When the Supreme Court decided Dura Pharmaceuticals, Inc. v. Broudo[FOOTNOTE 1] last year, its decision initially seemed only a Pyrrhic Defeat for plaintiffs. A Pyrrhic Defeat is, of course, the mirror image of a Pyrrhic Victory, meaning that such a defeat is more symbolic than real and has little real cost to the losing side. Although the Court required the plaintiff to plead and prove proximate causation and an actual economic loss, the Court still found that “neither the [federal] Rules nor the securities statutes impose any special further requirement with respect to the pleading of proximate causation or economic loss.”[FOOTNOTE 2] Plaintiff, it said, need only “provide a defendant with some indication of the loss and the causal connection that the plaintiff has in mind.”[FOOTNOTE 3] Thus, while the 9th Circuit’s “inflated purchase price” theory was rejected, the decision’s new standard seemed to be satisfied if the plaintiff pleaded only that the stock price later fell as a result of the fraud with consequent economic loss to it.
In fact, however, the post-Dura cases have required more — and some may have stretched their interpretation of Dura beyond the point where the doctrinal rubber band may snap. In turn, new doctrine can give rise to new tactics by corporate counsel. In particular, corporate counsel who realize that their company has made a materially false statement which needs to be corrected may behave very differently under the incentives that the post-Dura case law now presents, because the prospect of financial liability can seemingly be minimized depending on how corrective disclosure is made. This column will explore, first, the new law and, second, the possible tactics that are just now coming into view.
