss for which the plaintiff seeks to recover damages. 15 U.S.C.S. § 78u-4(b)(4). This inquiry requires no more than the familiar test for proximate cause. To prove loss causation, plaintiffs need only show a causal connection between the fraud and the loss, by tracing the loss back to the very facts about which the defendant lied. Disclosure of the fraud is not a sine qua non of loss causation, which may be shown even where the alleged fraud is not necessarily revealed prior to the economic loss.


First Solar, Inc., is one of the world's largest producers of photovoltaic solar panel modules. Plaintiffs, Mineworkers' Pension Scheme and British Coal State Superannuation Scheme, represent purchasers of First Solar, Inc.'s publicly traded securities between April 30, 2008 and February 28, 2012 (Class Period). Plaintiffs allege that, during the Class Period, First Solar discovered a manufacturing defect causing field power loss and a design defect causing faster power loss in hot climates. Plaintiffs allege that First Solar wrongfully concealed these defects, misrepresented the cost and scope of the defects, and reported false information on their financial statements.

During the Class Period, First Solar's stock fell from nearly $300 per share to nearly $50 per share. The individually named Defendants, who are First Solar officers and executives, purchased or sold First Solar stock during the Class Period. Steep declines in First Solar's stock, beginning on July 29, 2010, followed the release of quarterly financial disclosures reporting the defects and associated costs, the departure of First Solar's CEO, and disappointing financial results.

Plaintiffs sued First Solar and its officers, alleging violations of §§ 10(b) and 20(a) of the Securities Exchange Act of 1934 and Securities Exchange Commission Rule 10b-5. They allege that Defendants engaged in several acts of fraud, including wrongfully concealing product defects, misrepresenting the cost and scope of the defects, and reporting false information on financial statements. Plaintiffs allege that when First Solar later disclosed product defects and attendant financial liabilities to the market, First Solar's stock price fell, resulting in Plaintiffs' economic loss.

Defendants filed a motion for summary judgment on all claims. The district court granted Defendants' motion in part and denied in larger part, holding that Plaintiffs advanced triable issues of material fact on several claims. However, the district court stayed the action because it perceived two competing lines of case law in the Ninth Circuit regarding loss causation.


Was the general proximate cause test applied by the district court the proper test to determine "loss causation"?




The Court of Appeals for the Ninth Circuit held that a general proximate cause test was the proper test for loss causation under the Securities Exchange Act of 193415 U.S.C.S. § 78u-4(b)(4). The ultimate issue under § 78u-4(b)(4) was whether the defendant's misstatement, as opposed to some other fact, foreseeably caused the plaintiff's loss. Accordingly, in a suit alleging that a company and others wrongfully concealed product defects, misrepresented the cost and scope of the defects, and reporting false information on financial statements, the district court applied the correct test in concluding that the investors established loss causation under the statute.

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