Supreme Court Clarifies Plaintiff's Burden to Establish Loss Causation in Securities Litigation

On April 19, 2005, the United States Supreme Court issued its decision in Dura Pharmaceuticals v. Brouda (“Dura”). The Court’s decision resolved a Circuit split regarding whether a plaintiff in a fraud-on-the-market securities case must plead and prove a causal nexus between an alleged fraud and a subsequent decline in stock value in order to establish the required “loss causation” element of their case. In a unanimous decision authored by Justice Breyer, the Court reversed a controversial decision of the Ninth Circuit Court of Appeals, and held that a plaintiff must plead and prove a specific causal connection between an alleged misrepresentation and a subsequent decline in stock price. Under the Court’s decision, plaintiffs can no longer meet their “loss causation” burden by merely alleging that they paid an inflated price for the company’s stock due to an alleged omission or misrepresentation.