Evan Hill


loss causation, securities, pleadings, Federal Rules of Civil Procedure, fraud


In 2005, the U.S. Supreme Court decided Dura Pharmaceuticals, Inc. v. Broudo. The Court held that a plaintiff alleging securities fraud must prove that a defendant’s misrepresentation caused actual economic loss. The Dura decision put to rest the loss causation standard applied by several U.S. courts of appeals, which allowed plaintiffs to merely plead that a misrepresentation caused an artificially inflated purchase price. However, in Dura’s wake, the circuit courts have fashioned divergent standards with respect to pleading loss causation. The courts currently apply pleading standards ranging from the lenient and generally applicable Federal Rule of Civil Procedure 8(a) to the stringent and fraud-specific Rule 9(b). This Note analyzes the various loss causation pleading standards applied by the circuit courts and urges the Supreme Court to adopt the standard developed by the U.S. Court of Appeals for the Second Circuit. The Second Circuit’s loss causation pleading standard should be adopted because its two-part test ensures that only claims alleging a close connection between loss and misrepresentation survive pleadings, yet refrains from adopting a heightened standard unsupported by Congress or Supreme Court precedent.

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