The precise impact of Dura is controversial. While most commentators agree that Dura has had an impact on securities litigation, some argue that it left open more issues than it resolved. This renders the impact of the decision difficult to determine. See, e.g., Tom Baker and Sean J. Griffith, How The Merits Matter: D& O Insurance and Securities Settlements, forthcoming, (March 2, 2008), Abstract available here (“What exactly plaintiffs must plead to establish loss causation after Dura, however, remains unclear. … Our participants regularly noted the importance of Dura, but also acknowledged that it remains to be seen what effect Dura and its progeny will ultimately have on securities settlements.” See also Merritt B. Fox, After Dura Causation in Fraud-on-the-Market Actions, 31 J. Corp. L. 829 (2006).
Dura is clearly having an impact on pleading. Not only does it impose loss causation pleading requirements as discussed below, but it has impacted Rule 8(a) notice pleading standards as Twombly made clear and as discussed in an earlier segment of this series here.
The decision is also beginning to have an impact on class certification. See, e.g., Oscar Private Equity Investments v. Allegronice Telecom, Inc., 487 F.3d 262 (5th Cir. 2007) (vacating class certification order because plaintiffs had not shown loss causation); see also Allen Ferrell and Atanu Saha, The Loss Causation Requirement For A Rule 10b-5 Cause of Action: The Implication of Dura Pharmaceuticals v. Brouder, Discussion paper No. 0812007, Harvard Law School, Abstract available here (discussing open issues following Dura).
As to pleading loss causation, essentially three views have emerged. First, some courts have held that Dura did not establish what is sufficient, but only what is not adequate. See, e.g., In re Initial Publ. Offering Sec. Litig., 2005 WL 1529659 (S.D.N.Y. June 28, 2005); In re The Warnaco Group, Inc Sec. Litig., 388 F. Supp. 2d 37, 317 (S.D.N.Y. 2005); In re Coca-Cola Enterprises, Inc., Sec. Litig., 2007 WL 472943 (N.D. Ga. Feb. 7, 2007); Marsden v. Select Medical Corp., 2007 WL 1725204 (E.D. Pa. June 12, 2007).
Second, other courts have held that there are theories beyond the price inflation theory discussed in Dura. Ray v. Citigroup Global Markets, 482 F.3d 991 (7th Cir. 2007).
Finally, an analysis of post-Dura cases suggests that three theories of loss causation have emerged:
1) Fraud on the market: This is the standard theory used in Dura. It requires proof of an artificial price and a decline in value when the truth is revealed.
2) Materialization of risk: Under this theory, a plaintiff must prove that it was the very facts about which the defendant lied which caused its injuries.
3) Representation that the investment is risk free: This theory requires an explicit representation that the investment is risk free.
Next: Cases applying Dura