McGrath on Williams and Damages for Plaintiffs

McGrath on Williams and Damages for Plaintiffs


Dura Pharms., Inc. v. Broudo, 544 U.S. 336 (U.S. 2005) set the bar high for alleging and proving loss causation in actions for securities fraud brought under Section 10(b) of the Securities Exchange Act of 1934. In the latest case adopting a strict view of the Dura case in a multiple causation setting, the 10th Circuit in In re Williams Secs. Litig. - WCG Subclass, 558 F.3d 1130 (10th Cir. Okla. 2009) affirmed the District Court's grant of defendant's motion for summary judgment based on the exclusion of unreliable, expert testimony on the issue of loss causation. In this Analysis, Richard McGrath examines In re Williams. He writes:
 
The District Court stated that in attributing the decline in the security's value to the disclosure of the defendant's fraud, the expert's approaches to causation fail to differentiate between losses attributable to fraud and losses attributable to other forces that caused the historic debacle in the telecommunications industry. Plaintiffs' expert had testified that the fraud in question had been disclosed to the market through 2 alternate scenarios. Scenario 1 postulated a gradual leakage of the true state of affairs of the company over the class period. Scenario 2 asserted a series of four corrective disclosures, each one being a partial disclosure attended by an immediate stock decline. The District Court found that under each scenario the expert had failed to offer reliable evidence that the price declines had not been caused by other factors present in the market during the relevant periods. For example, following one of the disclosures under Scenario 2, the law firm of Milberg Weiss had filed a lawsuit against the defendant company based on the fraud. The trial court noted that the plaintiffs failed to distinguish between the possible adverse effect on the stock price of the very filing of the lawsuit and the adverse effect resulting from disclosure of the fraud.
 
     In affirming on appeal, the 10th Circuit held that the trial court had not abused its discretion in excluding the testimony of plaintiffs' expert witness. The Court stated that Dura requires that a plaintiff show that it was th[e] revelation [of fraud] that caused the loss and not one of the tangle of factors' that affect price, quoting from Dura:
 
When the purchaser subsequently sells such shares, even at a lower price, that lower price may reflect, not the earlier misrepresentation, but changed economic circumstances, changed investor expectations, new industry-specific or firm-specific facts, conditions, or other events which taken separately or together account for some or all of that lower price.
 
(citations omitted)