The Dura decision by the Supreme Court left little doubt that in-and-out traders (i.e., investors who both bought and sold their shares during the class period) will have difficulty establishing the existence of loss causation. At least one court has confirmed this reading of the case in the context of class certification proceedings. In In re Cornerstone Propane Partners, L.P. Sec. Litig., 2006 WL 1180267 (N.D. Cal. May 3, 2006), the court found that “plaintiffs who sold their stock before July 21, 2001, when the first corrective disclosure occurred, did not suffer any loss causally related to the defendants’ alleged misrepresentations.” Accordingly, the court excluded these plaintiffs from the definition of the class.
It is important to note that other courts, even pre-Dura, have come to a similar conclusion in the context of evaluating potential lead plaintiffs. Moreover, while the decision is interesting, removing in-and-out traders from the class is unlikely to have much of a practical effect on a securities class action other than reducing, by some amount, the potential damages.
Addition: There is a press release from defense counsel in the Cornerstone case noting that the decision “appears to be the first of its kind.”
Addition: A reader points out that a post-Dura class certification decision issued earlier this year in the Eastern District of Virginia reaches the opposite result. See In re BearingPoint, Inc. Sec. Litig., 232 F.R.D. 534 (E.D.Va. 2006) (“In sum, because in-and-out traders may conceivably prove loss causation, they are appropriately counted as members of the proposed class.”) Thanks to Andrew Brown for the cite.