DURA PHARMACEUTICALS, INC., et al. v. BROUDO et al.

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336 OCTOBER TERM, 2004
Syllabus
DURA PHARMACEUTICALS, INC., et al. v. BROUDO
et al.
certiorari to the united states court of appeals for
the ninth circuit
No. 03–932. Argued January 12, 2005—Decided April 19, 2005
Respondents filed a securities fraud class action, alleging that petitioners,
Dura Pharmaceuticals, Inc., and some of its managers and directors
(hereinafter Dura), made, inter alia, misrepresentations about future
Food and Drug Administration approval of a new asthmatic spray
device, leading respondents to purchase Dura securities at an artificially
inflated price. In dismissing, the District Court found that the com-
plaint failed adequately to allege “loss causation”—i. e., a causal connec-
tion between the spray device misrepresentation and the economic loss,
15 U. S. C. § 78u–4(b)(4). The Ninth Circuit reversed, finding that a
plaintiff can satisfy the loss causation requirement simply by alleging
that a security’s price at the time of purchase was inflated because of
the misrepresentation.
Held:
1. An inflated purchase price will not by itself constitute or proxi-
mately cause the relevant economic loss needed to allege and prove “loss
causation.” The basic elements of a private securities fraud action—
which resembles a common-law tort action for deceit and misrepresenta-
tion—include, as relevant here, economic loss and “loss causation.” The
Ninth Circuit erred in following an inflated purchase price approach to
showing causation and loss. First, as a matter of pure logic, the
moment the transaction takes place, the plaintiff has suffered no loss
because the inflated purchase price is offset by ownership of a share
that possesses equivalent value at that instant. And the logical link
between the inflated purchase price and any later economic loss is not
invariably strong, since other factors may affect the price. Thus, the
most logic alone permits this Court to say is that the inflated purchase
price suggests that misrepresentation “touches upon” a later economic
loss, as the Ninth Circuit found. However, to touch upon a loss is not
to cause a loss, as 15 U. S. C. § 78u–4(b)(4) requires. The Ninth Circuit’s
holding also is not supported by precedent. The common-law deceit
and misrepresentation actions that private securities fraud actions re-
semble require a plaintiff to show not only that had he known the truth
he would not have acted, but also that he suffered actual economic loss.
Nor can the holding below be reconciled with the views of other Courts

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Syllabus
of Appeals, which have rejected the inflated purchase price approach to
showing loss causation. Finally, the Ninth Circuit’s approach is incon-
sistent with an important securities law objective. The securities laws
make clear Congress’ intent to permit private securities fraud actions
only where plaintiffs adequately allege and prove the traditional ele-
ments of cause and loss, but the Ninth Circuit’s approach would allow
recovery where a misrepresentation leads to an inflated purchase price,
but does not proximately cause any economic loss. Pp. 341–346.
2. Respondents’ complaint was legally insufficient in respect to its
allegation of “loss causation.” While Federal Rule of Civil Procedure
8(a)(2) requires only a “short and plain statement of the claim showing
that the pleader is entitled to relief,” and while the Court assumes that
neither the Rules nor the securities statutes place any further require-
ment in respect to the pleading, the “short and plain statement” must
give the defendant “fair notice of what the plaintiff ’s claim is and the
grounds upon which it rests,” Conley v. Gibson, 355 U. S. 41, 47. The
complaint here contains only respondents’ allegation that their loss con-
sisted of artificially inflated purchase prices. However, as this Court
has concluded here, such a price is not itself a relevant economic loss.
And the complaint nowhere else provides Dura with notice of what the
relevant loss might be or of what the causal connection might be be-
tween that loss and the misrepresentation. Ordinary pleading rules
are not meant to impose a great burden on a plaintiff, but it should not
prove burdensome for a plaintiff suffering economic loss to provide a
defendant with some indication of the loss and the causal connection
that the plaintiff has in mind. Allowing a plaintiff to forgo giving any
indication of the economic loss and proximate cause would bring about
the very sort of harm the securities statutes seek to avoid, namely, the
abusive practice of filing lawsuits with only a faint hope that discovery
might lead to some plausible cause of action. Pp. 346–348.
339 F. 3d 933, reversed and remanded.
Breyer, J., delivered the opinion for a unanimous Court.
William F. Sullivan argued the cause for petitioners.
With him on the briefs were Christopher H. McGrath and
Tracey L. DeLange.
Deputy Solicitor General Hungar argued the cause for
the United States as amicus curiae urging reversal. With
him on the brief were Acting Solicitor General Clement,
Dan Himmelfarb, Jacob H. Stillman, Eric Summergrad,
and Allan A. Capute.

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338 DURA PHARMACEUTICALS, INC. v. BROUDO
Opinion of the Court
Patrick J. Coughlin argued the cause for respondents.
With him on the brief were Sanford Svetcov, Eric Alan
Isaacson, Joseph D. Daley, Alan Schulman, Myron Mosko-
vitz, Daniel S. Sommers, and Paul R. Hoeber.*
Justice Breyer delivered the opinion of the Court.
A private plaintiff who claims securities fraud must prove
that the defendant’s fraud caused an economic loss. 109
Stat. 747, 15 U. S. C. § 78u–4(b)(4). We consider a Ninth Cir-
cuit holding that a plaintiff can satisfy this requirement—
a requirement that courts call “loss causation”—simply by
alleging in the complaint and subsequently establishing that
“the price” of the security “on the date of purchase was in-
flated because of the misrepresentation.” 339 F. 3d 933, 938
(2003) (internal quotation marks omitted). In our view, the
Ninth Circuit is wrong, both in respect to what a plaintiff
must prove and in respect to what the plaintiffs’ complaint
here must allege.
*Briefs of amici curiae urging reversal were filed for the American
Institute of Certified Public Accountants by Lawrence S. Robbins, Kath-
ryn S. Zecca, and Richard I. Miller; for Broadcom Corp. by Kenneth R.
Heitz, David Siegel, and Richard H. Zelichov; for the Chamber of Com-
merce of the United States by Neil M. Gorsuch and Robin S. Conrad; for
Merrill Lynch & Co., Inc., by Stephen M. Shapiro, Timothy S. Bishop,
Andrew L. Frey, and Kenneth S. Geller; for the Securities Industry Associ-
ation et al. by Carter G. Phillips, Richard D. Bernstein, and Jacqueline
G. Cooper; for Technology Network by John R. Reese and Dale E. Barnes,
Jr.; and for the Washington Legal Foundation by Michael L. Kichline,
David A. Kotler, Daniel J. Popeo, and Paul D. Kamenar.
Briefs of amici curiae urging affirmance were filed for the New Jersey
Dept. of Treasury et al. by Melvyn I. Weiss; for the City of New York
Pension Funds et al. by Jay W. Eisenhofer, Geoffrey C. Jarvis, Leonard J.
Koerner, Peter H. Mixon, David L. Muir, and Christopher W. Waddell;
for the National Association of Shareholder and Consumer Attorneys et al.
by Kevin P. Roddy, Deborah M. Zuckerman, and Michael Schuster; for
the North American Securities Administrators Association, Inc., by Mark
J. Davis; for the Regents of the University of California by James E. Holst
and Christopher M. Patti; and for James J. Hayes by Edward M. Selfe.

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339 Cite as: 544 U. S. 336 (2005)
Opinion of the Court
I
Respondents are individuals who bought stock in Dura
Pharmaceuticals, Inc., on the public securities market be-
tween April 15, 1997, and February 24, 1998. They have
brought this securities fraud class action against Dura and
some of its managers and directors (hereinafter Dura) in fed-
eral court. In respect to the question before us, their de-
tailed amended (181 paragraph) complaint makes substan-
tially the following allegations:
(1) Before and during the purchase period, Dura (or its
officials) made false statements concerning both Dura’s
drug profits and future Food and Drug Administration
(FDA) approval of a new asthmatic spray device. See,
e. g., App. 45a, 55a, 89a.
(2) In respect to drug profits, Dura falsely claimed that
it expected that its drug sales would prove profitable.
See, e. g., id., at 66a–69a.
(3) In respect to the asthmatic spray device, Dura
falsely claimed that it expected the FDA would soon
grant its approval. See, e. g., id., at 89a–90a, 103a–104a.
(4) On the last day of the purchase period, February 24,
1998, Dura announced that its earnings would be lower
than expected, principally due to slow drug sales. Id.,
at 51a.
(5) The next day Dura’s shares lost almost half their
value (falling from about $39 per share to about $21).
Ibid.
(6) About eight months later (in November 1998), Dura
announced that the FDA would not approve Dura’s new
asthmatic spray device. Id., at 110a.
(7) The next day Dura’s share price temporarily fell but
almost fully recovered within one week. Id., at 156a.
Most importantly, the complaint says the following (and
nothing significantly more than the following) about

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economic losses attributable to the spray device misstate-
ment: “In reliance on the integrity of the market, [the plain-
tiffs] . . . paid artificially inflated prices for Dura securi-
ties” and the plaintiffs suffered “damage[s]” thereby. Id.,
at 139a (emphasis added).
The District Court dismissed the complaint. In respect
to the plaintiffs’ drug-profitability claim, it held that the com-
plaint failed adequately to allege an appropriate state of
mind, i. e., that defendants had acted knowingly, or the like.
In respect to the plaintiffs’ spray device claim, it held that
the complaint failed adequately to allege “loss causation.”
The Court of Appeals for the Ninth Circuit reversed. In
the portion of the court’s decision now before us—the portion
that concerns the spray device claim—the Circuit held that
the complaint adequately alleged “loss causation.” The Cir-
cuit wrote that “plaintiffs establish loss causation if they
have shown that the price on the date of purchase was in-
flated because of the misrepresentation.” 339 F. 3d, at 938
(emphasis in original; internal quotation marks and citation
omitted). It added that “the injury occurs at the time of the
transaction.” Ibid. Since the complaint pleaded “that the
price at the time of purchase was overstated,” and it suffi-
ciently identified the cause, its allegations were legally suffi-
cient. Ibid.
Because the Ninth Circuit’s views about loss causation dif-
fer from those of other Circuits that have considered this
issue, we granted Dura’s petition for certiorari. Compare
ibid. with, e. g., Emergent Capital Investment Management,
LLC v. Stonepath Group, Inc., 343 F. 3d 189, 198 (CA2 2003);
Semerenko v. Cendant Corp., 223 F. 3d 165, 185 (CA3 2000);
Robbins v. Koger Properties, Inc., 116 F. 3d 1441, 1447–1448
(CA11 1997); cf. Bastian v. Petren Resources Corp., 892 F. 2d
680, 685 (CA7 1990). We now reverse.

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Opinion of the Court
II
Private federal securities fraud actions are based upon
federal securities statutes and their implementing regula-
tions. Section 10(b) of the Securities Exchange Act of 1934
forbids (1) the “use or employ[ment] . . . of any . . . decep-
tive device,” (2) “in connection with the purchase or sale of
any security,” and (3) “in contravention of ” Securities and
Exchange Commission “rules and regulations.” 15 U. S. C.
§ 78j(b). Commission Rule 10b–5 forbids, among other
things, the making of any “untrue statement of a material
fact” or the omission of any material fact “necessary in order
to make the statements made . . . not misleading.” 17 CFR
§ 240.10b–5 (2004).
The courts have implied from these statutes and Rule a
private damages action, which resembles, but is not identical
to, common-law tort actions for deceit and misrepresenta-
tion. See, e. g., Blue Chip Stamps v. Manor Drug Stores,
421 U. S. 723, 730, 744 (1975); Ernst & Ernst v. Hochfelder,
425 U. S. 185, 196 (1976). And Congress has imposed statu-
tory requirements on that private action. E. g., 15 U. S. C.
§ 78u–4(b)(4).
In cases involving publicly traded securities and purchases
or sales in public securities markets, the action’s basic ele-
ments include:
(1) a material misrepresentation (or omission), see
Basic Inc. v. Levinson, 485 U. S. 224, 231–232 (1988);
(2) scienter, i. e., a wrongful state of mind, see Ernst &
Ernst, supra, at 197, 199;
(3) a connection with the purchase or sale of a security,
see Blue Chip Stamps, supra, at 730–731;
(4) reliance, often referred to in cases involving pub-
lic securities markets (fraud-on-the-market cases) as
“transaction causation,” see Basic, supra, at 248–249
(nonconclusively presuming that the price of a publicly

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traded share reflects a material misrepresentation and
that plaintiffs have relied upon that misrepresentation
as long as they would not have bought the share in its
absence);
(5) economic loss, 15 U. S. C. § 78u–4(b)(4); and
(6) “loss causation,” i. e., a causal connection between
the material misrepresentation and the loss, ibid.; cf. T.
Hazen, Law of Securities Regulation §§ 12.11[1], [3] (5th
ed. 2005).
Dura argues that the complaint’s allegations are inadequate
in respect to these last two elements.
A
We begin with the Ninth Circuit’s basic reason for finding
the complaint adequate, namely, that at the end of the day
plaintiffs need only “establish,” i. e., prove, that “the price
on the date of purchase was inflated because of the misrepre-
sentation.” 339 F. 3d, at 938 (internal quotation marks and
citation omitted). In our view, this statement of the law is
wrong. Normally, in cases such as this one (i. e., fraud-on-
the-market cases), an inflated purchase price will not itself
constitute or proximately cause the relevant economic loss.
For one thing, as a matter of pure logic, at the moment
the transaction takes place, the plaintiff has suffered no loss;
the inflated purchase payment is offset by ownership of
a share that at that instant possesses equivalent value.
Moreover, the logical link between the inflated share pur-
chase price and any later economic loss is not invariably
strong. Shares are normally purchased with an eye toward
a later sale. But if, say, the purchaser sells the shares
quickly before the relevant truth begins to leak out, the mis-
representation will not have led to any loss. If the
purchaser sells later after the truth makes its way into the
marketplace, an initially inflated purchase price might mean
a later loss. But that is far from inevitably so. When the

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purchaser subsequently resells such shares, even at a lower
price, that lower price may reflect, not the earlier misrepre-
sentation, but changed economic circumstances, changed in-
vestor expectations, new industry-specific or firm-specific
facts, conditions, or other events, which taken separately or
together account for some or all of that lower price. (The
same is true in respect to a claim that a share’s higher price
is lower than it would otherwise have been—a claim we do
not consider here.) Other things being equal, the longer the
time between purchase and sale, the more likely that this is
so, i. e., the more likely that other factors caused the loss.
Given the tangle of factors affecting price, the most logic
alone permits us to say is that the higher purchase price will
sometimes play a role in bringing about a future loss. It
may prove to be a necessary condition of any such loss, and
in that sense one might say that the inflated purchase price
suggests that the misrepresentation (using language the
Ninth Circuit used) “touches upon” a later economic loss.
Ibid. But, even if that is so, it is insufficient. To “touch
upon” a loss is not to cause a loss, and it is the latter that
the law requires. 15 U. S. C. § 78u–4(b)(4).
For another thing, the Ninth Circuit’s holding lacks sup-
port in precedent. Judicially implied private securities
fraud actions resemble in many (but not all) respects
common-law deceit and misrepresentation actions. See
Blue Chip Stamps, supra, at 744; see also L. Loss & J. Selig-
man, Fundamentals of Securities Regulation 910–918 (5th ed.
2004) (describing relationship to common-law deceit). The
common law of deceit subjects a person who “fraudulently”
makes a “misrepresentation” to liability “for pecuniary loss
caused” to one who justifiably relies upon that misrepresen-
tation. Restatement (Second) of Torts § 525, p. 55 (1976)
(hereinafter Restatement of Torts); see also Southern Devel-
opment Co. v. Silva, 125 U. S. 247, 250 (1888) (setting forth
elements of fraudulent misrepresentation). And the com-
mon law has long insisted that a plaintiff in such a case show

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not only that had he known the truth he would not have
acted but also that he suffered actual economic loss. See,
e. g., Pasley v. Freeman, 3 T. R. 51, 65, 100 Eng. Rep. 450,
457 (1789) (if “no injury is occasioned by the lie, it is not
actionable: but if it be attended with a damage, it then be-
comes the subject of an action”); Freeman v. Venner, 120
Mass. 424, 426 (1876) (a mortgagee cannot bring a tort action
for damages stemming from a fraudulent note that a misrep-
resentation led him to execute unless and until the note has
to be paid); see also M. Bigelow, Law of Torts 101 (8th ed.
1907) (damage “must already have been suffered before the
bringing of the suit”); 2 T. Cooley, Law of Torts § 348, p. 551
(4th ed. 1932) (plaintiff must show that he “suffered damage”
and that the “damage followed proximately the deception”);
W. Keeton, D. Dobbs, R. Keeton, & D. Owen, Prosser and
Keeton on Law of Torts § 110, p. 765 (5th ed. 1984) (herein-
after Prosser and Keeton) (plaintiff “must have suffered sub-
stantial damage,” not simply nominal damages, before “the
cause of action can arise”).
Given the common-law roots of the securities fraud action
(and the common-law requirement that a plaintiff show ac-
tual damages), it is not surprising that other Courts of Ap-
peals have rejected the Ninth Circuit’s “inflated purchase
price” approach to proving causation and loss. See, e. g.,
Emergent Capital, 343 F. 3d, at 198 (inflation of purchase
price alone cannot satisfy loss causation); Semerenko, 223
F. 3d, at 185 (same); Robbins, 116 F. 3d, at 1448 (same);
cf. Bastian, 892 F. 2d, at 685. Indeed, the Restatement of
Torts, in setting forth the judicial consensus, says that a per-
son who “misrepresents the financial condition of a corpora-
tion in order to sell its stock” becomes liable to a relying
purchaser “for the loss” the purchaser sustains “when the
facts . . . become generally known” and “as a result” share
value “depreciate[s].” § 548A, Comment b, at 107. Treatise
writers, too, have emphasized the need to prove proximate
causation. Prosser and Keeton § 110, at 767 (losses do “not

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afford any basis for recovery” if “brought about by business
conditions or other factors”).
We cannot reconcile the Ninth Circuit’s “inflated purchase
price” approach with these views of other courts. And the
uniqueness of its perspective argues against the validity of
its approach in a case like this one where we consider the
contours of a judicially implied cause of action with roots in
the common law.
Finally, the Ninth Circuit’s approach overlooks an impor-
tant securities law objective. The securities statutes seek
to maintain public confidence in the marketplace. See
United States v. O’Hagan, 521 U. S. 642, 658 (1997). They
do so by deterring fraud, in part, through the availability of
private securities fraud actions. Randall v. Loftsgaarden,
478 U. S. 647, 664 (1986). But the statutes make these latter
actions available, not to provide investors with broad insur-
ance against market losses, but to protect them against those
economic losses that misrepresentations actually cause. Cf.
Basic, 485 U. S., at 252 (White, J., joined by O’Connor, J.,
concurring in part and dissenting in part) (“[A]llowing recov-
ery in the face of affirmative evidence of nonreliance—would
effectively convert Rule 10b–5 into a scheme of investor’s
insurance. There is no support in the Securities Exchange
Act, the Rule, or our cases for such a result” (internal quota-
tion marks and citations omitted)).
The statutory provision at issue here and the paragraphs
that precede it emphasize this last mentioned objective.
Private Securities Litigation Reform Act of 1995, 109 Stat.
737. The statute insists that securities fraud complaints
“specify” each misleading statement; that they set forth the
facts “on which [a] belief ” that a statement is misleading was
“formed”; and that they “state with particularity facts giv-
ing rise to a strong inference that the defendant acted with
the required state of mind.” 15 U. S. C. §§ 78u–4(b)(1),
(2). And the statute expressly imposes on plaintiffs “the
burden of proving” that the defendant’s misrepresentations

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“caused the loss for which the plaintiff seeks to recover.”
§ 78u–4(b)(4).
The statute thereby makes clear Congress’ intent to per-
mit private securities fraud actions for recovery where, but
only where, plaintiffs adequately allege and prove the tradi-
tional elements of causation and loss. By way of contrast,
the Ninth Circuit’s approach would allow recovery where a
misrepresentation leads to an inflated purchase price but
nonetheless does not proximately cause any economic loss.
That is to say, it would permit recovery where these two
traditional elements in fact are missing.
In sum, we find the Ninth Circuit’s approach inconsistent
with the law’s requirement that a plaintiff prove that the
defendant’s misrepresentation (or other fraudulent conduct)
proximately caused the plaintiff ’s economic loss. We need
not, and do not, consider other proximate cause or loss-
related questions.
B
Our holding about plaintiffs’ need to prove proximate cau-
sation and economic loss leads us also to conclude that the
plaintiffs’ complaint here failed adequately to allege these
requirements. We concede that the Federal Rules of Civil
Procedure require only “a short and plain statement of the
claim showing that the pleader is entitled to relief.” Fed.
Rule Civ. Proc. 8(a)(2). And we assume, at least for argu-
ment’s sake, that neither the Rules nor the securities stat-
utes impose any special further requirement in respect to
the pleading of proximate causation or economic loss. But,
even so, the “short and plain statement” must provide the
defendant with “fair notice of what the plaintiff ’s claim is and
the grounds upon which it rests.” Conley v. Gibson, 355
U. S. 41, 47 (1957). The complaint before us fails this sim-
ple test.
As we have pointed out, the plaintiffs’ lengthy complaint
contains only one statement that we can fairly read as de-
scribing the loss caused by the defendants’ “spray device”

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misrepresentations. That statement says that the plaintiffs
“paid artificially inflated prices for Dura[’s] securities” and
suffered “damage[s].” App. 139a. The statement implies
that the plaintiffs’ loss consisted of the “artificially inflated”
purchase “prices.” The complaint’s failure to claim that
Dura’s share price fell significantly after the truth became
known suggests that the plaintiffs considered the allegation
of purchase price inflation alone sufficient. The complaint
contains nothing that suggests otherwise.
For reasons set forth in Part II–A, supra, however, the
“artificially inflated purchase price” is not itself a relevant
economic loss. And the complaint nowhere else provides
the defendants with notice of what the relevant economic
loss might be or of what the causal connection might be be-
tween that loss and the misrepresentation concerning Dura’s
“spray device.”
We concede that ordinary pleading rules are not meant
to impose a great burden upon a plaintiff. Swierkiewicz v.
Sorema N. A., 534 U. S. 506, 513–515 (2002). But it should
not prove burdensome for a plaintiff who has suffered an
economic loss to provide a defendant with some indication of
the loss and the causal connection that the plaintiff has in
mind. At the same time, allowing a plaintiff to forgo giving
any indication of the economic loss and proximate cause that
the plaintiff has in mind would bring about harm of the very
sort the statutes seek to avoid. Cf. H. R. Conf. Rep. No.
104–369, p. 31 (1995) (criticizing “abusive” practices including
“the routine filing of lawsuits . . . with only [a] faint hope
that the discovery process might lead eventually to some
plausible cause of action”). It would permit a plaintiff “with
a largely groundless claim to simply take up the time of a
number of other people, with the right to do so representing
an in terrorem increment of the settlement value, rather
than a reasonably founded hope that the [discovery] process
will reveal relevant evidence.” Blue Chip Stamps, 421
U. S., at 741. Such a rule would tend to transform a private

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securities action into a partial downside insurance policy.
See H. R. Conf. Rep. No. 104–369, at 31; see also Basic, 485
U. S., at 252 (White, J., joined by O’Connor, J., concurring
in part and dissenting in part).
For these reasons, we find the plaintiffs’ complaint legally
insufficient. We reverse the judgment of the Ninth Circuit,
and we remand the case for further proceedings consistent
with this opinion.
It is so ordered.