In a recent decision, the Eleventh Circuit Court of Appeals dispelled any notion that motions to dismiss are less likely to be granted when plaintiffs choose to assert claims based solely on the Securities Act of 1933 and thereby avoid those provisions of the federal securities laws that automatically impose heightened pleading requirements. In Andrea Miyahira et al. v. Vitacost, Inc. et al., Case No. 12-14065, 2013 WL 1859406 (11th Cir. May 6, 2013), the Court of Appeals affirmed the lower court’s dismissal with prejudice of 1933 Act claims based on the plaintiffs’ failure to assert plausible allegations of false statements by defendants and plaintiffs’ failure to identify any undisclosed facts that would have been material to a reasonable investor. Id. at *7-*9.
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In securities class actions, plaintiffs must plead and prove that the defendants’ alleged misstatements caused the stock price decline about which they complain, which is known as the “loss causation” requirement. Plaintiffs frequently try to satisfy this requirement by pointing to a negative public announcement by a company followed by a significant stock price decline and claiming that this announcement revealed “the truth” that had been concealed by the defendants’ fraud. This type of public statement is frequently referred to as a “curative” or “corrective” disclosure.
The issue often arises in these cases as to what type of public statement by a company can qualify as a proper curative disclosure and thereby assist plaintiffs in meeting their burden of pleading and proving loss causation. The Eleventh Circuit Court of Appeals recently issued an opinion in Meyer v. Greene, No. 12-11488, 2013 WL 656500 (11th Cir. Feb. 25, 2013), that is extremely helpful to defendants who wish to raise the issue of a deficient curative disclosure at the motion to dismiss stage.
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This advisory discusses the Supreme Court’s narrow ruling in Amgen Inc. v. Connecticut Retirement Plans & Trust Funds. The Court affirmed the Ninth Circuit’s conclusion that a plaintiff need not prove the materiality of the alleged misstatements in a securities class action to certify a class of investors. The Court likewise ruled that rebuttal evidence from the defendants demonstrating a lack of materiality need not be considered at class certification. The plaintiffs’ bar was quick to hail this decision as a victory for their side, but a closer examination of the opinion reveals that the issue decided by the Court was a narrow one and reflects an argument that is seldom made by the defendants in opposition to class certification. Accordingly, it remains to be seen whether this decision will have a meaningful impact on how class certification issues are litigated in the vast majority of securities cases.
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In 1988, in Basic Inc. v. Levinson,1 the Supreme Court first recognized that investors seeking to pursue claims under Section 10(b) of the Securities Exchange Act of 1934 may invoke in an appropriate case a rebuttable presumption of reliance based on the “fraud-on-the-market” theory. Reliance on the defendant’s alleged misstatement is a necessary element of any Section 10(b) claim.2
Without the ability to invoke a class-wide presumption of reliance, the Court in Basic recognized that investors would not be able to join together as a class to pursue their Section 10(b) claims.3 This is so because individualized reliance issues on the part of each investor would necessarily predominate and destroy the commonality requirement for class treatment.4
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