Joe Miller, Iv; Robert W. Pearce, Jr. v. Asensio & Company, Incorporated

PUBLISHED
UNITED STATES COURT OF APPEALS
FOR THE FOURTH CIRCUIT
 JOE MILLER, IV; ROBERT W. PEARCE,
JR.,
Plaintiffs-Appellants,
v.
ASENSIO & COMPANY, INCORPORATED,
Defendant-Appellee, No. 03-1225 
and
MANUEL P. ASENSIO; ASENSIO
CAPITAL MANAGEMENT INCORPORATED;
JOHN DOES 1-20,
Defendants. 
 JOE MILLER, IV; ROBERT W. PEARCE,
JR.,
Plaintiffs-Appellees,
v.
ASENSIO & COMPANY, INCORPORATED,
Defendant-Appellant, No. 03-1262 
and
MANUEL P. ASENSIO; ASENSIO
CAPITAL MANAGEMENT INCORPORATED;
JOHN DOES 1-20,
Defendants. 
Appeals from the United States District Court
for the District of South Carolina, at Charleston.
David C. Norton, District Judge.
(CA-99-1861-2-18)

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Argued: January 21, 2004
Decided: April 14, 2004
Before MOTZ, GREGORY, and DUNCAN, Circuit Judges.
Affirmed by published opinion. Judge Motz wrote the opinion, in
which Judge Gregory and Judge Duncan joined.
COUNSEL
ARGUED: Keith R. Dutill, STRADLEY, RONON, STEVENS &
YOUNG, Malvern, Pennsylvania, for Appellants/Cross-appellees.
Keating Lewis Simons, III, LAW OFFICES OF SIMONS & KEA-
VENY, Charleston, South Carolina, for Appellee/Cross-appellant.
ON BRIEF: Michael D. O’Mara, STRADLEY, RONON, STEVENS
& YOUNG, Malvern, Pennsylvania, for Appellants/Cross-appellees.
OPINION
DIANA GRIBBON MOTZ, Circuit Judge:
This appeal raises a question of first impression — does a finding
of liability under Rule 10b-5 in a private securities case require an
award of damages. We hold that it does not and reject the other appel-
late challenges put forward by the parties. Accordingly, we affirm the
judgment of the district court entered on the basis of a jury verdict
finding liability, but awarding no damages.
I.
This case grows out of derogatory statements made by employees
of Asensio & Company, Inc. ("Asensio") about Chromatics Color
Sciences International, Inc. ("CCSI"). Stockholders of CCSI brought
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this suit, alleging that these statements constitute material misstate-
ments, which Asensio initiated to defraud the market for its benefit,
and which caused their CCSI stock to decline in value, resulting in
substantial monetary losses to them.
Asensio, an investment bank licensed to broker securities, focuses
on identifying "short sale" opportunities, i.e., transactions through
which investors sell a stock and then hope to buy it back at a lower
price. In addition to making its own investments, Asensio researches
companies, makes an assessment as to their viability, and issues rec-
ommendations to investors based on its view of a company’s pros-
pects. Asensio maintains that it specializes in identifying companies
in which fraud or hype have assertedly inflated the stock’s prospects
or price.
In the months leading up to June 1998, Asensio amassed a signifi-
cant short sell interest in CCSI, which had developed the Colormate
III, a medical device to measure the bilirubin level of babies in a non-
invasive manner. In 1997, the Food and Drug Administration had
granted CCSI permission to commercially market the Colormate III
and the Patent & Trademark Office had issued CCSI a patent. By
May 1998, CCSI was in the "final stages of contract negotiation" with
three major medical device companies to produce, market, and dis-
tribute the Colormate III.
However, from June 8 to June 26, 1998, Asensio posted on its web-
site and attempted to disseminate as widely as possible seven reports
recommending that investors sell or take a short position in CCSI.
Asensio suggested that CCSI’s stock price was inflated, on two
related grounds. First, the Colormate III allegedly had little potential
to become a widely used medical device. Second, according to Asen-
sio, questionable private stock sales and other financial maneuverings
had artificially inflated CCSI’s stock price.
From June 9 to June 24, 1998, CCSI issued five press releases
attempting to rebut the Asensio reports. Even so, after Asensio
released its reports, medical device companies ceased contract negoti-
ations with CCSI and the price of CCSI stock dropped. On the last
trading day prior to the issuance of Asensio’s first report on June 8,
1998, the closing price for CCSI stock was 10.75; CCSI stock did not
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again reach that closing price until February 8, 1999, eight months
later. Ultimately, CCSI stock rose again to a closing high of 13.75 in
May 1999 and CCSI succeeded in signing a distribution agreement
with a medical device company in June 1999. However, by November
2001, CCSI’s stock had been de-listed and, at the time of trial, was
trading over-the-counter at a price approaching zero.
Beginning in 1996, Plaintiffs Robert Pearce and Joseph Miller pur-
chased significant amounts of CCSI stock on margin, i.e., they bor-
rowed money from their brokers to purchase the stock. As the price
of CCSI stock declined, Plaintiffs’ brokers issued margin calls requir-
ing that Plaintiffs either provide additional equity or sell portions of
their CCSI holdings. Pearce intermittently sold CCSI stock in varying
amounts and at various prices from June 11, 1998 to October 1999.
Miller similarly sold CCSI stock in varying amounts and at various
prices between June 8, 1998 and late June 1998.
Plaintiffs filed this action on June 10, 1999, under Section 10(b) of
the Securities Exchange Act of 1934, 15 U.S.C. § 78j(b) (2000), and
Rule 10b-5, 17 C.F.R. § 240.10b-5 (2003), promulgated pursuant to
that statute. They allege that Asensio’s reports contained false and
misleading information, and that this information resulted in a decline
in the price of CCSI stock and caused them damage when they had
to sell CCSI stock at an artificially low price. Plaintiffs specifically
identified six statements made by Asensio in two of its reports as false
or misleading. These statements minimized the importance and practi-
cality of CCSI’s Colormate III as a method of testing for bilirubin and
assert that the market for Colormate III was "extremely limited."
At trial, Plaintiffs’ expert, Dr. Perry Woodside, testified first as to
causation, stating his opinion that Asensio’s misrepresentations
caused the decline in the price of CCSI stock. Dr. Woodside then tes-
tified to the measure of Plaintiffs’ out-of-pocket damages, which he
calculated as the "true value" of CCSI stock (defined as "the value of
the stock in the absence of the action and the reports by Asensio") less
the amount Plaintiffs received for the stock on each date on which
they sold it from June 8, 1998 to June 10, 1999.1 Dr. Woodside set
1Neither party has raised the potential application of 15 U.S.C. § 78u-
4(e)(2000), which caps damages to a security’s mean trading price over
a 90-day period when a plaintiff seeks to establish damages by reference
to the security’s market price.
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the true value of CCSI stock by choosing as a starting price the aver-
age price of CCSI stock the week or month prior to June 8. He then
charted how CCSI stock would have behaved between June 8, 1998
and June 10, 1999 absent Asensio’s misrepresentations, by use of a
"benchmark" mutual fund that he believed reacted to market condi-
tions in the same way that CCSI would have but for the misrepresen-
tations. Significantly, in calculating Plaintiffs’ damages, Dr.
Woodside determined that no factor — other than Asensio’s misrep-
resentations — negatively impacted the price of CCSI stock on the
dates that Plaintiffs sold the stock.
Asensio challenged Dr. Woodside’s testimony on a number of
grounds. In particular, Asensio contended that a host of factors,
including truthful information contained in its reports, CCSI’s public
rebuttals of the reports, and scandals involving major CCSI share-
holders, impacted CCSI’s stock price during the relevant period.
Although Asensio did not offer expert testimony as to why CCSI
stock declined at specific points, Manuel Asensio, the company
founder, testified as to the occurrence of certain significant events on
those dates. The company further relied on its reports (which con-
tained a good deal of negative information about CCSI apart from the
six misstatements identified by Plaintiffs), CCSI’s rebuttal press
releases, and various news articles relating negative information about
CCSI. Asensio also cross-examined Dr. Woodside and Plaintiffs
about events or information other than the identified misrepresenta-
tions that assertedly impacted CCSI’s stock price.
At the close of evidence, the district court properly instructed the
jury both as to liability and damages. The court then provided the
jurors with a special interrogatory that posed two questions. First,
after stating the four elements necessary to establish liability under
Rule 10b-5, it asked if the jury unanimously found that Plaintiffs had
established these elements by a preponderance of the evidence. If the
jurors answered "no," they were instructed to go no further. If, how-
ever, they answered "yes," they were directed to turn to a second
inquiry and set forth the total amount Plaintiffs were "actually dam-
aged as a result of the Defendant’s alleged fraud."
During deliberations, the jury sent a written question to the trial
judge asking "Is this a mandate to award a value greater than zero dol-
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lars given a yes response to question one?" After consulting with
counsel, and over Plaintiffs’ objection,2 the district court responded:
"The answer to that question is: No. The calculation of damages is
outlined in the charge on page 23. You can award whatever amount
of damages you find each plaintiff has proved, from zero dollars up
to the amount requested by each plaintiff."
The jury then returned a verdict finding Asensio liable, but award-
ing "$0.00" in damages. The district court entered judgment on that
verdict, awarding the Plaintiffs zero damages. The court denied the
parties’ post-trial motions except to modify its judgment so as to
award costs to neither party.
II.
The parties appeal and cross appeal on numerous grounds, the most
central of which is whether, as a matter of law, the finding of liability
in this private securities action requires the award of damages in some
amount.
Section 10(b) of the Securities Exchange Act of 1934 protects "in-
vestors against manipulation of stock prices." Basic Inc. v. Levinson,
485 U.S. 224, 230 (1988). Thus, courts have long recognized a private
cause of action for violation of this provision. See Ernst & Ernst v.
Hochfelder, 425 U.S. 185, 196-97 (1976). In order to establish liabil-
ity under § 10(b) and Rule 10b-5, a private plaintiff must prove: "(1)
the defendant made a false statement or omission of material fact (2)
with scienter (3) upon which plaintiff justifiably relied (4) that proxi-
mately caused the plaintiff’s damages." Hillson Partners Ltd. P’ship
v. Adage, Inc., 42 F.3d 204, 208 (4th Cir. 1994) (and numerous cases
cited therein).
2Asensio contends that Plaintiffs failed to preserve any objection to the
court’s answer to this question. The argument is meritless. The district
court and counsel engaged in a wide-ranging discussion of the issue, dur-
ing which they discussed a number of options, but Plaintiffs’ counsel
clearly and repeatedly stated his objection to an answer which informed
the jury that it could "award zero damages."
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In this case, a jury acting pursuant to a proper charge (neither
Plaintiffs nor Asensio contend to the contrary) found that Plaintiffs
had proved each of these elements, including the last, i.e., that Asen-
sio’s false statements had "proximately caused the plaintiff[s’] dam-
ages." Id. Yet that same jury awarded Plaintiffs no damages, even
though it had also been properly instructed as to the measure of dam-
ages — the difference between the "fair value of what" Plaintiffs "re-
ceived" and the "fair value of what they would have received had
there been no fraudulent conduct" at the time of sale. Affiliated Ute
Citizens v. United States, 406 U.S. 128, 155 (1972). (We recognize
that other damage theories may be appropriate in some situations, id.,
but Plaintiffs here sought only out-of-pocket damages).
Plaintiffs argue that this result does not conform with the law; that
jurors could not find that Asensio’s misrepresentations proximately
caused Plaintiffs’ "damages," Hillson, 42 F.2d at 208, and nonetheless
award Plaintiffs no damages. According to Plaintiffs, once the jury
found Asensio liable, i.e., that it proximately caused their damages,
the jury had to award Plaintiffs some amount of damages. Brief of
Appellant at 40-41. Thus, Plaintiffs maintain that the district court
erred when, in response to the jury’s question, it informed the jury
that a finding of liability did not constitute "a mandate to award a
value greater than zero dollars" in damages.
Not surprisingly, Asensio contends that the district court properly
answered the jury’s question. The company does not maintain that
Plaintiffs failed to offer evidence of scienter or reliance.3 Moreover,
3Initially and briefly, Asensio does argue that none of its statements
about CCSI are actionable under Rule 10b-5 because they assertedly
involve "matters of opinion," not factual assertions. We disagree. The
statements cannot be dismissed as unverifiable opinion; they set forth or
were grounded in "actual past or present facts," which Plaintiffs demon-
strated to be false. See Malone v. Microdyne Corp., 26 F.3d 471, 479
(4th Cir. 1994) (emphases omitted); Cooke v. Manufactured Homes, Inc.,
998 F.2d 1256, 1259-63 (4th Cir. 1993) (holding statements as to compa-
ny’s finances potentially actionable). See generally Virginia Bankshares,
Inc. v. Sandberg, 501 U.S. 1083, 1091-95 (1991) (holding opinion may
be actionable when based on demonstrably false assumptions). Nor do
we find persuasive Asensio’s argument, that its admittedly erroneous and
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Asensio explicitly concedes that Plaintiffs presented evidence that its
statements "caused a decline in the market price" of CCSI stock, and
that "there was evidence before the jury to sustain its findings of both
transaction causation and loss causation." Brief of Appellee at 45. But
the company maintains, without further explanation, "[t]hat the jury
found Asensio to have contributed to a decline in the market price for
CCSI shares does not mean the Plaintiffs necessarily were injured in
consequence of that decline." Id. at 46.
Neither party offers much support for its position, and we have
found surprisingly little law on this question. The treatises note the
"relative paucity of decisions" dealing with damages in Rule 10b-5
cases. 2 Thomas Lee Hazen, The Law of Securities Regulation,
§ 12.12, at 528 (4th ed. 2002); 3 Alan R. Bloomberg & Lewis D.
Lowenfels, Bloomberg & Lowenfels on Securities Fraud & Commod-
ities Fraud, § 9.1, at 9.10.14 n.6 (2d ed. 2003). They attribute the
scarcity of case law to the fact that "most 10-5 litigation does not pro-
ceed to final judgment on the merits." 2 Hazen, supra. Instead, those
plaintiffs successful in establishing "the elements of a private cause
of action" have generally "settled without the need to precisely define
the measure of recovery." 3 Bloomberg, supra.
The case at hand, however, does require that we grapple with this
question. We now turn to that task.
III.
In denying Plaintiffs’ post-trial motion for a new trial on damages,
the district court, of course, considered this question. The court
believed that the jury’s findings of liability, but no damages, could be
"harmonized." See Atlas Food Sys. & Servs. Inc. v. Crane Nat’l Ven-
dors, Inc., 99 F.3d 587, 599 (4th Cir. 1996) (upholding district court’s
widely publicized statement about the scope of CCSI’s clinical testing,
is not actionable because accurate information about the study was avail-
able in a scientific journal; rather, the jury well could have found that this
statement significantly altered the "total mix" of information available to
reasonable investors. TSC Indus., Inc. v. Northway, Inc., 426 U.S. 438,
449 (1976).
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explanation for seemingly inconsistent verdict). In its attempt to so
harmonize, the district court relied on a semantic distinction between
the proximately caused "injury" necessary to prove liability and the
"damages" necessary to recover a monetary award. The case law,
however, forecloses such a distinction. We, along with other courts,
use the terms "injury" and "damages," as well as "loss" and "harm,"
interchangeably to refer to the actual pecuniary loss that a private
plaintiff must establish to prove liability in a Rule 10b-5 case. See,
e.g., Rombach v. Chang, 355 F.3d 164, 169 n.4 (2d Cir. 2004)
("injury"); Ottmann v. Hanger Orthopedic Group, Inc., 353 F.3d 338,
342 (4th Cir. 2003) ("damages"); In re K-Tel Int’l, Inc. Sec. Litig.,
300 F.3d 881, 888 (8th Cir. 2002) ("economic harm"); Schatz v.
Rosenberg, 943 F.2d 485, 489 (4th Cir. 1991) ("losses").4
Although we disagree with the district court’s post-trial rationale
for upholding the jury’s verdict, we agree with the premise underlying
its answer to the jury’s question: namely, that a jury faithfully follow-
ing a legally sound charge can find liability and no damages. We rec-
ognize that this conclusion initially appears at odds with the general
proposition that the law imposes no liability without proof of dam-
4The district court also briefly suggested that the jury could have
awarded Plaintiffs zero damages because it concluded that "even if Asen-
sio’s fraud forced plaintiffs to sell at a lower price than true value, it
actually prevented further losses by causing them to sell before the CCSI
shares declined still further in value." We must reject this suggestion as
well, because the correct measure of out-of-pocket damages, as the dis-
trict court properly instructed the jury, is the difference between what
Plaintiffs "received for the shares and the fair market value of the shares
at the time of the sale." Wortley v. Camplin, 333 F.3d 284, 296 (1st Cir.
2003) (emphasis added); see also Affiliated Ute Citizens, 406 U.S. at
155. This does not mean, however, as Plaintiffs suggest, that the district
court abused its discretion in admitting evidence of the present day, near-
zero value of CCSI stock. As the district court noted, this was "probative
evidence that Mr. Asensio’s statements were accurate." Nor, as Plaintiffs
also argue, did the court abuse its discretion in refusing to admit a Letter
of Acceptance, Waiver and Consent issued by the National Association
of Securities Dealers to Mr. Asensio. The court acted within its discre-
tion in determining that the letter’s potential for prejudice outweighed
any limited probative value, particularly given that the letter did not
directly contradict Mr. Asensio’s submissions or testimony.
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ages. Nevertheless, we believe a close review of the limited helpful
case law supports the conclusion that we reach in this case.
First, these cases indicate that although courts use "damages" (as
well as "injury," "harm," or "loss") in discussing liability in 10b-5
cases, they employ that term to resolve a different question than the
amount of recoverable damages, which is the standard damages
inquiry. Second, these cases demonstrate that when courts require a
showing of damages proximately caused by the defendant’s conduct
for liability, they require only that the plaintiff show that the defen-
dant’s conduct was a substantial cause of its injury; it is during the
subsequent damages inquiry that the exact amount of damages solely
caused by the defendant’s conduct must be calculated.
A.
Turning to the first point, when determining whether a plaintiff has
demonstrated that a defendant proximately caused damages to estab-
lish Rule 10b-5 liability, courts look to whether the plaintiff has
proved the fact that the defendant caused damages, rather than the
amount of recoverable damages. See, e.g., Law v. Medco Research,
Inc., 113 F.3d 781, 786-87 (7th Cir. 1997) (dismissing 10b-5 claim
when plaintiffs failed to rebut testimony that general market forces
caused the entire decline in value because if "the fraud caused no
harm, the suit fails") (emphasis added); Harnett v. Billman, 800 F.2d
1308, 1315 (4th Cir. 1986) (upholding dismissal of plaintiff’s 10b-5
claim where plaintiff "neither alleged, nor could he prove, any injury
arising out of fraud") (emphasis added); Wolf v. Frank, 477 F.2d 467,
478-79 (5th Cir. 1973)(finding that plaintiffs could not establish
actual damage sufficient to sustain a 10b-5 claim when they ulti-
mately profited from the transaction in question).
Indeed, courts considering 10b-5 claims often refer to the fact of
proximately caused damage and the amount of proximately caused
damage as involving separate, although related, inquiries. See, e.g.,
Rochez Bros., Inc. v. Rhoades, 527 F.2d 891, 894-95 (3d Cir. 1975)
(finding that "injury ha[d] plainly been shown and liability ha[d] been
conclusively established" even though plaintiff had "failed to place
into evidence all the necessary elements for an accurate determination
of damages"); In re Warner Communications Sec. Litig., 618 F. Supp.
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735, 744-45 (S.D.N.Y. 1985), aff’d, 798 F.2d 35 (2d Cir. 1986) (not-
ing "expert testimony would be needed to fix not only the amount, but
the existence of actual damages"); see also Private Litigation Securi-
ties Reform Act ("PLSRA"), Pub. L. No. 104-67, § 21D, 109 Stat.
737, 747 (1995) (codified at 15 U.S.C. § 78u-4(b)(4)) (suggesting a
distinction between "the loss" and the amount for which damages can
be recovered by stating that in a Rule 10b-5 action, the plaintiff must
prove the defendant’s actions caused "the loss for which the plaintiff
seeks to recover damages") (emphasis added). Thus, courts not infre-
quently bifurcate the liability and damages phases of 10b-5 trials. See,
e.g., Gross v. Weingarten, 217 F.3d 208, 215 (4th Cir. 2000).
For purposes of liability in a Rule 10b-5 case, a plaintiff’s proof of
damages proximately caused by the defendant seems to function as a
gate-keeping requirement designed to forestall attenuated, and diffi-
cult to prove, claims. See generally Blue Chip Stamps v. Manor Drug
Stores, 421 U.S. 723, 734, 747-48 (1975) (holding that standing to
bring a private damage action under Rule 10b-5 is limited to "the
class of plaintiffs . . . who have at least dealt in the security" in "an
objectively demonstrable" way and does not include those who sue
"for intangible economic injury such as loss of a noncontractual
opportunity to buy or sell" to protect against an "inexorable broaden-
ing of the class of plaintiff who may sue in this area of the law").
Requiring plaintiffs to demonstrate the fact of proximately caused
damage to establish 10b-5 liability precludes wholly speculative
claims and claims by plaintiffs who ultimately profit from, or experi-
ence no economic pinch as a result of, the challenged transaction.
E.g., Wolf, 477 F.2d at 478-79.
But this requirement does not seem intended to deter plaintiffs who
suffer a harm, but have difficulty proving the precise amount of their
recoverable damages. Imposing a requirement that plaintiffs prove the
amount of recoverable damages to establish liability would potentially
frustrate a significant number of claims by such plaintiffs because
proof of the amount of recoverable damages in a 10b-5 case may be
difficult to establish. See generally Blue Chip Stamps, 421 U.S. at 734
(noting that "the damages suffered by purchasers and sellers pursuing
a § 10(b) cause of action may on occasion be difficult to ascertain");
In re Warner Communications, 618 F. Supp. at 744 (referring to the
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calculation of recoverable damages as a "‘battle of the experts,’" the
result of which "is virtually impossible to predict with any certainty").
This analysis of the proximately caused loss necessary to prove lia-
bility neither invites unwarranted and attenuated claims, nor discour-
ages sufficiently concrete claims. Rather, our conclusions mirror the
balance regarding cognizable claims set forth in Blue Chip Stamps, as
well as the Supreme Court’s general directive that "§ 10(b) must be
read flexibly, not technically and restrictively and that the statute pro-
vides a cause of action for any plaintiff who suffer(s) an injury as a
result of deceptive practices touching its sale [or purchase] of securi-
ties." Santa Fe Indus., Inc. v. Green, 430 U.S. 462, 475-76 (1977)
(emphasis added) (internal quotation marks and citation omitted).
Thus, we believe Rule 10b-5 is best read to permit, in an appropri-
ate case, a jury to find liability but award no damages. However, such
cases will be rare. Most often, if a plaintiff can demonstrate that the
defendant’s acts caused him economic loss and so establish liability,
the plaintiff will also be able to establish "facts and circumstances
tending to show the probable amount of . . . damages" sufficient to
allow the trier of fact to form a "reasonable and probable estimate"
of recoverable damages. Story Parchment Co. v. Paterson Parchment
Paper Co., 282 U.S. 555, 565 (1931) (quotation marks omitted). If a
plaintiff proves liability and "damages which are definitively attribut-
able to the wrong," a jury’s award of damages will be upheld even if
there is some "uncertain[ty]" as to "their amount." Id.; see also Davis
v. Merrill Lynch, Pierce, Fenner & Smith, Inc., 906 F.2d 1206, 1217-
19 (8th Cir. 1990).5
However, the amount of recoverable "damages may not be deter-
mined by mere speculation or guess." Story, 282 U.S. at 563. A plain-
tiff must still produce "evidence show[ing] the extent of the damages
5The principle enunciated in Story — that a plaintiff’s inability to
prove damages with mathematical precision does not bar recovery —
both allows presentation of somewhat "uncertain" damage calculations to
the jury and insulates from vacatur the jury’s "estimate" based on such
calculations. The Supreme Court, however, has never suggested that this
principle can be turned on its head to require vacatur of a jury’s award
of zero damages.
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as a matter of just and reasonable inference, although the result be
only approximate," and if the plaintiff fails to do so a fact finder can-
not award damages. Id.; see also United States Life Ins. Co. v. Mech.
& Farmers Bank, 685 F.2d 887, 895-97 (4th Cir. 1982) (affirming
district court’s finding of breach of an indenture agreement but refusal
to award damages for that breach); Glick v. Campagna, 613 F.2d 31,
37-38 (3d Cir. 1979) (upholding finding of liability, but vacating
damage award and remanding in 10b-5 case because district court did
not have "an adequate foundation for determining the stock’s value");
Rochez Brothers, 527 F.2d at 894-95 (remanding for further determi-
nation of the amount of recoverable damages although 10b-5 plain-
tiff’s injury and liability had been "plainly shown" because
"[a]lthough the law does not command mathematical preciseness
from the evidence in finding damages, sufficient facts must be intro-
duced so that a court can arrive at an intelligent estimate without
speculation or conjecture").
B.
Turning to the second point, we note that although recovering an
award of damages requires a 10b-5 plaintiff to prove that defendant’s
fraud actually caused the damages awarded, 15 U.S.C. § 78bb(a)
(2000), establishing loss sufficient to prove liability ("loss causation")
does not require a plaintiff to prove that the defendant’s fraud was the
sole cause of the plaintiff’s loss. Semerenko v. Cendant Corp., 223
F.3d 165, 186-87 (3d Cir. 2000) (holding that plaintiff adequately
pled loss causation by alleging that defendant’s misrepresentations
"directly or proximately caused, or were a substantial contributing
cause of, the damages sustained by plaintiff" and observing that "[s]o
long as the alleged misrepresentations were a substantial cause of the
inflation in the price of a security and in its subsequent decline in
value, other contributing forces will not bar recovery") (emphasis
added); Caremark, Inc. v. Coram Healthcare Corp., 113 F.3d 645,
649 (7th Cir. 1997)(noting that 10b-5 plaintiff satisfactorily pleads
loss causation without alleging "that all of its loss can be attributed
to the false statement of the defendant") (emphasis added).
In sum, to establish 10b-5 liability, a plaintiff need only prove that
defendant’s misrepresentation was a substantial cause of the loss by
showing "[a] direct or proximate relationship between the loss and the
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misrepresentation." Gasner v. Bd. of Supervisors, 103 F.3d 351, 360
(4th Cir. 1996).6 On the other hand, recovering out-of-pocket damages
based on the market price of a security (as Plaintiffs have sought) "re-
quire[s] elimination of that portion of the price decline that is the
result of forces unrelated to the wrong," In re Executive Telecard, Ltd.
Sec. Litig., 979 F. Supp. 1021, 1025 (S.D.N.Y. 1997); see also 2
Hazen, supra, at § 12.12[3], at 539, so as to limit recovery to "actual
damages on account of the act complained of." 15 U.S.C. § 78bb(a).
Thus, in a given case, a jury could properly conclude that (1) the
plaintiff proved the defendant’s fraud constituted a substantial cause
of plaintiff’s loss and so find the defendant liable but (2) the plaintiff
failed to provide a method to discern by "just and reasonable infer-
ence," Story, 282 U.S. at 563, the amount of plaintiff’s loss solely
caused by defendant’s fraud, and so refuse to award the plaintiff any
damages. The Eleventh Circuit has come to the same conclusion,
albeit in dicta. See Robbins v. Koger Props., Inc., 116 F.3d 1441 (11th
Cir. 1997). The Robbins court noted the "important" distinction
6In the similar RICO context, courts have frequently discussed the
scope of "proximate cause." In civil RICO claims, as here, plaintiffs must
demonstrate proximate causation to establish liability, see Holmes v. Sec.
Investor Protect Corp., 503 U.S. 258, 265-70 (1985); Brandenberg v.
Seidel, 859 F.2d 1179, 1189 (4th Cir. 1988), overruled on other grounds
by, Quackenbush v. Allstate Ins. Co., 517 U.S. 706, 711 (1996), and the
measure of damages is "the harm caused by" the illegal activity, which
must be proven by "competent proof, not based upon mere speculation
and surmise." Ticor Title Ins. Co. v. Florida, 937 F.2d 447, 451 (9th Cir.
1991) (internal quotation marks and citation omitted); see also Sedima,
S.P.R.L. v. Imex Co., 473 U.S. 479, 496-97 (1985) (noting that a plaintiff
has standing only where he "has been injured in his business or property
by the conduct constituting the violation" and describing the requisite
conduct). RICO cases make clear that a proximate cause "is not . . . the
same thing as a sole cause." Cox v. Adm’r United States Steel Corp. &
Carnegie Pension Fund, 17 F.3d 1386, 1399 (11th Cir. 1994), but rather,
"a factor is a proximate cause if it is ‘a substantial factor in the sequence
of responsible causation.’" Id. (quoting Hecht v. Commerce Clearing
House, Inc., 897 F.2d 21, 23-24 (2d Cir. 1990) (emphasis added)); see
also In re Am. Honda Motor Co., Inc. Dealerships Relations Litig., 941
F. Supp. 528, 543 (D. Md. 1996) (noting that the "proximate cause" nec-
essary to establish RICO liability "need not be the sole cause").
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between "loss causation" on the one hand and "proof of damages" on
the other. Id. at 1447 n.5. "To satisfy the loss causation element, a
plaintiff need not show that a misrepresentation was the sole reason
for the investment’s decline in value," but "a plaintiff will be allowed
to recover only damages actually caused by the misrepresentation."
Id. (emphasis added). Therefore, the court explained "as long as the
misrepresentation is one substantial cause of the investment’s decline
in value, other contributing forces will not bar recovery under the loss
causation requirement. But in determining recoverable damages,
these contributing forces must be isolated and removed." Id. (empha-
sis added).7
With these principles in mind, we consider the facts of this case.
IV.
After close review of the record, we believe the evidence at trial
7We note that, in antitrust cases, courts have similarly held that in
some circumstances a plaintiff may succeed in proving the proximately
caused loss necessary to demonstrate liability, yet fail to prove actual
recoverable damages. See United States Football League v. Nat’l Foot-
ball League, 842 F.2d 1335, 1376-1379 (2d. Cir. 1988) (affirming
instruction that jurors could find antitrust liability but award "no dam-
ages or only one dollar in damages if they found that they could not sepa-
rate out the amount of losses caused by [defendant’s illegal conduct]
from the amount caused by other factors"). For this reason, courts have
not hesitated to vacate even substantial antitrust damage awards. See
Farley Transp. Co., Inc. v. Santa Fe Trail Transp. Co., 786 F.2d 1342,
1349-52 (9th Cir. 1986) (affirming jury finding of liability when plaintiff
proved "some" injury resulted from antitrust violation but vacating award
of $2,770,000 because plaintiff failed "to make any segregation between
damages attributable to unlawful competition and that attributable to the
unlawful scheme" and remanding for a new trial on damages); MCI
Communications Corp. v. AT & T Co., 708 F.2d 1081, 1161-66 (7th Cir.
1983) (affirming jury finding of antitrust liability but vacating award of
$1.8 million because plaintiff "improperly attribute[d] all losses to defen-
dant’s illegal acts, despite the presence of significant other factors" and
jury could not "make a reasonable and principled estimate of the amount
of damage"); see also Terrell v. Household Goods Carriers’ Bureau, 494
F.2d 16, 22 (5th Cir. 1974).
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provided the jurors with a sound basis on which to reach the result
they did. Namely, the jurors could have reasonably found that Plain-
tiffs offered sufficient evidence that Asensio’s misrepresentations
constituted one substantial cause of Plaintiffs’ loss from the decline
in value of CCSI stock and so found Asensio liable to Plaintiffs. But,
the jurors could also have reasonably found that Plaintiffs failed to
offer evidence from which the jurors could discern the amount of
recoverable damages to Plaintiffs resulting solely from Asensio’s mis-
representations.
Plaintiffs’ expert, Dr. Woodside, a professor of economics and
finance, testified that in his expert opinion the Asensio reports caused
CCSI’s stock price to "decline[ ] tremendously" in the relevant time
period — that "in a matter of just very few days, almost 50 percent
of the value of the company disappeared." Dr. Woodside explained
that he based this opinion on the timing of Asensio’s statements
(immediately before the precipitous decline) and their extremely neg-
ative and untrue assessment of CCSI’s sole product, Colormate III.
Dr. Woodside further explained that he had examined other market
factors that might have borne "upon the decline in the value of stock
at the point in time" and found none. The district court did not abuse
its discretion in admitting Dr. Woodside’s testimony, see TFWS, Inc.
v. Schaefer, 325 F.3d 234, 240 (4th Cir. 2003), and, as Asensio itself
concedes, this evidence certainly provided a basis for the jury’s liabil-
ity finding.8
However, Plaintiffs did not merely contend that Asensio’s misrep-
resentations were a substantial cause of their damages; rather, they
contended that Asensio’s misrepresentations were the sole cause of
8With regard to the event analysis that Dr. Woodside conducted, the
substance (if not the thoroughness) of his analysis and his selection of
Royce Microcap, a fund focused on small cap stocks similar to CCSI, as
a benchmark were within the bounds of generally accepted methodology.
See In re Executive Telecard, Ltd. Sec. Litig., 979 F. Supp. at 1027-28
(emphasizing that if the subject stock is a small cap stock, then the
benchmark selected should focus on stocks of a similar nature). Indeed,
Asensio offers nothing, beyond its own conclusory contentions, to sug-
gest that Dr. Woodside’s determination of CCSI’s pre-fraud market price
falls outside the bounds of acceptable methods.
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the decline in CCSI stock prices and their resulting monetary loss. But
the evidence they offered in support of this contention was weak.
First, although Dr. Woodside so opined, his "event analysis," the sole
method by which he (and Plaintiffs) sought to demonstrate the impact
of company-specific factors other than the alleged fraud on the price
of the stock, was markedly thin. An event analysis is often required
to support an expert’s damages calculation and generally involves the
computation of a statistical regression analysis or, at minimum, the
compilation of a detailed analysis of each particular event that might
have influenced the stock price. See In re Imperial Credit Sec. Indus.,
Inc. Sec. Litig., 252 F. Supp. 2d 1005, 1014-16 (C.D. Cal. 2003); In
re Oracle Sec. Litig., 829 F. Supp. 1176, 1181 (N.D. Cal. 1993).
Whatever computations Dr. Woodside made, however, were appar-
ently done in his head; Dr. Woodside never committed any portion of
his event analysis, other than his ultimate conclusion, to written form.
Asensio also challenged other assumptions essential to Dr. Wood-
side’s opinion that Asensio’s fraud caused all of Plaintiffs’ damages,
including Dr. Woodside’s choice of a benchmark stock. Dr. Woodside
testified that Royce Microcap provided an appropriate benchmark for
projecting the performance of CCSI stock absent the fraud, but the
jury then heard testimony that Dr. Woodside had, in his first two
reports, failed to make any adjustment for market factors and, indeed,
only added a market adjustment using Royce Microcap in a supple-
mental report that he created over the weekend immediately proceed-
ing his in-court testimony.
Furthermore, Asensio offered evidence of many other factors that
could have contributed to the decrease in CCSI’s stock price during
the relevant period. Asensio suggested that CCSI’s stock price had
been artificially inflated for various reasons, and was in the midst of
a general decline, reflecting the correction of the inflation. Asensio
also pointed to information contained in its reports, unrelated to the
misrepresentations identified by Plaintiffs, that could have depressed
the price of CCSI stock. For example, the reports detailed what Asen-
sio deemed to be a series of dubious financial transactions underlying
CCSI’s stock offerings and stock price, including an unfolding scan-
dal involving a major CCSI shareholder, and further stated that CCSI
had falsely reported receipt of certain approvals from the American
Medical Association relating to use of the Colormate III. Moreover,
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Asensio offered evidence that, during the period that Plaintiffs sold
their CCSI stock, the media reported on an unfolding scandal involv-
ing major CCSI shareholders, which formed the basis for a suit by
CCSI shareholders. On cross-examination, Dr. Woodside even admit-
ted that, although in his view "insignificant," the scandal could have
had "some" negative impact on the price of CCSI stock.9
"‘We must . . . attempt to reconcile the jury’s findings, by exegesis
if necessary, . . . before we are free to disregard the jury’s verdict and
remand the case for a new trial.’" MCI Telecomms. Corp. v. Wanzer,
897 F.2d 703, 708 (4th Cir. 1990) (citations omitted). Here, we find
it entirely possible that the evidence could lead a jury, despite its con-
clusion that the Asensio reports constituted a substantial cause of
Plaintiffs’ economic loss, to find that it could not calculate the amount
of recoverable damages resulting solely from the Asensio reports.
Because the proof necessary to show the fact of proximately caused
loss for liability purposes differs — albeit narrowly — from that nec-
essary to prove the amount of recoverable damages, we uphold the
jury’s verdict. Accordingly, the district court did not err in answering
the jury’s question.10
In the vast majority of cases, a finding of the fact of proximately
caused loss will result in the award of some amount of damages.
However, it would seem contrary to Congress’ mandate that a plain-
tiff prove that the defendant "caused the loss," 15 U.S.C. § 78u-
4(b)(4), and that no plaintiff "shall recover . . . a total amount in
excess of his actual damages on account of the act complained of,"
15 U.S.C. § 78bb(a), to direct a jury that it must award damages, even
if faced, as here, with a record from which it cannot do so.
9Given all of the above facts, we cannot conclude, as Plaintiffs sug-
gest, that "the record is devoid of any evidence supporting the jury’s cal-
culation of Plaintiffs’ damages." Brief of Appellant at 19.
10Because we read the district court’s decision not to award costs under
Fed. R. Civ. P. 54(d)(1) as based on its determination that the case "was
a close and difficult one" with small recovery that amounted to victory
"in name only" (regardless of whether Asensio was the "prevailing
party"), we find that the court did not abuse its discretion by declining
to award costs in this case. Teague v. Baker, 35 F.3d 978, 996 (4th Cir.
1994).
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V.
For all of the foregoing reasons, the judgment of the district court
is in all respects
AFFIRMED.
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