## Facts

- Investors bought Dura Pharmaceuticals, Inc. common stock on the open market during a defined class period.
- Investors alleged Dura and certain officers/directors made materially false statements about likely FDA approval of an asthma spray device and about earnings and prospects, inflating the stock price.
- After the class period, Dura announced lower-than-expected earnings, and the stock price fell.
- Later, information emerged indicating the spray device lacked FDA approval, and the stock price dropped again.
- The complaint, as to the spray-device theory, alleged purchase at an artificially inflated price but did not allege a significant price decline attributable to disclosure of the truth about the device.

## Issues

1. Whether a securities-fraud plaintiff satisfies the PSLRA’s loss-causation requirement by alleging only that the purchase price was inflated by misrepresentations, without alleging that revelation of the truth caused a subsequent economic loss.

## Decision

- The Supreme Court unanimously vacated the Ninth Circuit’s judgment and remanded.
- The Court held that an inflated purchase price, standing alone, does not constitute or proximately cause the economic loss required to plead and prove loss causation.
- The Court concluded the complaint’s allegation of price inflation at purchase, without allegations connecting the alleged misrepresentation to a later loss, was insufficient under the PSLRA.

## Legal Principles

- A private action under § 10(b) and Rule 10b-5 requires allegations and proof of economic loss and loss causation.
- Loss causation requires a proximate-cause-type connection between the defendant’s misrepresentation (or other wrongful conduct) and the plaintiff’s economic loss.
- “Transaction causation” (buying at an inflated price due to a misrepresentation) is not, by itself, loss causation.
- At the time of purchase, paying an inflated price does not necessarily establish loss because the share’s market price at that moment reflects its then-traded value; later losses may result from intervening, non-fraud-related factors.
- Pleading loss causation does not require detailed evidentiary matter, but it must allege facts that plausibly connect the misrepresentation’s disclosure (or related causal mechanism) to the claimed loss.

## Conclusion

The Court required securities-fraud plaintiffs to plead and ultimately prove that the alleged misrepresentation proximately caused a subsequent economic loss, rejecting the view that alleging purchase at an inflated price alone satisfies the PSLRA’s loss-causation requirement.


Dura Pharmaceuticals, Inc. v. Broudo, 544 U.S. 336 (2005)