The US Court of Appeals for the Ninth Circuit recently affirmed the lower court’s granting of summary judgment to the defendants in a federal securities fraud suit, holding that the plaintiffs had failed to provide sufficient evidence that defendants’ conduct had caused the plaintiffs’ economic loss.

In 2004, defendants City of Alameda, et al. (City), issued municipal bonds in order to fund the construction of a telecommunications system. Plaintiffs Nuveen Municipal High Income Opportunity Fund, et al. (Nuveen), purchased over $20 million of the telecom municipal bonds. The telecom system performed poorly, the City sold the system at a loss and Nuveen suffered substantial losses. Nuveen sued the City for federal securities fraud, alleging that Nuveen materially misrepresented the prospects of the telecom system in an official statement meant to induce investors to purchase the bonds. The City moved for summary judgment on the federal claims.

In a claim for federal securities fraud, plaintiffs must establish “loss causation”: defendants’ alleged misrepresentation must cause the claimant’s financial loss. Nuveen argued that it had satisfied the loss causation requirement by offering evidence showing that “but for” the City’s misrepresentations, the bonds would never have been issued in the first place. The Ninth Circuit rejected that argument, ruling that the loss causation element required Nuveen to offer evidence that the City’s misrepresentations had caused Nuveen’s economic loss. Since Nuveen had failed to offer proof that the City’s misrepresentations had caused the bonds to decrease in value—which was the source of Nuveen’s economic loss—the Ninth Circuit awarded summary judgment to the City on the federal securities fraud claims.

City of Alameda, et al. v. Nuveen Municipal High Income Opportunity Fund, et al., Civ. Nos. 11-17391, 11-17496, 2013 WL 5273097 (9th Cir. September 19, 2013).