OPINION
I. INTRODUCTION
The claims in this putative securities fraud class action stem from the dissemination of what Lead Plaintiff characterizes as “materially false and misleading statements” concerning the reported proved oil and natural gas reserves of the Royal Dutch Petroleum Company and the Shell Transport and Trading Company, PLC (together, “Royal Dutch/Shell”).
See
Consolidated Amended Class Action Complaint (“Complaint”) ¶ 3. Defendants filed motions to dismiss the Complaint, on which Chief Judge Bissell heard extensive oral argument and ultimately resolved in a comprehensive opinion filed on August 9, 2005.
See In re Royal Dutch/Shell Transport Securities Litigation,
The parties filed multiple motions for reconsideration of various portions of the Order. Among these was Lead Plaintiffs motion for reconsideration of the dismissal of the Section 10(b) claims asserted by those who purchased Royal Dutch/Shell securities during the Class Period 1 but had not yet sold their securities as of the time of the Court’s decision (“Holding Plaintiffs”), as set forth in Paragraph 8 of *607 the Court’s August 9, 2005 Order and at page 557 of the Opinion. On August 26, 2005, this litigation was reassigned to the undersigned. After the reassignment, the Court entered an order on November 9, 2005 denying all motions for reconsideration except Lead Plaintiffs motion concerning the dismissal of Holding Plaintiffs’ claims. Because Chief Judge Bissell did not have the benefit of briefing on the pertinent issues and authorities, the Court granted Lead Plaintiffs motion for reconsideration.
The Court has now reconsidered those portions of the Court’s August 9, 2005 Order and Opinion that dismissed Holding Plaintiffs’ claims. The instant opinion addresses the merits of Defendants’ motions to dismiss the claims of Holding Plaintiffs. For the reasons expressed below, the Court denies Defendants’ motions to dismiss the claims of Holding Plaintiffs.
II. DISCUSSION
In their motions to dismiss, Defendants, citing
Dura Pharmaceuticals, Inc. v. Broudo,
-U.S.-,
In the August 9, 2005 Opinion, the Court dismissed Holding Plaintiffs’ claims as follows:
Shares of Purchasers Who Have Purchased During the Class Period and Have Not Yet Sold
Defendants also argue that the claims of those purchasers that have not yet sold the securities cannot survive this motion to dismiss. In light of the Dura decision, this Court agrees. Such purchasers are invoking the exact insurance policy that Dura warned against and any such losses are speculative, at best. Those who purchased during the Class Period but have yet to sell their securities have not alleged proximate causation and economic loss; therefore those purchasers may not join the putative class.
Royal Dutch/Shell Transport Securities,
In moving for reconsideration of the Court’s dismissal of the Holding Plaintiffs’ claims, Lead Plaintiff challenges the Court’s application of Dura because Dura did not address whether securities fraud victims must sell their securities after revelation of wrongdoing in order to adequately plead economic loss or loss causation, and argues that the Court’s ruling conflicts with the Private Securities Litigation Reform Act (“PSLRA”), decades of jurisprudence, and public policy. In opposition, Defendants in relevant part argue that Dura requires both a purchase of and a sale of securities in order for a plaintiff to plead economic loss, and thus that the Court’s construction of Dura was correct.
Upon reconsideration, the Court concludes that Holding Plaintiffs’ securities fraud claims should not have been dismissed solely because the Holding Plaintiffs retained the subject securities. In order to plead and prove loss causation and economic loss, a plaintiff alleging fraud in connection with the purchase of *608 securities is not necessarily required to sell the subject securities. First, the statutory scheme that provides the measure of damages available to securities fraud plaintiffs does not mandate sale of the securities. Second, holding plaintiffs have long been permitted to litigate securities fraud claims. Third, policy concerns dictate against the imposition of a sell-to-sue requirement. Finally, Dura neither expressly nor implicitly mandates that the subject securities be sold in order for a plaintiff to have suffered cognizable economic loss.
A. Requiring Sale of the Securities Is Inconsistent with the Statutory Scheme
Section 21D(e) of the PSLRA sets forth a limitation on damages available to plaintiffs alleging a violation of Section 10(b). PSLRA Section 21D(e) provides:
(1) In general
Except as provided in paragraph (2), in any private action arising under this chapter in which the plaintiff seeks to establish damages by reference to the market price of a security, the award of damages to the plaintiff shall not exceed the difference between the purchase or sale price paid or received, as appropriate, by the plaintiff for the subject security and the mean trading price 2 of that security during the 90-day period beginning on the date on which the information correcting the misstatement or omission that is the basis for the action is disseminated to the market.
(2) Exception
In any private action arising under this chapter in which the plaintiff seeks to establish damages by reference to the market price of a security, if the plaintiff sells or repurchases the subject security prior to the expiration of the 90-day period described in paragraph (1), the plaintiffs damages shall not exceed the difference between the purchase or sale price paid or received, as appropriate, by the plaintiff for the security and the mean trading price of the security during the period beginning immediately after dissemination of information correcting the misstatement or omission and ending on the date on which the plaintiff sells or repurchases the security-
15 U.S.C. § 78u-4(e)(l), (2). Nothing in Section 21D(e) requires a sale of the subject securities, either before or after the expiration of the 90-day period, in order for a plaintiff potentially to be eligible for damages. Requiring a sale of the subject security thus would be inconsistent with this statutory scheme.
Section 21D(e) is consistent with prior case law that did not mandate a sale of the subject securities. Congress is presumed to be aware of relevant legal precedents when it legislates.
See, e.g., Faragher v. City of Boca Raton,
More fundamentally, the plain language of Section 21D(e) neither expressly requires shareholders to sell the subject securities nor implies that a sale is required for damages to be calculable.
See North-view Motors, Inc. v. Chrysler Motors
*609
Corp., 227
F.3d 78, 93 (3d Cir.2000) (“It is axiomatic that any inquiry as to the meaning of a statute must begin with its language”);
see also Connecticut Nat’l Bank v. Germain,
Subsection (2) sets forth the calculation of damages where the subject securities were sold during the 90-day look-back period. Subsection (2) does not require a plaintiff to sell prior to the expiration of the 90-day period. First, by its plain terms, Subsection (2) applies
“if
the plaintiff sells” during that period.
See
15 U.S.C. § 78u-4(e)(2) (emphasis added). Second, Subsection (2) is an exception to the general rule prescribed in Subsection (1).
See
15 U.S.C. § 78u-4(e)(l) (indicating that Subsection (1) applies “Except as provided in paragraph (2)”), (2) (entitled, “Exception”). If a plaintiff has not sold by the expiration of the 90-day period to qualify for the exception in Subsection (2), the general rule in Subsection (1) applies. The default scenario established in Section 21D(e) is, therefore, that a shareholder will retain the subject security beyond the end of the 90-day period. Third, because Section 21D(e) defines a sale of securities during the 90-day period to be an exception to the default scenario in which no sale is made prior to the expiration of the 90-day period, Subsection (2) cannot be read to mandate a sale of the subject securities during the 90-day period. An interpretation of Section 21D(e) requiring sale prior to the expiration of the 90-day period would render Subsection (1) superfluous. Principles of statutory construction do not permit an exception to render superfluous the general rule.
See, e.g., Comm’r v. Clark,
Further, nothing in Section 21D(e) can be read to require a sale of the subject securities after the expiration of the 90-day period. Section 21D(e) is silent as to the effect, if any, of a sale of the subject securities after the 90-day period expires. Indeed, for the purposes of calculating damages, Section 21D(e) renders irrelevant anything occurring after the 90th day following the dissemination of curative information. Because the default scenario is that a shareholder will not sell the subject securities prior to the end of the 90-day look-back, and because Section 21D(e) disregards what may occur after the 90th day, in enacting Section 21D(e) Congress must have contemplated that allegedly defrauded shareholders who continued to retain the subject securities after the 90-day period expires would bring an action and potentially be eligible for damages under the calculation set forth in Subsection (1). Section 21D(e) cannot, therefore, be interpreted to require a purchasing plaintiff to sell the subject securities in order to maintain a securities fraud action.
B. Because a Securities Fraud Plaintiff’s Damages Are Based Upon Decline in the Security’s Value, Holding Plaintiffs Have Long Been Permitted to Maintain Securities Fraud Actions
The limitation on damages set forth in Section 21D(e) is consistent with the out-
*610
of-pocket loss measure of damages traditionally applied by courts. Both prior to and after the enactment of the PSLRA in 1995, “[t]he damages of a purchaser were always understood to be the difference between the purchase price and the true value of the shares (adjusted for any negative causation) as disclosed after the revelation of the fraud to the public, followed by a reasonable period (usually no longer than a week or ten days) during which the market took cognizance of the fraud and the publicly traded price was presumed, under the ‘efficient market’ hypothesis ..., to reflect an adjustment for the fraud.”
See In re Oxford Health Plans, Inc. Sec. Litig.,
Section 28(a) of the Exchange Act limits private plaintiffs suing under the Exchange Act to “actual damages.” 15 U.S.C. 78bb(a). While “Congress did not specify what is meant by ‘actual damages,’ ”
Loftsgaarden,
Since both the traditional out-of-pocket loss rule and Section 21D(e) of the PSLRA provide that a purchaser’s loss may be calculated by reference to the amount that the purchaser overpaid and the true value of the securities, a purchaser has not needed to sell the securities to have suffered or to recover “actual damages.” Accordingly, courts have long permitted holding plaintiffs to maintain actions for securities fraud.
See, e.g., In re Cendant Corp. Litig.,
Thus, because the calculation of a securities fraud plaintiffs damages has been based on the decline in the security’s value following the dissemination of curative information, in decades of precedent decided both before and after the enactment of the PSLRA, holding plaintiffs have not been precluded from maintaining securities fraud actions.
C. Imposition of a Sell-to-Sue Requirement Would Conflict with Policy Concerns
In addition to precedent and statutory language, policy concerns dictate against the imposition of a judicially-created “sell-to-sue” requirement. First, market efficiencies dictate against the imposition of such a requirement. Mandating that defrauded investors liquidate their holdings in order to preserve their right to pursue damages “might have harmful consequences.”
Small v. Fritz Cos.,
*612 D. Dura Does Not Require Both Purchase and Sale of Securities as a Prerequisite to Establishing Economic Loss and Loss Causation
The jurisprudential, statutory, and policy context now properly before the Court, it is clear that Dura does not mandate that a securities fraud plaintiff plead both purchase and subsequent sale of securities to establish economic loss and loss causation. Nothing in Dura indicates that the Supreme Court intended to overrule the established precedent permitting holding plaintiffs to maintain actions for securities fraud, to call into question the statutory scheme by creating a sell-to-sue requirement, or to undermine relevant policy concerns without any analysis. Moreover, Dura’s holding was limited to rejecting the Court of Appeals for the Ninth Circuit’s standard for pleading loss causation and economic loss in a securities fraud action, which had required only an allegation of inflated purchase price because of a misrepresentation; the Supreme Court expressly stated that it did not “consider other proximate cause or loss-related questions.” See Dura,125 S.Ct. at 1630, 1634 . Accordingly, Dura cannot be read to require both purchase and sale of the subject securities.
In
Dura,
the Supreme Court held that, while purchase price inflation may be a necessary condition for a later loss, pleading purchase price inflation as a result of a misrepresentation is not by itself sufficient to satisfy plaintiffs burden of proving that defendant’s alleged fraudulent act “caused the loss for which the plaintiff seeks to recover damages.”
Dura,
The Third Circuit’s standard for pleading loss causation and economic loss is consistent with
Dura.
As recognized by
Dura,
the Third Circuit had not used the “Ninth Circuit’s ‘inflated purchase price’ approach to proving causation and loss.”
Id.
at 1630, 1632.
4
In
Semerenko,
the Third Circuit recognized that prior Third Circuit precedent held that “where the claimed loss involves the purchase of a security at a price that is inflated due to an alleged misrepresentation, there is a sufficient causal nexus between the loss and the alleged misrepresentation to satisfy the loss causation requirement.”
Semerenko v. Cendant Corp.,
*613 [T]he “artificial inflation [must] actually [be] ‘lost’ due to the alleged fraud.” Where the value of the security does not actually decline as a result of an alleged misrepresentation, it cannot be said that there is in fact an economic loss attributable to that misrepresentation. In the absence of a correction in the market price, the cost of the alleged misrepresentation is still incorporated into the value of the security and may be recovered at any time simply by reselling the security at the inflated price.
Because a plaintiff in an action under § 10(b) and Rule 10b-5 must prove that he or she suffered an actual economic loss, we are persuaded that an investor must also establish that the alleged misrepresentations proximately caused the decline in the security’s value to satisfy the element of loss causation.
Semerenko,
Dura held only that the Ninth Circuit’s pleading standard was inconsistent with the PSLRA’s mandate that “plaintiffs adequately allege and prove the traditional elements of causation and loss.” Id. at 1633. The Supreme Court did not define the terms “economic loss” or “actual loss,” which it employs to describe the loss a plaintiff must allege and prove. The Supreme Court stated neither that “economic loss” excludes economic loss in the form of “the decline in the security’s value” nor that a plaintiff must have both purchased and subsequently sold the securities in order to plead economic loss. To the contrary, consistent with the traditional “decline in the security’s value” conception of economic loss controlling in the Third Circuit, in finding the Dura complaint inadequate, the Supreme Court remarked that the complaint failed “to claim that Dura’s share price fell significantly after the truth became known.” Id. at 1634. Furthermore, in observing that the Ninth Circuit’s approach was alone in differing from the general agreement reached by other courts, the Supreme Court noted that the Restatement (Second) of Torts reflects “judicial consensus” “that a person who ‘misrepresents the financial condition of a corporation 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 ‘depreciated].’ ” Id. at 1633 (citing Restatement (Second) of Torts § 548A, Comment b, at 107) (alteration in Dura) (emphasis added). Particularly in light of the Supreme Court’s clear limitation on its holding, id. at 1633, indicating that it did not intend to reach questions such as whether a plaintiff must sell the subject securities in order to suffer economic loss, and because a contrary result would be inconsistent with the statutory scheme Dura applies with no critical commentary, Dura cannot be read to overrule established precedent binding on this Court that permits holding plaintiffs to maintain actions for securities fraud.
E. Defendants’ Motions to Dismiss Holding Plaintiffs’ Section 10(b) Claims Must Be Denied to the Limited Extent Addressed Herein
For the reasons discussed above, to the extent Defendants moved to dismiss Hold *614 ing Plaintiffs’ claims solely on the theory that Holding Plaintiffs would be unable to plead and prove loss causation and economic loss because they had not sold their Royal Dutch/Shell securities, the motions to dismiss must be denied. The instant opinion reconsiders only Paragraph 8 of this Court’s August 9, 2005 Order and the accompanying text under the heading “Shares of Purchasers Who Have Purchased During the Class Period and Have Not Yet Sold” at page 557 of the August 9, 2005 Opinion. The instant opinion does not reconsider the dismissal of claims addressed by any other portions of the August 9, 2005 Order and Opinion.
III. CONCLUSION
For the foregoing reasons, the Court denies the Defendants’ motions to dismiss the Holding Plaintiffs’ claims to the extent these claims had been dismissed by Paragraph 8 of the Court’s August 9, 2005 Order and at page 557 of the Court’s August 9, 2005 Opinion,
In re Royal Dutch/ Shell Transport Securities Litigation,
Notes
. The "Class Period” is between April 8, 1999 and March 18, 2004.
Royal Dutch/Shell Transport Securities,
. For purposes of this provision, the "mean trading price” of a security is defined as "an average of the daily trading price of that security, determined as of the close of the market each day during the 90-day period. ...” 15 U.S.C. § 78u-4(e)(3).
. The only real change effected by Section 21D(e) is that this provision set at 90 days “the time period during which the efficient market is deemed to have recognized and adjusted for the fraud, and has begun to re-fleet (again) the 'true value' of the security,” which "substantially] enlarge[d]” the look-back period.
Oxford Health,
. Indeed, in the opinion overturned by the Supreme Court, the Ninth Circuit distinguished its standard from the Third Circuit's standard.
Broudo v. Dura Pharm., Inc.,