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Claim Remanded from Supreme Court Dismissed in Part

In a securities fraud suit on remand from the U.S. Supreme Court, the shareholders' third amended complaint alleging securities fraud violations against a pharmaceutical company was dismissed in part with leave to amend. The shareholders alleged that the company made numerous material misstatements in press releases, financial reports and in other public statements regarding two of the company's products. Taking the products and their related misstatements separately, the district court (SD Cal) dismissed the allegations as to the first product due to the shareholders' failure to meet the heightened pleading standards of the Private Securities Litigation Reform Act

Initially, the court examined the statements under the Supreme Court's loss causation instruction. The shareholders originally claimed that their loss occurred at the time they purchased the securities because the company's misstatements artificially inflated the stock price, resulting in a loss because the shareholders paid too much. The U.S. Supreme Court rejected this approach, as it held that merely purchasing a stock at an inflated price was insufficient. In the amended complaint, the shareholders claimed that the company made corrective disclosures after the class period ended, correcting the stock's price, and causing the loss.

The district court held that the shareholders' adequately alleged loss causation this time, even though the loss occurred after the class period ended, because the shareholders were simply explaining how the misrepresentations caused their loss. However, even though the shareholders adequately pleaded loss causation, the allegations regarding some of the claims were dismissed due to the shareholders' failure to prove falsity and scienter.

In re Dura Pharmaceuticals, Inc. Securities Litigation (SD Cal) is reported at ¶93,934.