Joseph C. Hubbard, State-Boston Retirement System v. BankAtlantic Bancorp, Inc.
688 F.3d 713
| 11th Cir. | 2012Background
- State-Boston brought a private securities fraud class action under § 10(b) and Rule 10b-5 against BankAtlantic Bancorp, its CFOs and officers for misrepresenting risk in BankAtlantic's commercial real estate portfolio during 2006–2007.
- The district court submitted two periods to the jury with separate liability and damages questions and later granted Bancorp's Rule 50(b) motion due to an apparent inconsistency in interrogatory answers.
- The district court discarded one inconsistent finding and based judgment on the remaining findings, which the Eleventh Circuit deemed error, applying Chaney v. City of Orlando’s standard that post-verdict Rule 50 motions rely on evidentiary sufficiency, not jury findings.
- State-Boston presented expert testimony (Candace Preston) performing an event study to link stock-price declines to fraud, attempting to separate market/industry effects from company-specific losses and to quantify loss causation.
- Preston concluded that a substantial portion of stock declines after disclosures was attributable to the concealment of risk in both BLB and non-BLB loans, including an October 26, 2007 drop, and that the Florida real estate collapse amplified losses.
- The Eleventh Circuit affirmed the district court’s judgment as a matter of law for Bancorp, holding State-Boston failed to prove loss causation by separating fraud-related declines from market-wide or Florida real estate downturn effects.
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Whether the district court erred in granting Rule 50(b) on sufficiency. | State-Boston contends evidence supported liability and causation. | Bancorp argues inconsistent interrogatories tainted liability findings and causation could not be proven. | District court erred; but affirming on alternative loss causation ground valid. |
| Whether loss causation was proven under fraud-on-the-market theory. | State-Boston showed misstatements inflated price and concealed risk causally linked to declines. | Bancorp contends declines also reflect Florida real estate downturn; no sufficient apportionment of losses to fraud. | No substantial evidence that fraud was a substantial contributing factor distinct from market/Florida risk. |
| Whether the materialization-of-concealed-risk theory can support loss causation here. | State-Boston relied on materialization of concealed risk to explain price declines. | Bancorp contends the theory does not isolate time-relevant risk at misstatement, especially given Florida market effects. | Even assuming the theory, State-Boston failed to prove loss causation given confounding Florida market factors. |
Key Cases Cited
- Chaney v. City of Orlando, 483 F.3d 1221 (11th Cir. 2007) (post-verdict Rule 50 standard relies on sufficiency of the evidence)
- Dura Pharm., Inc. v. Broudo, 544 U.S. 336 (U.S. 2005) (loss causation requires a causal link between misrepresentation and decline)
- Robbins v. Koger Props., Inc., 116 F.3d 1441 (11th Cir. 1997) (loss causation requires substantial causation; damages require apportionment)
- FindWhat Investor Grp. v. FindWhat.com, 658 F.3d 1282 (11th Cir. 2011) (fraud-on-the-market loss causation standards in the Eleventh Circuit)
- Lentell v. Merrill Lynch & Co., 396 F.3d 161 (2d Cir. 2005) (materialization of concealed risk discussion in loss causation)
- In re Omnicom Group, Inc. Sec. Litig., 597 F.3d 501 (2d Cir. 2010) (loss causation theory viability where corrective disclosures may be indirect)
- In re Merrill Lynch & Co. Research Reports Sec. Litig., 568 F. Supp. 2d 349 (S.D.N.Y. 2008) (need to distinguish market-wide factors from concealed-risk effects)
- Chaney v. City of Orlando, 483 F.3d 1221 (11th Cir. 2007) (reiterated standard for evaluating post-verdict Rule 50 motions)