In recently affirming dismissal of a class action lawsuit alleging claims pursuant to Section 10(b) of the Securities Exchange Act and Securities and Exchange Commission (SEC) Rule 10b-5, the U.S. Court of Appeals for the Ninth Circuit held that the proper pleading standard for the loss causation element of a 10(b) claim is the heightened pleading standard of FRCP 9(b).1 This standard requires that a complaint plead with particularity the circumstances constituting the fraud or mistake. And more specifically, with respect to loss causation, a complaint must plead specific facts demonstrating a causal connection between the misstatement and the subsequent public disclosure.
The Ninth Circuit thereby joins the U.S. Court of Appeals for the Fourth and Seventh circuits in holding that Rule 9(b) applies to pleading loss causation, deepening a split among the circuit courts on this issue. As explained below, if the Supreme Court takes up the issue and affirms the Ninth Circuit’s ruling, this would arm defendants nationwide with another arrow in their quiver to move to dismiss a complaint.
