Dura Pharmaceuticals, Inc. v. Broudo

Supreme Court of the United States · 2005 · Corporations

544 U.S. 336 (2005)

Updated August 1, 2026

Corporationsloss causationsecurities fraudRule 10b-5Section 10(b)economic lossproximate causefraud-on-the-market

Facts

Respondents bought Dura stock on the public market between April 15, 1997, and February 24, 1998. Their amended complaint alleged that Dura falsely stated that the FDA would soon approve a new asthmatic spray device. About eight months after the purchase period ended, Dura announced that the FDA would not approve the device, and the next day the stock price fell temporarily but nearly fully recovered within a week. As to losses from the spray-device misstatement, the complaint alleged only that plaintiffs paid artificially inflated prices for Dura securities and suffered damages thereby.

Issue

In a private securities fraud action, can a plaintiff satisfy loss causation simply by alleging and proving that the stock price was inflated on the date of purchase because of the defendant's misrepresentation? Relatedly, did the complaint here adequately allege economic loss and loss causation by alleging only artificially inflated purchase prices?

Rule

A private securities fraud plaintiff must prove and adequately allege that the defendant's misrepresentation proximately caused the plaintiff's actual economic loss. An inflated purchase price, standing alone, is not itself the relevant economic loss and does not by itself establish or plead loss causation.

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One of 10 multiple-choice questions for this case. Pick an answer to see why.

In Seattle, Nora Kim bought shares of Alder Biolabs after the company falsely announced that a new infusion pump had already cleared federal regulators. Six months later, Alder disclosed the statement was false, and the stock dropped 35% that day; Nora's complaint alleges only that she bought at an artificially inflated price and was damaged thereby.

If Alder moves to dismiss for failure to plead loss causation, how should the court rule?

Explanation. A private securities-fraud plaintiff must allege economic loss and a causal connection between the misrepresentation and that loss. A bare allegation that the plaintiff paid an artificially inflated purchase price is not itself the relevant economic loss and does not give fair notice of the loss-causation theory, even if the stock later declined after the truth emerged. (Derived from Dura Pharmaceuticals, Inc. v. Broudo (2005).)