Do federal securities laws make your head hurt?
Sometimes they cause Blawgletter's synapses to misfire.
Take today. In Nuveen Municipal High Income Opportunity Fund v. City of Alameda, No. 11-17391 (9th Cir. Sept. 19, 2013), the ruling turned on what our securities-lawyer friends call "loss causation". Which they contrast with "transaction causation".
Stay with us, people.
The "transaction" kind of causation differs from the "loss" type in pretty much the same way that "but-for causation" differs in tort cases from "proximate causation". But-for means simply that without A (e.g., running a red light), B (e.g., a car crash) wouldn't have happened.
Here it turns a little philosophical. What if the A (running a red light) took place at an intersection three blocks away from where the car crash occurred but involved the car that ran the red light? A still caused B in the sense that B wouldn't have transpired but-for A.
Yet we sense that the remoteness matters. It doesn't feel "proximate" enough, maybe.
So back to transaction and loss causation. Lies about an issue of municipal bonds, for instance, may induce you to buy the bonds, but that doesn't imply that the misrepresentations caused the price of the bonds to tank later. You wouldn't have suffered the loss but-for the false statements or omissions, but maybe something else intervened (e.g., a fireball destroyed the city). Perhaps the fibs simply stopped mattering with the passage of time or proved true despite their initial falsity. Something else, in other words, constituted the "proximate" cause of your "loss" (the difference between what you paid and what you got).
The Ninth Circuit applied the loss causation rule to bonds that the City of Alameda had issued years ago to finance a cable and Internet system. The panel held that Nuveen's complaint failed to link the drop in the bonds' value to the true conditions that it claimed the City misrepresented -- things like "access to apartment buildings, success of competitors, programming expenses, and inflated subscriber projections". Nuveen Municipal, slip op. at 22. Under Dura Pharmaceuticals, Inc. v. Broudo, 544 U.S. 336 (2005), the panel ruled, the district court properly granted summary judgment for the City.
Extra bonus: Post that includes a superb critique by John T. Noonan, Jr., here.