 Robert H. Katyle v. Penn National Gaming, Incorporated; Peter M. Carlino; William J. Clifford

PUBLISHED
UNITED STATES COURT OF APPEALS
FOR THE FOURTH CIRCUIT
 ROBERT H. KATYLE; JOSEPH T.
SMALL; BRENT STILLE, Individually
and on behalf of all others
similarly situated,
Plaintiffs-Appellants,
and
HERMAN MARTIN BRAUDE, No. 09-2272 
Plaintiff,
v.
PENN NATIONAL GAMING,
INCORPORATED; PETER M. CARLINO;
WILLIAM J. CLIFFORD,
Defendants-Appellees. 
Appeal from the United States District Court
for the District of Maryland, at Greenbelt.
Peter J. Messitte, Senior District Judge.
(8:08-cv-01752-PJM)
Argued: October 26, 2010
Decided: March 14, 2011
Before KEENAN and WYNN, Circuit Judges, and
Bobby R. BALDOCK, Senior Circuit Judge of the
United States Court of Appeals for the Tenth Circuit,
sitting by designation.

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Affirmed by published opinion. Senior Judge Baldock wrote
the opinion, in which Judge Keenan joined. Judge Wynn
wrote a separate opinion concurring in the judgment.
COUNSEL
ARGUED: Herman Martin Braude, BRAUDE & MARGU-
LIES, PC, Washington, D.C., for Appellants. Paul K. Rowe,
WACHTELL, LIPTON, ROSEN & KATZ, New York, New
York, for Appellees. ON BRIEF: Joseph C. Garland,
BRAUDE & MARGULIES, PC, Washington, D.C., for
Appellants. Adam M. Gogolak, WACHTELL, LIPTON,
ROSEN & KATZ, New York, New York; Kevin B. Collins,
Danielle M. Estrada, COVINGTON & BURLING, LLP,
Washington, D.C., for Appellees.
OPINION
BALDOCK, Senior Circuit Judge:
The Private Securities Litigation Reform Act of 1995
(PSLRA) states that a private plaintiff claiming an implied
right of action for securities fraud under § 10(b) of the Securi-
ties Exchange Act of 1934, 15 U.S.C. § 78j(b), must prove,
among other things, "loss causation," i.e., that the defendant’s
material misrepresentation or omission "caused the loss for
which the plaintiff seeks to recover damages." 15 U.S.C.
§ 78u-4(b)(4). Of course in this Circuit, pleading practice
requires that a plaintiff, as a precursor to proof, allege loss
causation in the complaint "with sufficient specificity to
enable the court to evaluate whether the necessary causal link
exists." Teachers’ Ret. Sys. v. Hunter, 477 F.3d 162, 186 (4th
Cir. 2007). On appeal, Plaintiffs, representing a putative class
of investors which purchased common shares of Defendant
Penn National Gaming (Penn) in vain anticipation of an
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announced third-party buyout, do not challenge the district
court’s dismissal of their Second Amended Complaint (SAC)
based on its failure to adequately allege loss causation.
Rather, Plaintiffs challenge the district court’s refusal to allow
them to file their proposed Third Amended Complaint (TAC)
because, according to the court, it too fails to adequately
allege loss causation.
The sole issue presented here is whether Plaintiffs’ TAC
sufficiently alleges loss causation based upon a purported
series of partially corrective disclosures of a recurring mate-
rial omission, such that the district court abused its discretion
in refusing to vacate its judgment of dismissal and grant
Plaintiffs leave to amend.1 Exercising jurisdiction pursuant to
28 U.S.C. § 1291, we hold that the district court properly
declined to disturb its judgment and allow amendment
because the series of partial disclosures identified in the TAC
did not inform the market of Penn’s alleged ongoing fraudu-
lent omission. See US Airline Pilots Ass’n v. AWAPPA, LLC,
615 F.3d 312, 320 (4th Cir. 2010) (holding that the district
court did not abuse its discretion in denying leave to amend
where the proposed amendment "would have no impact on the
outcome of the motion to dismiss"). Accordingly, we affirm.
I.
In adjudicating the sufficiency of the TAC, we, like the dis-
trict court, accept as true the TAC’s well-pleaded factual alle-
gations, but owe no allegiance to "unwarranted inferences,
unreasonable conclusions, or arguments" drawn from those
1To maintain a § 10(b) securities fraud action, a plaintiff must ade-
quately plead (1) a material misrepresentation or omission; (2) scienter;
(3) a connection with the purchase or sale of a security; (4) reliance; (5)
economic loss; and (6) loss causation. Dura Pharm., Inc. v. Broudo, 544
U.S. 336, 341-42 (2005). In addressing the sufficiency of the TAC’s alle-
gations concerning loss causation, we simply assume without deciding the
adequacy of the TAC’s allegations bearing upon the additional elements
of Plaintiff’s § 10(b) securities fraud claim.
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facts. Monroe v. City of Charlottesville, 579 F.3d 380, 385-86
(4th Cir. 2009) (internal quotation marks omitted). We may
consider as well other sources that courts ordinarily examine
when ruling on a Rule 12(b)(6) motion to dismiss a securities
fraud complaint, "in particular, documents incorporated into
the complaint by reference, and matters of which a court may
take judicial notice." Tellabs, Inc. v. Makor Issues & Rights,
Ltd., 551 U.S. 308, 322 (2007). Facts recited herein that are
not contained within the four corners of the TAC are either
found in documents referred to in the TAC or "capable of
accurate and ready determination by resort to sources whose
accuracy cannot reasonably be questioned," and thus properly
subject to judicial notice under Fed. R. Evid. 201. See, e.g.,
Cozzarelli v. Inspire Pharm. Inc., 549 F.3d 618, 625 (4th Cir.
2008) (considering stock analyst reports cited in the complaint
in the context of a motion to dismiss); Greenhouse v. MCG
Capital Corp., 392 F.3d 650, 655 n.4 (4th Cir. 2004) (taking
judicial notice of published stock prices in the context of a
motion to dismiss).
A.
Penn is a publicly-owned corporation traded on the NAS-
DAQ. Penn operates numerous gaming and off-track betting
facilities in several states. Plaintiffs represent a putative class
of investors that purchased common shares of Penn between
March 20, 2008 and June 15, 2008, inclusive. One year prior
to the class period’s end date, on June 15, 2007, Penn
announced in a press release that it had entered into a lever-
aged buyout agreement (LBO) with private equity buyers:
Penn National Gaming . . . entered into a definitive
agreement to be acquired by certain funds managed
by affiliates of Fortress Investment Group LLC . . .
and Centerbridge Partners LP in an all-cash transac-
tion valued at approximately $8.9 billion, including
the planned repayment of approximately $2.8 billion
of Penn National’s outstanding debt.
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Under the terms of the agreement, Penn National
shareholders will receive $67.00 in cash for each
outstanding Penn National share. The purchase con-
sideration represents a premium of approximately
31% over Penn National’s closing share price on
June 14, 2007 [of $51.14 per share]. Penn National
Gaming has approximately 85.5 million shares out-
standing.
Joint Appendix (JA) at A36. Deutsche Bank and Wachovia
Securities committed to finance roughly $7 billion of the
LBO. The LBO was set to close on or before June 15, 2008,
subject to a 120-day extension in the event all state regulatory
approvals had not been forthcoming. Under the terms of the
LBO, the purchase price was to increase 1.49c for each day
the closing was extended beyond June 15.
On the day of the LBO’s announcement, Penn’s common
stock gained $11.98 to close at $62.12 per share, $4.88 below
the agreed buyout price of $67 per share. On November 9,
2007, Penn filed with the Securities and Exchange Commis-
sion (SEC) a proxy statement which, among other things,
detailed the terms of the LBO and the circumstances under
which the LBO might be terminated. On December 12, 2007,
Penn’s shareholders voted to approve the LBO. At the end of
2007, Penn’s shares were priced at $59.55, a $7.45 or approx-
imately 11% discount off the buyout price. The price levels
of Penn’s stock throughout the latter half of 2007 reflected the
market’s initial view that the odds of the Penn buyout closing
were favorable. But given the economic downturn of 2008
and, specifically, the turmoil in the credit markets, share-
holder confidence that the buyout would close, as reflected in
Penn’s stock price, proved unsustainable. By March 20, 2008,
the beginning date of Plaintiffs’ class period, Penn’s stock
price had dropped to $40.58 per share, a $26.42 or nearly 40%
discount off the buyout price.
According to a Lehman Brothers report dated April 1,
2008, just ten days after commencement of the class period,
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Penn’s stock price following announcement of the LBO had
fallen from a high of $63.68 on June 19, 2007 to a low of
$38.76 on March, 10, 2008. Recognizing that the "target-
friendly" terms of both the LBO and the lenders’ debt com-
mitment letter might lessen the buyers’ and/or lenders’ incen-
tives to act aggressively against Penn in the event of
disagreement or difficulty, Lehman Brothers nonetheless
explained:
Much has changed since June 2007, which perhaps
represented the peak of the leveraged buyout boom.
. . . The credit environment has deteriorated from the
very favorable conditions experienced during the
first half of 2007 to extremely difficult. . . . Many
private equity transactions have either been cancel-
led or face continuing difficulty as targets, private
equity firms, and lenders disagree on the original
terms of the mergers. . . .
We cannot predict whether the Penn transaction will
close, especially given recent headlines regarding
other distressed or cancelled leveraged buyout trans-
actions.
JA at A448 (emphasis added).2 Citing increased competition
and earnings pressure in the gaming industry, Lehman Broth-
ers observed that since Penn’s announcement of the LBO in
June 2007, the prices of comparables, such as Boyd Gaming
and Pinnacle Entertainment, had dropped an average of 60%.
Lehman Brothers opined that "[t]he high price paid for Penn
at the peak of the LBO boom and the significant decline in
2Prior to the commencement of the class period and just one month
prior to the Lehman Brothers Report, Penn warned in its SEC Form 10-K
Annual Report for 2007, filed February 29, 2008, that its stock price might
be adversely affected "if any event change or other circumstance occurs
that results in the termination of the Merger Agreement (including a fail-
ure by Parent to obtain the necessary debt financing in light of current
market conditions)." JA at A311.
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comps are negative factors for Penn in the sense that they
could create incentives for both Fortress/Centerbridge to look
for outs and for lenders to act aggressively against the spon-
sors." JA at A454.
Lehman Brothers noted that over the first quarter of 2008,
Penn’s stock price had "fallen sharply despite the lack of neg-
ative news regarding the actual transaction." JA at A448. Leh-
man’s further noted that "on March 25, 2008, Fortress
publicly reaffirmed its commitment to complete and fund the
acquisition by Summer 2008." JA at A448. Consistent there-
with, the TAC alleges:
From March 20, 2008 through the middle of June
2008, through official press releases . . . , [Penn]
issued frequent updates and announcements related
to the planned buyout — all of them relating to
securing transaction approval by various state regu-
latory gaming agencies of the proposed buy-
out/merger agreement, calculated to influence the
investing public and shareholders that the buy-
out/merger transaction, as contained in the original
SEC filings and the proxy statement was still in
effect.
JA at A1007. Specifically, Penn issued seven press releases
between March 20 and June 5, 2008, notifying the public of
state regulatory approvals.3 Then, on June 6, 2008, Penn
issued an eighth press release announcing the extension of the
3The TAC identifies seven press releases announcing transaction
approval by various entities between March 20 and June 5, 2008 as fol-
lows: 1) on March 20, from the West Virginia Lottery Commission; 2) on
April 15, from the New Mexico Gaming Board; 3) on April 16, from the
Pennsylvania State Horse Racing Commission and the New Mexico Rac-
ing Commission; 4) on April 17, from the Mississippi Gaming Commis-
sion; 5) on May 15, from the West Virginia Racing Commission; 6) on
May 29, from the Pennsylvania State Gaming Control Board; and 7) on
June 5, from the Iowa Racing and Gaming Commission. JA at A1008-09.
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closing date by 120 days, from June 15 to October 13, 2008,
pursuant to the terms of the LBO. The release stated the
extension was necessary to secure the approval of five
remaining states, i.e., Illinois, Indiana, Louisiana, Maine, and
Missouri. Penn’s stock price closed that day at $45.76 per
share.
The problem, according to the TAC, was that while Penn
continued to behave publicly throughout the class period as if
the LBO would close, Penn was involved in private discus-
sions with the buyers and financing institutions related to the
renegotiation of the buyout price or the termination of the
LBO. Based upon a host of inferences we need not detail
here, the TAC alleges that by "at least March 20, 2008," Penn
"knew or had reason to believe that the proposed cash buy-
out/merger transaction would not take place under the terms
of the June 15, 2007 agreement." JA at A1007-08, A1011.
Plaintiffs cite a confidentiality agreement between Penn and
the buyers dated May 22, 2008, as illustrative of Penn’s
knowledge. Therein, the signatories agreed that discussions
aimed at resolving disputes over the rights and obligations of
the parties to the LBO would remain confidential and pro-
tected by the settlement privilege. The signatories further
agreed that neither party would commence litigation related to
the LBO while the confidentiality agreement remained in
effect. The May 22 agreement expired on May 28, 2008, but
was extended by a series of additional agreements through
June 29, 2008.
The closing of the class period on June 15, 2008 is based
on the TAC’s allegation that "from June 16, 2008 through
July 2, 2008," the day before Penn issued a press release
announcing termination of the LBO, the truth surrounding
Penn’s ongoing material omission "leaked out to the market
through a variety of leaks." JA at A1023 (capitalization omit-
ted). Those leaks, which Plaintiffs claim individually consti-
tuted partially corrective disclosures of Penn’s fraudulent
press releases are identified in the TAC as follows:
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• On June 16, the market learned the Maine Har-
ness Racing Commission cancelled a meeting
scheduled to address the LBO;
• On June 17, the market learned the Louisiana
Gaming Control Board held a meeting without
taking action on the LBO;
• On June 24, the market learned Penn failed to
issue a press release announcing the Illinois
Gaming Board had approved the LBO;
• On June 24, the market learned Susquehanna
Financial Group suspended coverage of Penn’s
stock due to market uncertainty over whether the
LBO would close;
• On June 24, the market learned Oppenheimer
Analysts expressed doubts about the LBO’s clos-
ing;
• On June 25, the market learned the Missouri
Gaming Commission held a meeting without
approving the LBO.
See JA at A1018-22. On June 16, 2008, the day these pur-
ported leaks allegedly began to disclose Penn’s fraud on the
market, the price of Penn’s stock opened at $44.18 per share.
When the leaks concluded on June 25, 2008, the price of
Penn’s stock closed at $34.14 per share, down $10.04 or 22%
from its June 16 opening. According to the TAC:
After Penn National failed to issue a press release
announcing the Illinois approval by the close of busi-
ness Friday, June 27, 2008, "the cat was out of the
bag" — the market knew that the Penn National deal
would not close. Accordingly, Penn National’s stock
declined from $33.84 on Monday June 30, 2008, to
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$28.60 on Wednesday June [sic] 2, 2008, a fall of
$5.39 or 15. 86%. . . . This removes most but not all,
of the price inflation [due to Penn’s fraud] from
Penn National’s stock.
JA at A1022.
On July 3, 2008, before the market opened, Penn
announced the termination of the LBO in a press release.
Peter Carlino, Penn’s Chief Executive Officer, commented
that Penn’s decision to enter into a settlement agreement fol-
lowed "a thorough evaluation of a wide range of alternatives
for consummating the transaction." JA at A678. The release
stated that as part of the settlement agreement, Penn would
receive $1.475 billion, consisting of a $225 million cash ter-
mination fee and the purchase of $1.25 billion of Penn’s pre-
ferred stock due 2015 by affiliates of Fortress/Centerbridge,
Deutsche Bank, and Wachovia Securities. Penn also
announced it would repurchase up to $200 million of its own
common stock over the following 24 months. Penn’s stock
price closed that day at $29.66 per share, up 96¢ over its
opening. After the market closed on July 9, 2008, Penn filed
its SEC Form 8-K detailing the terms and conditions of the
settlement agreement. Over the next two days, Penn stock fell
$4.88 from its close on July 9 of $29.35 per share to its close
on July 11 of $24.47 per share. According to the TAC, "on
July 11, 2008, for the first time, all of the artificial price infla-
tion resulting from Penn National’s fraud was finally removed
from Penn National’s stock price." JA at A1027. As a post-
script, the Wall Street Journal, in an article dated July 5, 2008,
noted that in 2008 a "record number" of LBO’s involving
domestic targets had been terminated short of closing: "In
many of the situations where deals fell apart, banks and com-
panies accused the private-equity firms of buyers’ remorse,
while the buyout firms have accused the banks of lenders’
remorse. The truth is somewhere in between." JA at A721.
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B.
In contrast to the TAC’s allegation that the market became
aware of Penn’s fraud through a series of partially corrective
disclosures prior to July 3, 2008, Plaintiffs’ SAC alleged the
market became aware of such fraud upon Penn’s July 3 press
release announcing the LBO’s termination. According to the
SAC, Penn’s ongoing material omission over the course of the
class period proximately caused Plaintiffs economic harm
when the artificially inflated price of Penn’s shares fell after
the truth about the ill-fated LBO became known on July 3.
The district court, however, granted Penn’s motion to dismiss
the SAC based upon its failure to adequately plead loss causa-
tion. The court observed that Penn’s stock price closed up 96¢
on July 3. That, said the court, proved fatal to the SAC’s the-
ory of loss causation and to Plaintiffs’ securities fraud claim
(a point on which we express no opinion). Plaintiffs did not
challenge the district court’s rationale for dismissal, only its
decision to dismiss the SAC with prejudice. To that end,
Plaintiffs filed a "motion for reconsideration" in which they
sought leave to file their TAC. The court denied Plaintiffs’
motion in a memorandum to counsel because "allowing Plain-
tiffs to replead would be futile." JA at A1158. The court rea-
soned:
Under the Supreme Court’s decision in Dura
Pharms., Inc. v. Broudo, 544 U.S. 336, 347 (2005),
in order to plead loss causation with particularity,
Plaintiffs must allege that Penn’s "share price fell
significantly after the truth became known." They
remain unable to meet this standard because none of
the events Plaintiffs now raise constitutes a "correc-
tive disclosure" under the Supreme Court’s decision
in Dura and its progeny; furthermore, none of the
events Plaintiffs cite can be said to have caused any
significant fall in [Penn’s] stock price.
JA at A1158. Plaintiffs timely appealed.
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II.
Plaintiffs assert the district court erred in denying what, in
effect, was a postjudgment motion for leave to file their TAC.
In Laber v. Harvey, 438 F.3d 404, 427 (4th Cir. 2006) (en
banc), we explained that a district court may not grant a post-
judgment motion to amend the complaint unless the court first
vacates its judgment pursuant to Fed. R. Civ. P. 59(e) or 60(b).4
To determine whether vacatur is warranted, however, the
court need not concern itself with either of those rules’ legal
standards. The court need only ask whether the amendment
should be granted, just as it would on a prejudgment motion
to amend pursuant to Fed. R. Civ. P. 15(a). In other words, a
court should evaluate a postjudgment motion to amend the
complaint "under the same legal standard as a similar motion
filed before judgment was entered — for prejudice, bad faith,
or futility." Laber, 438 F.3d at 427; accord Matrix Capital
Mgmt. Fund, LP v. Bearingpoint, Inc., 576 F.3d 172, 193 (4th
Cir. 2009). Futility is apparent if the proposed amended com-
plaint fails to state a claim under the applicable rules and
accompanying standards: "[A] district court may deny leave
if amending the complaint would be futile — that is, if the
proposed amended complaint fails to satisfy the requirements
of the federal rules." United States ex rel. Wilson v. Kellogg
Brown & Root, Inc., 525 F.3d 370, 376 (4th Cir. 2008) (inter-
nal quotation marks omitted).
A.
We review allegations of loss causation for "sufficient
specificity," a standard largely consonant with Fed. R. Civ. P.
4The Federal Rules of Civil Procedure do not provide for a postjudg-
ment "motion for reconsideration." Rather, they provide for a Rule 59(e)
motion to alter or amend the judgment or a Rule 60(b) motion for relief
from judgment. Because, consistent with Rule 59(e), Plaintiffs filed their
motion within ten days of the district court’s judgment, we construe it as
arising under Rule 59(e). See Shepard v. Int’l Paper Co., 372 F.3d 326,
328 n.1 (5th Cir. 2004).
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9(b)’s requirement that averments of fraud be pled with particu-
larity.5 In re Mutual Funds Inv. Litig., 566 F.3d 111, 119-120
(4th Cir. 2009). The degree of specificity demanded is that
which will "enable the court to evaluate whether the necessary
causal link exists." Teacher’s Ret. Sys., 477 F.3d at 186.
Because loss causation is fact-dependent, the specificity suffi-
cient to plead loss causation will vary depending on the facts
and circumstances of each case. For instance:
[W]hen the plaintiff’s loss coincides with a market
wide phenomenon causing comparable losses to
other investors, the prospect that the plaintiff’s loss
was caused by the fraud decreases, and a plaintiff’s
claim fails when it has not adequately pled facts
which, if proven, would show that its loss was
5Rule 9(b) states that a party must plead "with particularity the circum-
stances constituting fraud." In Tellabs, Inc., 551 U.S. at 319, the Supreme
Court recognized that "[p]rior to the enactment of the PSLRA, the suffi-
ciency of a complaint for securities fraud was governed not by [the general
pleading standard of] Rule 8, but by the heightened pleading standard set
forth in Rule 9(b)." The PSLRA sets forth specific standards for pleading
the elements of misrepresentation and scienter, and thus supercedes Rule
9(b) to that extent. 15 U.S.C. § 78u-4(b)(1),(2). The PSLRA, however,
does not address the pleading standards applicable to the remaining ele-
ments of a §10(b) claim, and so presumably the pleading standard of Rule
9(b) still applies to those elements. While the Supreme Court has not spe-
cifically addressed whether loss causation must be pled with particularity
after enactment of the PSLRA, in Teacher’s Ret. Sys., 477 F.3d at 186, we
recognized that "[a] strong case can be made that because loss causation
is among the circumstances constituting fraud for which Rule 9(b)
demands particularity, loss causation should be pleaded with particular-
ity." (internal quotation marks omitted). Uncertainty has arisen because in
Dura Pharm., Inc., 544 U.S. at 346-47, the Court applied Rule 8’s "a short
and plain statement" pleading standard to allegations of loss causation.
Fed. R. Civ. P. 8(a)(2). But because the complaint in that case could not
satisfy Rule 8’s lesser standard, much less Rule 9(b)’s stricter standard,
the Court only "assume[d], at least for argument’s sake, that neither the
Rules nor the [PSLRA] impose any special further requirement [beyond
Rule 8] in respect to the pleading of proximate causation or economic
loss." Dura Pharm., Inc., 544 U.S. at 346 (emphasis added).
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caused by the alleged misstatements [or omissions]
as opposed to intervening events.
Lentell v. Merrill Lynch & Co., 396 F.3d 161, 174 (2d Cir.
2005) (internal quotation marks omitted).
To be sure, "the facts alleged in the complaint . . . need not
conclusively show that the securities’ decline in value is
attributable solely to the alleged fraud rather than to other
intervening factors." In re Mutual Funds Inv. Litig., 566 F.3d
at 128; see also Lentell, 396 F.3d at 177 ("We do not suggest
that plaintiffs were required to allege the precise loss attribut-
able to Merrill’s fraud . . . ."). What we do require the alleged
facts to show is that the misrepresentation or omission was
"one substantial cause of the investment’s decline in value."
In re Mutual Funds Inv. Litig., 566 F.3d at 128. Only then
may we conclude that the complaint alleges the "necessary
causal link" between the defendant’s alleged fraud and the
plaintiff’s economic harm, or, in tort-related terms, that "the
defendant’s misrepresentation (or other fraudulent conduct)
proximately caused the plaintiff’s economic loss." Dura
Pharm., Inc. v. Broudo, 544 U.S. 336, 346 (2005). Stated oth-
erwise, the complaint must allege a sufficiently direct rela-
tionship between the plaintiff’s economic loss and the
defendant’s fraudulent conduct. See Miller v. Asensio & Co.,
364 F.3d 223, 232 (4th Cir. 2004). "[I]f the connection is
attenuated . . . a fraud claim will not lie. That is because the
loss causation requirement — as with the foreseeability limi-
tation in tort — is intended to fix a legal limit on a person’s
responsibility, even for wrongful acts." Lentell, 396 F.3d at
174 (internal quotation marks and citations omitted).
B.
In Dura Pharm., Inc., the Supreme Court held a complaint
asserting a violation of § 10(b) based upon a fraud on the mar-
ket theory does not sufficiently allege loss causation simply
by stating that the security price was artificially inflated at the
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time of purchase, because "an inflated purchase price will not
itself constitute or proximately cause the relevant economic
loss." Dura Pharm., Inc., 544 U.S. at 342. The Court
explained that if the purchaser sells "before the relevant truth
begins to leak out, the misrepresentation will not have led to
any loss. [But] [i]f the purchaser sells later after the truth
makes its way into the marketplace, an initially inflated pur-
chase price might mean a later loss." Id.
Because the Supreme Court acknowledged the relevant
truth may "leak out," subsequent decisions have recognized
that neither a single complete disclosure nor a fact-for-fact
disclosure of the relevant truth to the market is a necessary
prerequisite to establishing loss causation (although either
may be sufficient). See Alaska Elec. Pension Fund v.
Flowserve Corp., 572 F.3d 221, 230-31 (5th Cir. 2009) (per
curiam) (recognizing a series of partially corrective disclo-
sures may suffice to establish loss causation). Rather, "loss
causation may be pleaded on the theory that the truth gradu-
ally emerged through a series of partial disclosures and that
an entire series of partial disclosures [prompted] the stock
price deflation." Lormand v. US Unwired, Inc., 565 F.3d 228,
261 (5th Cir. 2009); see also In re Williams Sec. Litig., 558
F.3d 1130, 1140 (10th Cir. 2009) ("Any reliable theory of loss
causation that uses corrective disclosures will have to show
both that corrective information was revealed and that this
revelation [prompted] the resulting decline in price."). The
district court in this case properly recognized that because
Plaintiffs’ proposed TAC relies upon the cumulative effect of
an alleged series of partially corrective disclosures to plead
loss causation, the TAC must state facts that show (1) those
disclosures gradually revealed to the market the undisclosed
truth about Penn’s fraudulent press releases, and (2) such dis-
closures resulted in the decline of Penn’s share price.
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III.
Here, exposure of the fact that Penn fraudulently omitted
from its prior press releases the truth about the ill-fated status
of the LBO is the first requisite to adequately pleading loss
causation. In other words, to sufficiently plead loss causation
under a fraud on the market theory, the TAC must provide a
basis on which to conclude the six alleged corrective disclo-
sures issued between June 16 and June 25, 2008, inclusive,
revealed "new facts" suggesting Penn had perpetrated a fraud
on the market by omitting in its eight prior press releases
related to state regulatory approvals any mention that the
LBO would not close as written. Teachers’ Ret. Sys., 477 F.3d
at 187. Corrective disclosures must present facts to the market
that are new, that is, publicly revealed for the first time,
because, "if investors already know the truth, false statements
won’t affect the price."6 Schleicher v. Wendt, 618 F.3d 679,
681 (7th Cir. 2010). Such disclosures need not precisely iden-
tify the misrepresentation or omission; nor need the disclosure
emanate from any particular source. See Lormand, 565 F.3d
at 264 n.32. But they must reveal to the market in some sense
the fraudulent nature of the practices about which a plaintiff
complains. See Metzler Inv. GMBH v. Corinthian Colleges,
Inc., 540 F.3d 1049, 1063 (9th Cir. 2008). The disclosure
must "at least relate back to the misrepresentation and not to
some other negative information about the company." In re
Williams Sec. Litig., 558 F.3d at 1140 (emphasis added).
6In Basic Inc. v. Levinson, 485 U.S. 224, 241 (1988), the Court
explained that "[t]he fraud on the market theory is based on the hypothesis
that, in an open and developed securities market, the price of a company’s
stock is determined by the available material information regarding the
company and its business." (internal quotation marks omitted). Thus, only
the first revelation (or series of partial revelations) of facts apprising the
market of the entire truth about prior misleading statements will affect a
stock’s price. Once the truth is revealed, the stock’s price presumably
adjusts and reflects the effect of the fraud.
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A.
Let us first consider the TAC’s allegations that (1) on June
16 the market learned the Maine Harness Racing Commission
cancelled a meeting scheduled to address the LBO, (2) on
June 17 the market learned the Louisiana Gaming Control
Board held a meeting without taking action on the LBO, and
(3) on June 25 the market learned the Missouri Gaming Com-
mission held a meeting without approving the LBO. Recall
that on June 6, 2008, Penn and the buyers announced, consis-
tent with the terms of the LBO, that they had extended the
deal’s closing until no later than October 13, 2008. Prior to
June 16, the state regulatory approval process had been pro-
ceeding at a measured pace since March 20, 2008, with the
latest approval occurring on June 5, 2008. Considered in con-
text, what these alleged disclosures revealed is that three state
regulatory boards or commissions, less than three weeks fol-
lowing a four month extension of the LBO’s closing deadline,
failed to address the LBO as previously planned. On their
face, these disclosures do not suggest Penn, since March 20,
2008 or anytime thereafter during the class period, had been
perpetrating a fraud on the market by failing to disclose in
numerous press releases its knowledge about the status of the
LBO. The three disclosures themselves did nothing to dis-
count the possibility that state regulators would approve the
LBO before the extended closing deadline or that the LBO
would ultimately be consummated.
Plaintiffs argue these disclosures revealed much more than
delays in the state regulatory approval process. The TAC con-
cluded "[a]ll these hearings were canceled because Penn
National failed to provide current financial information
related to the buyout," which, according to Plaintiffs, meant
Penn had stopped cooperating with state regulators, which in
turn showed the buyout would not close. JA at A1019
(emphasis omitted). The only fact that the TAC alleges in
support of its sweeping conclusion, however, relates to the
Missouri review and is based on a selective account of a June
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23, 2008 report from the internet publication thedeal.com:
"The Missouri review, which arbs consider the most rigorous
of the approval process, is at a standstill.[7] Missouri is still
waiting for updated pro forma financial data requested in
April because the market has changed considerably since the
parties filed for the license review last August, a source said."
JA at A972. That the most discerning state in the process,
Missouri, was waiting to receive revised financial data from
Penn, data requested as a result of increasingly difficult mar-
ket conditions, is, standing alone, hardly an endorsement of
the proposition that Penn had abandoned the state regulatory
process and was refusing to cooperate with regulators from
states yet to approve the LBO.
But the news from Missouri did not appear in isolation. The
website also reported the Illinois Gaming Board had tabled
review of Penn’s LBO at its May 19, 2008 meeting and
requested "additional financial information on the transac-
tion." JA at A972. The board placed the deal back on the
agenda for a closed meeting to be held June 23 and 24.
According to a board spokesperson quoted in the report: "The
license review would not be up for final consideration unless
the information the board sought had been provided . . . ." JA
at A972 (emphasis added). The Illinois Gaming Board
approved the Penn buyout on June 24, 2008. The June 23
7"Arbs" refers to arbitrageurs or those who engage in arbitrage. In the
context of a takeover or buyout, "risk arbitrage" generally —
[I]nvolves the simultaneous purchase of shares in one company
and the short sale of assets in another. . . . By purchasing shares
in the company that is expected to be taken over (with the antici-
pation that market value will increase) and selling short shares in
the acquiring company (with the anticipation that market value
will decrease), an investor hopes to gain from both sides of the
trade.
http://www.investordictionary.com/definition/risk-arbitrage (visited March
3, 2011); see also Black’s Law Dictionary, 112 (8th ed. 2004). The risk
is that the buyout does not occur and what the arbitrageur anticipated does
not materialize.
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report from thedeal.com, considered in its entirety, simply
belies Plaintiffs’ conclusory allegation that Penn had ceased
cooperating with state regulators at the time delays in the state
regulatory approval process were announced on June 16, 17,
and 25. What the report reveals is that Missouri regulators, in
light of changed market conditions and consequent doubts
about the Penn buyout, were proceeding cautiously in seeking
to ascertain the true status of the LBO.
Undoubtedly, news of regulatory delays from Missouri, as
well as from Maine and Louisiana, did not bolster the mar-
ket’s already shaken confidence in the likelihood of the Penn
buyout closing. Given the downturn in the gaming market, the
credit crisis, the broader market’s downward trend, and the
consequent fact that many LBOs involving domestic targets
were in trouble, the postponements did nothing to reassure the
market that Penn’s LBO would close. But to conclude these
disclosures revealed facts that were related in any manner to
the fraudulent nature of Penn’s prior press releases proves too
much. The disclosures did not "relate back" to Penn’s earlier
omissions of the alleged truth because they did not even infer-
entially suggest that Penn’s prior press releases were fraudu-
lent and that the LOB would not close. In re Williams Sec.
Litig., 558 F.3d at 1140. Upon the facts pled, the TAC’s con-
clusion — that the disclosures of June 16, 17, and 25, 2008,
informing the market of delays in the regulatory approval pro-
cess revealed something about the fraudulent nature of Penn’s
prior press releases and the undisclosed knowledge behind
them — is unsustainable.
B.
The term unsustainable similarly characterizes the TAC’s
conclusion that the information contained in the June 24, 2008
analyst reports from Susquehanna and Oppenheimer consti-
tuted corrective disclosures of Penn’s alleged fraud. The TAC
simply alleges "Oppenheimer Analysts issued a research
report stating ‘the markets have become increasingly con-
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vinced that the company’s acquisition will not be com-
pleted.’" JA at A1021. That statement certainly does not
imply that Penn had issued fraudulent press releases during
the class period by failing to disclose what it supposedly knew
about the LBO. And if that were not enough, news that the
market had become convinced the LBO would not close as
written was hardly novel. With the initial closing date having
passed and the revised date looming, that Penn’s stock was
trading well below the buyout price of $67 per share said
quite enough about the investment risk.8 Moreover, the market
had been questioning the viability of the LBO since at least
the start of February 2008, when the price of Penn shares
began to steadily decline, reaching a low prior to commence-
ment of the class period of $38.76 on March 10, a 42% dis-
count off the $67 buyout price. Penn’s stock had been trading
in a similar range just prior to issuance of Oppenheimer’s
report.
Meanwhile, the Susquehanna report, like the Lehman
Brothers report three month prior, declined to predict the
LBO’s outcome given the continuing absence of facts directly
related to the deal’s prospects:
We are suspending our investment rating on PENN.
Shares have been highly volatile in recent months on
unsubstantiated speculation as to whether or not the
pending buyout deal will go through. Fundamentals
are clearly playing no role in the trading of the stock,
8When an LBO is announced, the stock of the target usually trades at
a discount to the buyout price prior to the LBO’s closing. The size of the
discount, also known as the deal spread, generally depends on the period
of time to closing and the perceived risk that the deal will not close. See
Isaac Corre, Corporate Control Transactions: Commentary on Fischel, 69
U. Chi. L. Rev. 963, 970 (2002). In other words, the deal spread represents
"the market’s assessment of likelihood that the [buyout] would close; . . .
the higher the spread the lower the probability that the deal would close."
Dale A. Oesterle, Regulating Hedge Funds, 1 Entrepren. Bus. L.J. 1, 20
(2006).
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and day-to-day handicapping of the deal’s prospects
has become the primary mover of the stock. At this
point, there is significant uncertainty as to whether
the company will be acquired by the Fortress Invest-
ment Group LLC and Centerbridge Partners, L.P. for
$67 per share. . . . [W]e do not expect more public
announcements from the company any time soon.
Thus, we are suspending our rating until we have
more clarity on the prospects of the deal closing.
JA at A982 (emphasis added). Notably, Susquehanna consid-
ered numerous possible reasons for the most recent downturn
in Penn’s stock price, none of which even remotely hinted at
fraud: "The stock has continued to trade down since last week
when news of the Hexicon deal to buy Huntsman being on the
brink of collapsing was announced. There have been no
updates from either Penn or the buyers, and any opinion about
whether or not the deal will close or not close is pure specula-
tion, in our view." JA at A982 (emphasis added). Susque-
hanna observed that in addition to the shock waves from the
troubled Hexicon deal, "the current state of the economy" had
"obviously impacted" Penn’s stock price. JA at A982. Sus-
quehanna also reported the unfavorable effect that recent
smoking bans might have on Penn’s Illinois and Colorado
properties, and the effect that a Maryland proposal to legalize
slot machines might have on Penn’s West Virginia properties.
Conspicuously absent from Susquehanna’s report is any sug-
gestion that Penn, at any point during the previous three
months, had issued misleading press releases as a conse-
quence of its refusal to disclose the true facts about the LBO’s
prospects. See Lentell, 396 F.3d at 175 n.4 (analyst down-
grades did not constitute corrective disclosures because they
did not reveal that analysts’ prior representations were false).
What the report revealed was risk as evidenced by its conclu-
sion: "There is a risk that the deal falls apart and the stock
returns to pre-deal levels." JA at A982. The "unsubstantiated
speculation" and "significant uncertainty" surrounding the
LBO’s prospects did not in any sense reveal to the market the
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alleged fraudulent nature of Penn’s practices over the course
of the class period. See Metzler Inv. GMBH, 540 F.3d at 1063.
C.
Lastly, the TAC alleges Penn’s failure to issue a press
release announcing the Illinois Gaming Board’s approval of
the LBO on June 24, 2008, disclosed to the market that Penn
had misled the market into believing the LBO would close.
This, according to the TAC, is because Penn issued press
releases announcing all prior state regulatory approvals of the
LBO. Plaintiffs essentially ask us to conclude that Penn’s
non-announcement of positive news — Illinois’ approval of
the LBO — constitutes a corrective disclosure. Plaintiffs have
not pointed us to any decision that suggests a defendant’s
silence may constitute a corrective disclosure.9 Cf. In re Wil-
liams Sec. Litig., 558 F.3d at 1138 ("[I]t would be difficult to
characterize an announcement that contained no negative
information . . . as revelatory of the truth."). Moreover, we are
uncertain how Penn’s failure to issue a press release on June
24 suggests the falsity of press releases issued prior to and
including June 6. We acknowledge Penn’s silence likely fur-
ther fueled speculation that the LBO’s death knell would soon
sound. But we are at a quandary to understand how specula-
tion about the LBO’s prospects based on Penn’s failure to
issue a press release on June 24 announcing the Illinois Gam-
ing Board’s approval of the buyout translates into knowledge
9Nor does every announcement of bad news constitute a corrective dis-
closure. In a financial market wrought with turmoil across the spectrum,
"[t]he standard cannot be so lax that every announcement of negative news
becomes a potential ‘corrective’ disclosure." In re Williams Sec. Litig.,
558 F.3d at 1140 (internal quotation marks omitted). Otherwise, contrary
to the aim of § 10(b), unwarranted federal security fraud claims seeking
"broad insurance against market losses" might run amok. Dura Pharm.,
Inc., 544 U.S. at 345 (explaining that § 10(b) provides a cause of action
"not to provide investors with broad insurance against market losses, but
to protect them against those economic losses that misrepresentations
actually cause").
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of the relevant truth, namely that from March 20, 2008
through June 6, 2008, Penn issued a series of fraudulent press
releases because Penn knew then the deal was off.
IV.
Plaintiffs argue that to sufficiently plead the first compo-
nent of loss causation, i.e., exposure of the relevant truth, the
six partially corrective disclosures identified in the TAC, con-
sidered holistically, "need[ ] only to alert investors to the fact
the merger was off the table." Reply Brief at 4 (emphasis
omitted). To that our response is two-fold. First, while we
suppose such a factual disclosure about the LBO may reveal
a part of the relevant truth because the falsity of the eight
press releases necessarily depends on the fact Penn knew the
deal was off, the disclosures identified in the TAC, as we
have just seen, did not disclose to the market any such fact.
Of course, one might posit that following the disclosures’ dis-
semination "the market must have known" the deal was off.
In re Williams Sec. Litig., 558 F.3d at 1138. Such sentiment
seems particularly apropos in hindsight given the downward
trend in Penn’s stock price over the course of the disclosures
and Penn public announcement of the LBO’s termination very
shortly thereafter. But —
So long as there is a drop in a stock’s price, a plain-
tiff will always be able to contend that the market
"understood" a . . . statement precipitating a loss as
a coded message revealing fraud. Enabling a plaintiff
to proceed on such a theory would effectively resur-
rect what Dura discredited—that loss causation is
established through an allegation that a stock was
purchased at an inflated price. Loss causation
requires more.
Metzler Inv. GMBH, 540 F.3d at 1064 (internal citation omit-
ted). Sentiment simply is not enough to sufficiently plead loss
causation. Speculation and conjecture, even a well-educated
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guess, in the context of market prognostication does not suf-
fice to establish a fact. Cf. id. at 1065 ("The TAC’s allegation
that the market understood the . . . disclosures as a revelation
of . . . systematic manipulation . . . is not a ‘fact.’").
To be sure, the six purported corrective disclosures identi-
fied in the TAC alerted investors to the ever-mounting risk
that the deal was unlikely to close. But this case is not about
materialization of a concealed risk. Plaintiffs do not argue that
"negative investor inferences" drawn from the disclosures
"were a foreseeable materialization of the risk concealed" by
Penn’s fraudulent press releases.10 In re Omnicom Group Inc.
Sec. Litig., 597 F.3d 501, 511 (2d Cir. 2010). The market well
understood the risk. The alleged disclosures told the market
nothing factually about the deal’s prospects that it had not
already heard, repeatedly. We have already discussed the
price trend of Penn’s shares over the course of 2008 and the
Lehman Brothers report from April 1, 2008, in which Leh-
man’s declined to predict whether the LBO would close.
Based upon activity in the options market, Lehman Brothers
at that time estimated at best a 32% probability the deal would
close as written. See JA at A455. Two weeks later, on April
16, thedeal.com reported the Penn deal was "trading so badly
[around $40 per share] that it could become a foregone con-
clusion that the buyers seek a price cut or want out of the buy-
out." JA at A444. The report noted the fact "[t]hat Deutsche
Bank and Wachovia are leading the Penn financing does not
boost confidence as the buyout comes closer to its funding
dates." JA at A444. Similar to Susquehanna’s June 24 report,
thedeal.com’s April 16 report attributed the downward drift in
Penn’s stock price in 2008 to the state of economic affairs.
10"In such a case, the plaintiffs would not need to identify a public dis-
closure that corrected the previous, misleading disclosure because the
news of the materialized risk would itself be the revelation of the fraud
that caused plaintiffs’ loss." Teachers’ Ret. Sys., 477 F.3d at 187; see also
In re Williams Sec. Litig., 558 F.3d at 1138 (recognizing the truth may be
revealed by the materialization of the concealed risk rather than by a pub-
lic disclosure of the relevant truth).
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Second, even assuming the six disclosures revealed that
Penn knew the LBO would not close, the fact of such knowl-
edge alone would still not suffice. To sufficiently plead loss
causation, the TAC must have alleged facts suggesting some-
thing more. Specifically, the TAC must have alleged facts to
show the disclosures revealed to the market something about
the fraudulent nature of the press releases on which Plaintiffs
purportedly relied to their detriment because only then could
the press releases have caused Plaintiffs’ economic loss. See
Metzler Inv. GMBH, 540 F.3d at 1063. The fact that Penn
knew sometime prior to June 16, 2008 that the deal would not
close says nothing about its knowledge on or prior to June 6,
2008 when it issued the last of its eight press releases related
to the state regulatory process. None of the TAC’s six alleged
corrective disclosures "even purport[ ] to reveal some then-
undisclosed fact with regard to the specific misrepresentations
alleged in the complaint." In re Omnicom Group, Inc. Sec.
Litig., 597 F.3d at 511. The TAC fails to adequately plead
loss causation because it does not allege facts that suggest
Penn’s fraudulent omissions over the course of eight press
releases ever "‘became generally known.’" Tricontinental
Indus., Ltd. v. PricewaterhouseCoopers, LLP, 475 F.3d 824,
843 (7th Cir. 2007) (rejecting the argument that "the precise
fraud that resulted in the underlying transaction [need not] be
the subject of a later corrective disclosure in order to satisfy
loss causation").
Because the series of six partially "corrective" disclosures
alleged in the TAC did not, gradually or otherwise, reveal to
the market any undisclosed truth about Penn’s undisclosed
knowledge and resulting fraudulent omissions, any subse-
quent decline in Penn’s share price cannot be attributed to
those omissions. Accordingly, the judgment of the district
court is
AFFIRMED.11
11Because the TAC fails to state a § 10(b) claim, we necessarily uphold
the district court’s dismissal of Plaintiffs’ § 20(a) claim against Penn Offi-
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WYNN, Circuit Judge, concurring in the judgment:
I concur in the majority’s judgment but write separately
because I read Plaintiffs’ complaint more broadly than the
majority. While it is true that Plaintiffs make a securities
fraud allegation based, at least in part, on press releases that
Penn issued between March 20 and June 6, 2008, I believe
that Plaintiffs claim more generally that Penn wrongly failed
to disclose that the leveraged buyout would likely not close.
Nonetheless, even under my broader reading of the com-
plaint, I agree with the majority’s judgment that Plaintiffs’
Third Amended Complaint founders. That is because the
alleged corrective disclosures tell nothing of the alleged fraud,
and, even assuming for the sake of argument that the alleged
disclosures did reveal that the leveraged buyout would likely
not close, the market had already come to that conclusion.
I.
As the majority notes, the Third Amended Complaint
alleges that Penn issued seven press releases between March
20 and June 5, 2008, notifying the public of state regulatory
approvals. Further, on June 6, 2008, Penn issued an eighth
press release announcing the extension of the leveraged buy-
out closing date by 120 days, from June 15 to October 13,
2008. The June 6 press release stated that the extension was
necessary to secure regulatory approvals from Illinois, Indi-
ana, Louisiana, Maine, and Missouri. Plaintiffs allege that
while Penn behaved publicly, through these releases, as if the
leveraged buyout would close, Penn was involved in private
discussions with the buyers and financing institutions about
the renegotiation or termination of the buyout.
cers Peter M. Carlino and William J. Clifford based upon such claim’s
failure to allege a predicate violation of § 10(b). See 15 U.S.C. § 78t(a)
(imposing liability on persons who "control[ ] any person liable under any
provision of this chapter").
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The Third Amended Complaint also alleges more broadly
that Penn failed to disclose that the buyout might not close.
For example, in paragraph 34 Plaintiffs contend that "[d]uring
the period from March 20, 2008 through June 15, 2008 inclu-
sive, Defendants never informed or apprised the investing
public of such material developments (ongoing termination
and/or renegotiation discussions)." After explaining that the
decision to terminate the buyout had likely occurred by May
2008, Plaintiffs allege, in paragraph 55, that "Defendants did
not previously disclose the potential merger termination to the
investing public or, in any way, indicate to the investing pub-
lic that the Purchaser and/or banks were seeking to materially
renegotiate the buyout price and/or terminate the previously
announced, published and stockholder-approved cash buy-
out/merger agreement."
Additionally, in paragraph 57, Plaintiffs allege that "after
months of undisclosed negotiations between the Defendants,
Purchaser, the financing banks, as well as with each party’s
respective advisors and counsel, the parties waited until July
3, 2008 to finalize the Termination and Settlement Agreement
. . . ." Plaintiffs contend in paragraph 61 that "Defendants
deliberately elected not to disclose or apprise the investing
public that the original buyout/merger agreement was ever in
jeopardy or that termination or modification negotiations were
taking place in order to keep Penn share prices artificially
inflated." Per paragraph 62, Penn’s "affirmative misrepresen-
tations, along with the concealments of the ongoing negotia-
tions and discussions . . . influenced Plaintiffs and the Class
to retain and/or purchase additional Penn shares." Accord-
ingly, per paragraph 65, "[b]y concealing material information
concerning the termination negotiations, Defendants were
artificially manipulating the open market price and obstruct-
ing the operation of the market as indices of the stock’s true
value . . . ."
Because of these and other allegations in the Third
Amended Complaint, I believe that Plaintiffs claim more gen-
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erally that Penn wrongly failed to disclose that the leveraged
buyout would likely not close. I therefore diverge from the
majority’s suggestion that the alleged securities fraud is tied
exclusively to the press releases that Penn issued between
March 20 and June 6, 2008.
II.
I agree with the majority that affirmative (mis)statements or
half-truths can serve as the basis for 10b-5 liability. But so
can omissions—that is, the failure to disclose material facts
that the plaintiffs "ha[ve] the right to know." See, e.g., Affili-
ated Ute Citizens of Utah v. United States, 406 U.S. 128, 151-
153 (1972) ("It is no answer to urge that, as to some of the
petitioners, these defendants may have made no positive rep-
resentation or recommendation. The defendants may not stand
mute" when in possession of material information that those
buying and selling securities have a right to know.); Cox v.
Collins, 7 F.3d 394, 396 (4th Cir. 1993) (noting that plaintiffs
alleged securities fraud by positive misrepresentation and by
nondisclosure of material information and affirming denial of
judgment as a matter of law in the face of conflicting evi-
dence regarding the "materiality of the alleged omissions and
[defendant’s] alleged knowledge and intent to deceive").
Nevertheless, even read more broadly to encompass Penn’s
general failure to disclose that the buyout would likely be ter-
minated, the Third Amended Complaint still fails to success-
fully plead loss causation. To state a claim for securities fraud
under Section 10(b) of the Securities Exchange Act of 1934
and Securities and Exchange Commission Rule 10b-5, a
plaintiff must plead "(1) a material misrepresentation or omis-
sion by the defendant; (2) scienter; (3) a connection between
the misrepresentation or omission and the purchase or sale of
a security; (4) reliance upon the misrepresentation or omis-
sion; (5) economic loss; and (6) loss causation (that is, the
economic loss must be proximately caused by the misrepre-
sentation or omission)." Matrix Capital Mgmt. Fund, LP v.
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BearingPoint, Inc., 576 F.3d 172, 181 (4th Cir. 2009) (inter-
nal quotation marks and emphasis omitted).
Regarding the last two elements, the Supreme Court, in
Dura Pharm., Inc. v. Broudo, 544 U.S. 336 (2005), recently
made clear that securities fraud suits are permitted "where,
but only where, plaintiffs adequately allege and prove the tra-
ditional elements of causation and loss." Id. at 346. In other
words, the alleged facts must show that the misrepresentation
or omission was "one substantial cause of the investment’s
decline in value." In re Mutual Funds Inv. Litig., 566 F.3d
111, 128 (4th Cir. 2009) (internal quotation marks omitted).
Only then may we conclude that the complaint alleges the
necessary causal link between the defendant’s alleged fraud
and the plaintiff’s economic harm. See Dura Pharm., 544
U.S. at 346-47. Therefore, as the majority notes, because the
Third Amended Complaint relies upon the cumulative effect
of a series of partially corrective disclosures to plead loss cau-
sation, it must state facts showing that those disclosures grad-
ually revealed to the market the undisclosed truth about
Penn’s fraud and resulted in a decline of Penn’s share price.
Plaintiffs allege that the following purported corrective dis-
closures leaked the truth onto the market: (1) Maine, Louisi-
ana, and Missouri regulators failed to take action regarding
the transaction in June 2008; (2) Illinois regulators approved
the transaction in June 2008 but Penn failed to announce that
approval in a press release; and (3) One brokerage firm sus-
pended coverage of Penn’s stock in June 2008, while another
made negative comments regarding the likelihood of the
merger’s consummation. None of these events revealed in any
way that Penn and other parties to the buyout were discussing
terminating or restructuring the transaction.
The one regulatory approval and three regulatory board
failures to act disclosed nothing other than that which Penn
had already made clear, in the leveraged buyout agreement
filed with the Securities and Exchange Commission and in
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Penn’s June 6, 2008 press release: Penn sought regulatory
approval for the buyout, and the regulatory approval process
would not be completed by June 15, 2008. These regulatory
events, therefore, did not reveal Penn’s alleged fraud.
Further, one stock brokerage’s suspension of coverage and
another’s negative comments did not constitute corrective dis-
closures. On June 24, 2008, Susquehanna Financial Group,
LLP announced that it was suspending its coverage of Penn’s
stock. In doing so, Susquehanna expressly noted that "any
opinion about whether or not the deal will close or not close
is pure speculation, in our view." Susquehanna’s announce-
ment cannot, particularly in the face of that caveat, constitute
a corrective disclosure that Penn and other parties to the buy-
out were discussing terminating or restructuring the transac-
tion.
Oppenheimer Analysts issued a report indicating that "the
markets have become increasingly convinced that the compa-
ny’s merger will not be completed." But that June 24, 2008
statement did not say anything other than that which Lehman
Brothers had indicated in its April 1, 2008 report attached to
Plaintiffs’ Third Amended Complaint—that the deal was
unlikely to be consummated, especially given general eco-
nomic deterioration, credit market deterioration, and then-
recent headlines about other distressed and cancelled lever-
aged buyouts. Lehman Brothers’ April 1, 2008 report esti-
mated the likelihood of the deal’s closing to be between 21
and 32 percent. Not surprisingly, therefore, Penn’s share price
steadily declined from the time the buyout was announced to
May 2008, the time of the alleged decision to renegotiate or
terminate the deal.
In any event, neither the Oppenheimer report nor the Sus-
quehanna announcement disclosed to investors that the parties
were terminating or renegotiating the deal. Moreover, the
Lehman Brothers report from April 1, 2008, among other
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things, indicates that the market had decided well before May
2008 that Penn’s buyout would likely fall through.
Under these circumstances, the alleged corrective disclo-
sures failed to disclose Penn’s alleged fraud, and, even assum-
ing for the sake of argument that the alleged disclosures did
reveal that the leveraged buyout would likely not close, the
market had already come to that conclusion. With their Third
Amended Complaint, Plaintiffs therefore still fail to success-
fully plead loss causation. For this reason, I concur in the
majority’s judgment.
31 KATYLE v. PENN NATIONAL GAMING

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