By James Wilson
Introduction: On June 6, 2011, the Supreme Court
unanimously rejected the Fifth Circuit Court of Appeal's requirement that
plaintiffs in securities class actions prove "loss causation" at the
class certification stage of the case. In order for investors to proceed as a
class action under Section 10(b) of the Securities Exchange Act of 1934, they
must demonstrate that the elements of Section 10(b) may be proven on a
class-wide basis and that the court will not be required to examine each
investor's individualized claim. Loss causation - similar to "proximate
causation" - is one of several elements that plaintiffs ultimately must
prove to establish liability in a Section 10(b) case. "Loss causation"
means that a defendant's deceptive conduct caused investor losses. The Fifth
Circuit Court of Appeals established in 2007 that investors pursuing securities
fraud claims in that circuit were required to demonstrate not only that loss
causation was capable of being proved on a class-wide basis, but also to
actually prove that loss causation existed. This was a draconian approach.
Other circuit courts of appeals had rejected this stringent requirement
mandating investors only to show that, as with the other elements of a Section
10(b) claim, they could ultimately prove loss causation later on at trial on a
class-wide basis. The Supreme Court rejected the Fifth Circuit's approach as
not in line with the requirements of Rule 23 of the Federal Rules of Civil
Procedure (which governs class actions in federal courts) and prior precedent.
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ABOUT THE AUTHOR(S):
James M. Wilson Jr. is a partner in Chitwood Harley Harnes LLP, in the firm's
Atlanta office. The firm works closely with institutional funds to monitor
their investments in public companies and pursues securities class actions on
behalf of institutions and individuals under the Private Securities Litigation
Reform Act ("PSLRA") when appropriate. The firm also is a leader in
litigating non-PSLRA securities cases in state and federal courts, including
derivative and corporate governance actions, as well as antitrust and consumer
protection class actions. Mr. Wilson previously practiced for many years in New
York City working on complex business litigation and securities arbitrations
before the New York Stock Exchange and the National Association of Securities
Dealers. He received his B.A. from Georgia State University in 1988, his J.D.
from the University of Georgia in 1991, and his LL.M. in Tax Law from New York
University in 1992. Mr. Wilson is admitted to practice law in the States of
Georgia and New York, before the United States District Courts for the Middle
and Northern Districts of Georgia, and before the Southern and Eastern
Districts of New York.