## Facts

- Oryx Communications, Inc. conducted an initial public offering of 700,000 units at $4.75 per unit, pursuant to a registration statement and prospectus dated June 30, 1981.
- Each unit consisted of one share of common stock and one warrant exercisable at $5.75.
- The prospectus contained an accounting error that overstated profits by reporting a subsidiary transaction one month later than usual.
- Oryx disclosed the error to the SEC several months after the offering, after the market price of the units had already declined.
- The unit price declined soon after issuance and continued to fluctuate and remain depressed both before and after the disclosure of the error.
- Purchasers of the units sued Oryx and the underwriters under §§ 11 and 12(2) of the Securities Act of 1933, alleging that the misstatement caused their losses.
- The district court granted summary judgment dismissing (i) the § 11 claims against Oryx and the underwriters and (ii) the § 12(2) claims against Oryx for lack of seller privity; it denied defendant-class certification and left § 12(2) claims against underwriters pending.
- The district court entered partial final judgment under Rule 54(b) as to the dismissed claims; plaintiffs appealed, and underwriters cross-appealed the denial of their § 12(2) summary judgment motion.

## Issues

1. Whether defendants established “negative causation” under § 11(e) by proving the security’s depreciation resulted from factors other than the registration-statement misstatement.
2. Whether, on the summary-judgment record, defendants met the burden required to reduce or eliminate § 11 damages under § 11(e).
3. Whether the issuer is liable under § 12(2) in a firm-commitment underwriting when it is not the purchasers’ immediate seller.
4. Whether the court of appeals had jurisdiction to review (a) denial of defendant-class certification and (b) denial of underwriters’ summary judgment on remaining § 12(2) claims.

## Decision

- Affirmed summary judgment dismissing the § 11 claims against Oryx and the underwriters.
- Affirmed summary judgment dismissing the § 12(2) claims against Oryx because Oryx was not a statutory seller to plaintiffs in the firm-commitment offering.
- Dismissed for lack of appellate jurisdiction the appeal from denial of defendant-class certification.
- Dismissed for lack of appellate jurisdiction the underwriters’ cross-appeal from denial of summary judgment on the remaining § 12(2) claims and remanded for further proceedings on unresolved claims.

## Legal Principles

- Section 11(e) provides an affirmative defense (often termed “negative causation”) permitting reduction or elimination of § 11 damages upon proof that depreciation in value resulted from causes other than the misstatement or omission.
- Although § 11(e) places a heavy burden on defendants, summary judgment is proper where the record shows the price decline was attributable to other market or company-specific factors rather than the challenged disclosure.
- Materiality of a misstatement and loss causation are distinct; even assuming materiality, defendants may avoid § 11 damages by proving non-attribution under § 11(e).
- Section 12(2) liability generally reaches only “statutory sellers” (those who pass title or solicit for their own financial interest); in a firm-commitment underwriting, the issuer is typically not the purchaser’s immediate seller.
- Rule 54(b) partial final judgment does not confer appellate jurisdiction over interlocutory rulings outside the certified final judgment, absent an independent basis for immediate review.

## Conclusion

The Second Circuit held that defendants may defeat § 11 damages by proving, under § 11(e), that investors’ losses were caused by factors other than the registration-statement misstatement, and it affirmed summary judgment where the price decline preceded and did not track the correction; it also affirmed dismissal of § 12(2) claims against the issuer for lack of statutory-seller status and dismissed nonfinal appeals for lack of jurisdiction.


Akerman v. Oryx Communications, Inc., 810 F.2d 336 (2d Cir. 1987)