The court said in order to have standing, Ann I. Taylor must establish that she was actually injured by the defendants’ alleged conduct, but she failed to do so. Taylor asserts that during the class period, defendants breached their fiduciary duties by failing to disclose and/or misrepresenting KeyCorp’s inappropriate lending and tax practices. This, she alleges, caused KeyCorp stock to become unduly risky and artificially inflated.
In upholding a lower court’s dismissal of the case (see “KeyCorp Stock Drop Case Dismissed”), the appellate court found the trading history reveals that Taylor sold more than 80% of her KeyCorp holdings at a time she claims the stock was artificially inflated. Taylor sold the majority of her KeyCorp holdings for more money than it was worth, thereby benefiting from defendants’ alleged breach of fiduciary duty. According to the court’s opinion, under similar circumstances, several courts have found plaintiffs to be without Article III standing, holding that plaintiffs suffer no “actual injury” when they benefit from alleged artificial inflation.
The appellate court noted Supreme Court precedent also supports this rationale. In Dura Pharmaceuticals, Inc. v. Broudo, the Supreme Court held that “an inflated purchase price will not itself constitute . . . economic loss.” Rather, stock must be purchased at an inflated price and sold at a loss for an economic injury to occur. This reasoning was described by the high court as “pure logic.”
Taylor disputed that out-of-pocket loss is an appropriate measure of her injury, suggesting that the court use an alternative-investment theory – that she would have made more money on her investments if her holdings had been transferred away from KeyCorp stock and placed in the S&P 500 index. The 6th Circuit held that such a measure of damages is not appropriate in this case.
When a plaintiff alleges that the withholding of information affected share prices, “the appropriate measure of damages [is] the difference between the investment as taken and the investment as it would have been if not tainted by withheld information.” But damages based upon an entirely different investment vehicle, such as the S&P 500, are not fairly “traceable” to the defendants’ breach.The opinion is at http://www.ca6.uscourts.gov/opinions.pdf/12a0150p-06.pdf.
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