In a recent decision, the United States District Court for the Middle District of Florida ruled in favor of Defendants’ motion for summary judgment in a securities fraud class action in favor of Alston & Bird’s clients: In re MIVA, Inc. Securities Litigation, No. 2:05-cv-00201-JES-DNF (M.D. Fla. Aug. 25, 2009). In that decision, Magistrate Judge Douglas N. Frazier held as a matter of law that Plaintiffs could not present a triable issue of fact as to the issues of loss causation and damages under Dura v. Broudo Pharmaceuticals, Inc., 544 U.S. 336, 342 (2005), and other pertinent authority. In so ruling, the Court determined that opinions offered in the case by a well-known plaintiffs’ expert, Scott D. Hakala (“Hakala”), supported judgment for Defendants and, in any event, were insufficient to create a genuine issue of material fact as to loss causation and damages under Section 10(b) of the Securities Exchange Act of 1934 and the Private Securities Litigation Reform Act of 1995.
The Supreme Court’s decision in Dura requires plaintiffs in a securities fraud class action to prove that the claimed losses were caused by defendants’ alleged misrepresentation or omission. As a threshold prerequisite to that showing, plaintiffs must establish that they purchased the shares of stock at issue at prices that were artificially inflated due to the defendants’ alleged misstatements or omissions about the issuer or its future prospects. Id. at 342-43. Litigants often resort to expert testimony as a means to attempt to establish that stock price inflation existed during the class period. In MIVA, however, the Court accepted Defendants’ argument that the alleged stock inflation to which Hakala testified was insufficiently linked to any actionable misstatement or omission.
Overview of the Claims. Plaintiffs originally pointed to eleven public statements regarding the company at issue that they alleged led to their purchases of shares at artificially inflated prices and sought to certify a class of investors who purchased shares from September 3, 2003 through May 4, 2005. The Court, however, granted Defendants’ motion to dismiss in substantial part, dismissing nine of the eleven statements as non-actionable and holding that the earliest possible date on which an actionable misstatement was possible was February 23, 2005. Defendants were also successful at the class certification stage in narrowing the length of the class period to conform to the dates associated with the two remaining alleged misstatements, resulting in a certified class of investors who purchased shares from February 23, 2005 to May 4, 2005. Thus, to recover under Dura, Plaintiffs were required to show that the company’s stock price was inflated as a result of the two remaining alleged misstatements, which occurred on February 23 and March 16, 2005, respectively. Their sole attempt to meet that standard was through the testimony of their expert, Hakala.
Alston & Bird’s Attack on Plaintiffs’ Expert Before Trial. Plaintiffs relied on a report from Hakala for purposes of attempting to prove loss causation and damages. Hakala’s report discussed the results of an event study he conducted to analyze the effect of the allegedly misleading statements on the company’s stock price. Although this was the stated purpose of the study, Hakala failed to analyze the stock price reaction on one of the two days on which an alleged misstatement occurred. Moreover, his own analysis revealed that the stock price actually declined significantly in the wake of the other supposedly inflationary misstatement. In re MIVA, Inc. Securities Litigation, No. 2:05-cv-00201-JES-DNF, slip op. at 10-11 (M.D. Fla. Aug. 25, 2009).
Of most importance to the Court’s recent ruling, Hakala’s event study failed to link the alleged inflation to the only alleged misstatements that had survived the motion to dismiss. Hakala instead testified that inflation arose as a result of other non-actionable statements, and that the class period statements simply preserved the existing inflation. Defendants also elicited an admission from Hakala that the full amount of the alleged inflation was already “baked into” the stock price for over a year prior to the start of the class period and that this inflation was caused by earlier statements that the Court had previously determined were non-actionable. Id. at 13.
After taking Hakala’s deposition, utilizing a strategy not often followed in securities cases, Defendants moved for summary judgment by asking the Court to assume the admissibility of Plaintiffs’ expert testimony.
The Court’s Ruling on Loss Causation and Damages. Recognizing that Dura places on plaintiffs the burden of proving “a causal connection between the material misrepresentation and the loss,” the Court determined that Hakala’s opinions entitled Defendants to summary judgment. In re MIVA, Inc. Securities Litigation, No. 2:05-cv-00201-JES-DNF, slip op. at 11 (M.D. Fla. Aug. 25, 2009) (quoting Dura, 544 U.S. at 342). The Court held that, even if one assumed Hakala’s report were admissible, Plaintiffs had failed to provide any evidence of loss causation or damages attributable to the two remaining statements alleged to have been misleading. Id. at 14.
The Court also expressed “concerns” regarding each of the two remaining alleged misstatements. With regard to the first alleged misstatement on February 23, 2005, the Court stated that “[i]t strains logic that an allegedly fraudulent statement had any material causal connection which inflated the price of the . . . stock when the actual price declined especially as there was no change in the inflationary component of the stock.” Id. at 13. It was Hakala’s opinion that the stock price would have fallen even more if the allegedly fraudulent statements on February 23 were not made. But the Court held that Hakala had provided no data or analysis to show exactly how much the stock price would have declined if this statement had not been made or what economic loss was attributable to that particular statement. Id. Similarly, with regard to the second alleged misstatement on March 16, 2005, the Court noted that Hakala had not conducted adequate work to determined if that statement qualified as material.