On February 6, 2026, a unanimous panel of the Ninth Circuit affirmed dismissal of securities fraud claims on loss causation grounds where the stock price decline following the purported revelation of the fraud was “modest, typical, and quickly reversed.” The decision in Nova Scotia Health Employees’ Pension Plan v. Comerica Inc., 2026 WL 323711 (9th Cir. Feb. 6, 2026), is the latest in a series of opinions in the Ninth Circuit to have applied a rigorous loss causation analysis at the pleading stage, and dismissed fraud claims as a matter of law, based on the size, typicality, and duration of the stock drop alone.
Background: Loss Causation
Loss causation is an essential element of a securities fraud claim under the Securities Exchange Act of 1934. A variant of common law proximate causation, loss causation under the Exchange Act requires a plaintiff to demonstrate that a defendant’s misstatement, as opposed to some other fact, foreseeably caused the plaintiff’s loss. This typically requires an investor-plaintiff to identify a stock drop following the revelation of the defendant’s alleged fraud, which, the plaintiff argues, represents the amount by which the defendant’s fraud had artificially inflated its stock price. Unlike some other jurisdictions, the Ninth Circuit applies the heightened pleading standard of Rule 9(b) to loss causation and thus requires plaintiffs to plead with particularity the causal connection between the defendant’s misstatements and the plaintiff’s economic loss.
Developments in Ninth Circuit Loss Causation Jurisprudence
In several recent decisions, district courts in the Ninth Circuit have dismissed fraud claims on loss causation grounds at the pleading stage where the facts surrounding the stock drop itself suggested that it was not causally connected to the alleged fraud. These courts have generally analyzed three factors: (i) the size of the stock drop, (ii) whether the drop was typical of the issuer’s stock price movement, and (iii) whether the stock price saw a quick and sustained recovery.
Size. Although there is no hard cutoff, courts in the Ninth Circuit have explained that “securities complaints tend to be predicated on double digit declines.”[1] In Metzler Inv. GMBH v. Corinthian Colleges, Inc., 540 F.3d 1049, 1064 (9th Cir. 2008), for instance, the Ninth Circuit affirmed dismissal on loss causation grounds where the issuer experienced only a “modest 10% drop.” Several district courts have applied this principle in determining that stock drops below 10% tend to weigh against loss causation.[2] While, again, this is not a hard and fast rule, courts have looked at the Ninth Circuit’s 10% threshold in Metzler as a guidepost, particularly in combination with the two additional factors discussed below.[3]
Typicality. A plaintiff is less likely to have pleaded loss causation as a matter of law where the stock drop is not unusual compared to the typical stock movement of the issuer defendant. As one district court explained, “[a] drop of 10% for a volatile stock may not be statistically significant whereas the same drop for a stock with little average movement may be significant.”[4] Accordingly, courts compare the size of a stock drop following an alleged corrective disclosure to the issuer’s average or median stock price movement in the weeks or months surrounding the disclosure. Where the “stock appears relatively variable” during that period “with regular price fluctuations . . . often in line with or even exceeding” the drop, it weighs against loss causation.[5]
Recovery. The Ninth Circuit has held that a “quick and sustained price recovery” after a stock drop “refutes the inference that the alleged concealment . . . caused any material drop in the stock price.” Wochos v. Tesla, Inc., 985 F.3d 1180, 1198 (9th Cir. 2021). Thus, courts have held that plaintiffs failed to plead loss causation where an issuer’s share price fully recovered within “days,” or even “weeks,” after a corrective disclosure, and then remained above the pre-disclosure share price for a sustained period of time.[6]
The Ninth Circuit Decision in Comerica
In Comerica, Plaintiffs alleged that defendants defrauded investors by concealing regulatory violations, and that an article published in May 2023 partially revealed the fraud—and satisfied loss causation—by reporting on defendants’ compliance violations, which purportedly drove a 7.4%, two-day stock drop. The district court held that the stock price movement following this article could not satisfy loss causation and granted defendants’ motion to dismiss.
On February 6, 2026, in an unpublished opinion, Ninth Circuit Judges Lee, Koh, and De Alba unanimously affirmed dismissal on loss causation because the stock price decline following the article “was modest, typical, and quickly reversed.” First, the court explained that the 7.4% decline was “smaller than the 10% drop that this court considered ‘modest’ in Metzler.” Second, the court noted that the decline was “well within Comerica’s typical stock price movement.” As the district court noted, the issuer’s stock price fluctuated by amounts greater than the stock drop on 12 of 43 trading days (28%) in the two months surrounding the alleged corrective disclosure date. Third, the issuer’s stock recovered “over the next two days” and then “remained higher than it had been before the . . . article was published” for approximately four months.
Implications
The Comerica decision is an important circuit-level addition to the growing trend of Ninth Circuit cases dismissing securities class actions premised on stock drops that are modest, typical, and short-lived. Defendants facing securities fraud complaints should carefully analyze their stock price movement surrounding any alleged corrective disclosure dates to assess whether to argue that the complaint fails to plead loss causation based on price movement alone. It remains to be seen whether the Ninth Circuit will adopt similar reasoning in a published opinion, or whether courts in other circuits will follow the Ninth Circuit’s lead and apply similar loss causation analyses at the pleading stage—but the line of reasoning adopted by the Comerica court is one that defendants in cases outside the Ninth Circuit have a good faith basis for pursuing.
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[1] Daniels Family 2001 Revocable Tr. v. Las Vegas Sands Corp., 709 F. Supp. 3d 1217, 1237 (D. Nev. 2024).
[2] See, e.g., Eng v. Edison Int’l, 2017 WL 1857243, at *4 (S.D. Cal. 2017) (no loss causation based on 2.71% drop); Ramos v. Comerica Inc., 2024 WL 2104398, at *3-4 (C.D. Cal. Apr. 12, 2024) (no loss causation based on 7.4% two-day drop); Beibei Cai v. Visa Inc., et al., No. 24-cv-08220 (N.D. Cal. Dec. 10, 2025) (no loss causation based on 6.6% two-day drop); Las Vegas Sands., 709 F. Supp. 3d at 1238 (no loss causation where 5% drop was a “close” call).
[3] See, e.g., Las Vegas Sands, 709 F. Supp. 3d at 1237-39.
[4] Eng, 2017 WL 1857243, at *4.
[5] Las Vegas Sands., 709 F. Supp. 3d at 1237-38; Eng, 2017 WL 1857243, at *5 (no loss causation where declines were “typical movements for SCE’s stock in the days prior and subsequent to the alleged corrective disclosures”).
[6] See, e.g., Wochos, 985 F.3d at 1198 (no loss causation where price declined from $356.88 to $342.94 following disclosure, but was “trading between $350 and $360 over the next week”); Metzler, 540 F.3d at 1065 (no loss causation where “stock quickly recovered from 10% drop”); Ramos, 2024 WL 2104398 at *4 (no loss causation where stock recovered three trading days after drop and stayed above pre-drop price for most of next four months); Beibei Cai, No. 24-cv-08220 (no loss causation where stock price “fully rebounded” a few weeks after stock drop).
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