TJOFLAT, Circuit Judge:
This appeal concerns a private securities fraud class action brought under § 10(b) of the Securities Exchange Act of 1934
This was error. When a court considers a motion for judgment as a matter of law — even after the jury has rendered a verdict — only the sufficiency of the evidence matters. Chaney v. City of Orlando, 483 F.3d 1221, 1227 (11th Cir.2007). The jury's findings are irrelevant. See id. at 1227-28. Despite the District Court's error, we may affirm for any reason supported by the record. E.g., United States v. Harris, 608 F.3d 1222, 1227 (11th Cir. 2010). In this case, we conclude that the evidence was insufficient to support a finding of loss causation, an element required to make out a securities fraud claim under Rule 10b-5. See, e.g., Dura Pharm., Inc. v. Broudo, 544 U.S. 336, 342, 125 S.Ct. 1627, 1631, 161 L.Ed.2d 577 (2005) (listing among the elements of a § 10(b) securities fraud claim "loss causation, i.e., a causal connection between the material misrepresentation and the loss" (emphasis omitted) (internal quotation marks omitted)). We therefore affirm.
BankAtlantic Bancorp, Inc., is a publicly traded bank holding company incorporated and headquartered in Florida. Its subsidiary, BankAtlantic, is a federally chartered bank that offers consumer and commercial banking and lending services throughout Florida. This case concerns allegations that from October 19, 2006, until October 25, 2007 (the "class period"),
BankAtlantic internally monitored the risk associated with these land loans by assigning each loan a grade on a scale from one to thirteen — the lower the grade, the safer the loan. Grades one through nine were considered passing. But once a loan was assigned a grade of ten — and therefore classified as a "special mention" asset — or a grade of eleven — and therefore classified as a "substandard" asset — it was placed on a "Loan Watch List" to allow the bank's management to keep track of loans that might pose problems.
The Loan Watch List, which was updated monthly, was a purely internal risk-monitoring tool; it was not released to the public. Bancorp's public disclosures did regularly reveal the amount of loans designated "nonaccrual," as opposed to "accruing." That designation indicated the bank's judgment that a loan was unlikely to be repaid according to the terms of the loan agreement. But many commercial real estate loans that were graded ten or eleven, and therefore catalogued on the Loan Watch List, were not designated nonaccrual. Concern about these loans, therefore, was not revealed to the public.
State-Boston's case concerns these commercial real estate loans designated special-mention or substandard, or otherwise identified as potentially problematic, but not designated nonaccrual and therefore not disclosed to the public as a source of concern. According to State-Boston, Bancorp knew at least as early as the fall of 2006 that it had reason to be worried about the credit quality of the commercial real estate portfolio. State-Boston introduced evidence of what it viewed as lax underwriting, as well as internal communications within BankAtlantic that revealed concern that some borrowers might be unable to sell the land securing their loans to homebuilders, making their loans difficult to pay off.
In public statements, however, Bancorp denied concern about BankAtlantic's commercial real estate portfolio. On October 19, 2006, in a quarterly earnings conference call open to the public, James White,
Over time, however, Bancorp's private concerns about the commercial real estate portfolio — as reflected in the increasing number of accruing but special-mention or substandard loans on the Loan Watch List — intensified. The first iteration of the Loan Watch List generated during the class period showed no special-mention or substandard commercial real estate loans that were accruing and therefore unknown to the public. On March 31, 2007, however, the Loan Watch List showed, in addition to more than $20.5 million in nonaccrual land loans, an accruing but substandard land loan of more than $21.2 million.
By then, concern about the commercial real estate portfolio had registered in other internal communications as well. For example, in an email to several BankAtlantic officers dated March 14, 2007, Alan Levan, then Bancorp's CEO and Chairman of the Board of Directors, noted a "parade of land loans coming in for extensions recently" and warned, "It's pretty obvious the music has stopped. In most cases, the presold contract to a builder has either gone away or is in dispute or being modified." And at a Credit Policy Committee meeting on March 21, 2007, several BankAtlantic officers discussed the recent "migrat[ion]" of about $90 million in commercial real estate loans from grade four, in the bank's risk-grading system, to the lower, but still passing, grades of five, six, and seven because of the weakening housing market.
On April 25, 2007, in an 8-K
During the April 26 conference call, Alan Levan mentioned two nonaccrual loans in BankAtlantic's commercial real estate portfolio — one for about $12.5 million and one for about $7.5 million. Levan said both were BLB loans. He warned that the Florida housing market was slowing
Some of the risk associated with BankAtlantic's commercial real estate portfolio remained undisclosed. During the April 26 conference call, Levan did not disclose that a $21.2 million BLB loan had been designated "substandard" and placed on the Loan Watch List. Nor did he disclose concern about the non-BLB portion of the commercial real estate portfolio. But, in fact, the smaller of the two loans Levan mentioned during the conference call was a non-BLB loan, and the "parade" of extensions mentioned in his March 14 email had included non-BLB loans.
Over the year, the risk associated with the commercial real estate portfolio worsened considerably. By the end of April 2007, the Loan Watch List showed $60.3 million in special-mention or substandard BLB loans, in addition to the $12.5 million loan Levan had mentioned, and more than $38.7 million in special-mention or substandard non-BLB loans, in addition to the $7.5 million nonaccrual loan Levan had mentioned. By the end of June 2007, BankAtlantic had $12.6 million in nonaccrual BLB loans and $3.2 million in nonaccrual non-BLB loans, which were reflected in the total amount of nonaccrual loans disclosed in an 8-K on July 24, 2007. Undisclosed, however, were the additional $90.7 million in accruing but special-mention or substandard BLB loans and $55.5 million in accruing but special-mention or substandard non-BLB loans.
As had Alan Levan during the April 26 conference call, Bancorp's public statements continued to note the risk associated with BankAtlantic's BLB loans but minimized the risk associated with the non-BLB portion of the commercial real estate portfolio. Bancorp's 10-Q
On October 25, 2007, Bancorp released an 8-K that, according to State-Boston, brought the fraud to an end. The 8-K reported that BankAtlantic's provision for loan losses in the third quarter of 2007 was $48.9 million, up from $4.9 million in the previous quarter. It also revealed that BankAtlantic held $156.3 million in nonaccrual commercial real estate loans,
Three days later, the present action was filed in the United States District Court for the Southern District of Florida.
State-Boston's only evidence of loss causation and damages was the expert testimony of Candace Preston, a financial analyst. Preston performed an event study, a statistical technique for measuring the effect of new information on the market price of a security, to determine how much of the decline in the price of Bancorp's stock on April 26, 2007, and October 26, 2007, was attributable to factors specific to Bancorp, rather than to general market or industry factors.
On April 26, 2007, although Bancorp's stock price dropped more than 5 percent, the S&P 500 and the NASDAQ Bank Index each fell less than 1 percent. Preston concluded based on those indexes that, of the 56-cent April 26 price decline, 55 cents could not be explained by market or industry factors and therefore must have resulted from company-specific factors. To isolate the amount attributable to the alleged fraud, as opposed to other company-specific factors, Preston looked at several analysts' projections of Bancorp's earnings per share for 2007. Those projections, she observed, dropped by an average of 15 cents after the April 26 disclosures. Based on information in the analysts' reports, Preston concluded that two-thirds of that drop in Bancorp's projected earnings were attributable to the disclosure of previously concealed risk in the commercial real estate portfolio on April 26. She then reasoned that the same proportion of the 55-cent residual decline
On October 26, 2007, as Bancorp's stock fell 38 percent, the S&P 500 rose about 1 percent, and the NASDAQ Bank Index rose 2 percent. Preston concluded that but for company-specific factors, Bancorp's stock price would have risen on that day. She thus found a residual decline of $3.15, even more than the actual decline of $2.93. To exclude company-specific factors other than the fraud, Preston looked at analyst reports responding to the October 25 disclosures. Because analysts seemed most concerned about the deterioration of the commercial real estate portfolio, Preston concluded that all of the residual decline was attributable to the disclosure of previously concealed risk in that portfolio. She therefore opined that the entire October 26 price decline of $2.93 was attributable to the fraud.
The District Court submitted the case to the jury on a verdict form that divided the case into two periods, the first from October 19, 2006, to April 25, 2007 — that is, up to the partial disclosure in the April 25 8-K — and the second from April 26, 2007, to October 25, 2007. For each period, the verdict form requested a general verdict on liability and damages, along with answers to several interrogatories asking whether each of nineteen alleged misstatements was fraudulent and made with scienter, and a number of questions related to control-person liability under § 20(a) of the Securities Exchange Act.
With respect to the first period, the jury found that Bancorp had violated § 10(b) but awarded no damages. With respect to the second period, the jury found that Bancorp, in eight statements, had violated § 10(b) and awarded damages of $2.41 per share. Upon the return of the verdict form, the District Court noted an apparent inconsistency in the jury's findings on the first statement from the second period.
Bancorp moved for judgment as a matter of law under Federal Rule of Civil Procedure 50(b) and for a new trial under Rule 59.
We review a district court's ruling on a motion for judgment as a matter of law de novo. Goodman-Gable-Gould Co. v. Tiara Condo. Ass'n, 595 F.3d 1203,
The District Court erred when it relied on the jury's findings in granting Bancorp's renewed motion for judgment as a matter of law. Federal Rule of Civil Procedure 50 allows a district court to grant a motion for judgment as a matter of law if "the court finds that a reasonable jury would not have a legally sufficient evidentiary basis to find for the [nonmoving party]." Fed.R.Civ.P. 50(a). This is the standard whether the motion is made before or after the case is submitted to the jury. Chaney v. City of Orlando, 483 F.3d 1221, 1227 (11th Cir.2007); see also 9B Charles Alan Wright & Arthur R. Miller, Federal Practice and Procedure § 2537, at 619-24 (3d ed. 2008) ("The standard for granting a renewed motion for judgment as a matter of law under Rule 50(b) is precisely the same as the standard for granting the pre-submission motion under Rule 50(a). Thus, the post-verdict motion for judgment can be granted only if the prior motion should have been granted." (footnote omitted)). Only the sufficiency of the evidence matters; what the jury actually found is irrelevant. See Chaney, 483 F.3d at 1227-28.
Thus, we held in Chaney that the District Court had erred when, in granting a renewed motion for judgment as a matter of law, it "effectively based its conclusions on the jury findings contained in the special verdict form." Id. at 1227. In Chaney, the plaintiff sued the City of Orlando and a city police officer under 42 U.S.C. § 1983, alleging wrongful arrest, excessive force, and malicious prosecution. Id. at 1222. The District Court submitted the case to the jury on a special-verdict form, and the jury found, among other things, that the plaintiff's arrest had been supported by probable cause. Id. at 1225. The court relied heavily on that finding in its order granting the officer's renewed motion for judgment as a matter of law. See id. at 1225-26. The court reasoned that because the arrest was supported by probable cause, it could not be wrongful. Id. at 1225. The court also relied on the probable-cause finding to justify its rejection of the plaintiff's other claims. Id. at 1226. We held that it was error to grant the Rule 50 motion based in part on the jury's findings instead of focusing solely on the sufficiency of the evidence. Id. at 1228.
The District Court made a similar error here. Instead of considering whether the evidence was sufficient to support a verdict in favor of State-Boston, the court relied on the perceived inconsistency of two of the jury's answers to the special interrogatories
Nevertheless, we may affirm for any reason supported by the record. E.g., United States v. Harris, 608 F.3d 1222, 1227 (11th Cir.2010). In this case, we discern such a reason: State-Boston did not introduce evidence sufficient to support a finding in its favor on the element of loss causation. It failed to adequately separate losses caused by fraud from those caused by the 2007 collapse of the Florida real estate market. The jury therefore did not have a sufficient evidentiary basis to conclude that the fraud was a substantial contributing factor in bringing about the class's losses.
In a Rule 10b-5 securities fraud action, the plaintiff must prove (1) a material misrepresentation or omission, (2) scienter, (3) a connection between the misrepresentation or omission and the purchase or sale of a security, (4) reliance upon the misrepresentation or omission, (5) economic loss, and (6) loss causation. Ledford v. Peeples, 657 F.3d 1222, 1248 (11th Cir.2011). Proving loss causation requires more than showing that the plaintiff bought the security at a price that was artificially inflated by fraudulent misrepresentations or omissions. Dura Pharm., Inc. v. Broudo, 544 U.S. 336, 338, 125 S.Ct. 1627, 1629, 161 L.Ed.2d 577 (2005); Robbins v. Koger Props., Inc., 116 F.3d 1441, 1448 (11th Cir.1997). The plaintiff must offer "proof of a causal connection between the misrepresentation and the investment's subsequent decline in value." Robbins, 116 F.3d at 1448. In other words, in a fraud-on-the-market case, the plaintiff must prove not only that a fraudulent misrepresentation artificially inflated the security's value but also that "the fraud-induced inflation that was baked into the plaintiff's purchase price was subsequently removed from the stock's price, thereby causing losses to the plaintiff." FindWhat Investor Grp. v. FindWhat.com, 658 F.3d 1282, 1311 (11th Cir.2011) (citing Robbins, 116 F.3d at 1448).
As the Supreme Court observed in Dura, when an investor buys stock at an artificially inflated price and resells at a lower price, the price decline, and the investor's consequent loss, may result in part from factors other than the dissipation of fraud-induced inflation. "[T]hat lower price," the Court explained, "may reflect, not the earlier misrepresentation, but changed economic circumstances, changed investor expectations, new industry-specific or firm-specific facts, conditions, or other events, which taken separately or together account for some or all of that lower price." 544 U.S. at 343, 125 S.Ct. at 1632. Recognizing as much in Robbins, we concluded that loss causation does not require proof that the fraud — or, more precisely, the dissipation of the fraud-induced inflation — was the sole cause of the security's decline in value. 116 F.3d at 1447. We held, however, that the plaintiff must show that it was a "substantial" or "significant contributing cause." Id. (quoting Bruschi v. Brown, 876 F.2d 1526, 1531 (11th Cir.1989)) (internal quotation marks omitted). We also noted that the standard for proof of damages is more demanding. As we explained in Robbins,
Id. at 1447 n. 5.
Thus, to succeed in a fraud-on-the-market case, it is not enough to point to a decline in the security's price after the truth of the misrepresented matter was revealed to the public. The plaintiff must also offer evidence sufficient to allow the jury to separate portions of the price decline attributable to causes unrelated to the fraud, leaving only the part of the price decline attributable to the dissipation of the fraud-induced inflation. A precise apportionment, as we explained in Robbins, is needed only to prove the amount of damages owed to the plaintiff. See id. at 1447 & n. 5; see also Miller v. Asensio & Co., 364 F.3d 223, 232 (4th Cir.2004) ("[I]n 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 inference the amount of plaintiff's loss solely caused by defendant's fraud, and so refuse to award the plaintiff any damages." (citation omitted) (internal quotation marks omitted)). But if there are confounding factors that could account for much of the decline in the price of the security, the plaintiff must offer some evidence separating the various causes of the decline in the security's price even to establish loss causation. Otherwise the jury has no basis on which to conclude that the dissipation of the fraud-induced inflation was a substantial factor in bringing about the plaintiff's loss. See In re Scientific Atlanta, Inc. Sec. Litig., 754 F.Supp.2d 1339, 1376 (N.D.Ga.2010) ("[A] determination of the substantiality of the fraudulent conduct's effect requires some measurement of the loss attributable to that conduct.").
In this case, State-Boston claims class members purchased Bancorp stock at prices that were artificially inflated because Bancorp fraudulently concealed the poor credit quality of BankAtlantic's commercial real estate portfolio, and that those shares lost value when the portfolio's deterioration was revealed to the market. In effect, State-Boston relies on what some courts have called a "materialization of the concealed risk" theory of loss causation. Lentell v. Merrill Lynch & Co., 396 F.3d 161, 173 (2d Cir.2005); see also Ray v. Citigroup Global Mkts., Inc., 482 F.3d 991, 995 (7th Cir.2007) ("There are several ways in which a plaintiff might go about proving loss causation. The first is sometimes called the `materialization of risk' standard."). That theory allows liability on a securities fraud claim even if the decline in a security's price is not caused by the market's reaction to a corrective disclosure revealing precisely the facts concealed by the fraud, as they existed at the time of the defendant's misstatements. Under the theory, the plaintiff may prove loss causation by showing, instead, that the materialization of a fraudulently concealed risk caused the price inflation induced by the concealment of that risk to dissipate.
State-Boston's expert, Candace Preston, testified that the entire 38 percent decrease in Bancorp's stock price on October
Preston failed, however, to account for the effects of the collapse of the Florida real estate market. The NASDAQ Bank Index may be well suited to capture the effects of national trends in the banking industry, such as the broader national financial crisis that reached its nadir in 2008. But in 2007, Florida, having benefitted more than most states from the real estate boom of the previous years, was hit harder than most by the ensuing bust.
BankAtlantic is just such a bank. As Bancorp acknowledged in several public SEC filings during the class period, BankAtlantic's assets were concentrated in loans tied to Florida real estate. As a result, BankAtlantic and Bancorp were particularly susceptible to any deterioration in the Florida real estate market, in addition to any national developments. To support a finding that Bancorp's misstatements were a substantial factor in bringing about its losses, therefore, State-Boston had to present evidence that would give a jury some indication, however rough, of how much of the decline in Bancorp's stock price resulted not from the fraud but from the general downturn in the Florida real estate market — the risk of which Bancorp is not alleged to have concealed.
For the foregoing reasons, the judgment of the District Court is
AFFIRMED.
15 U.S.C. § 78j(b).
17 C.F.R. § 240.10b-5.
BankAtlantic's policies also provided that a grade of twelve or thirteen warranted placement on the Loan Watch List. Those grades, however, were seldom assigned in practice. Typically, by the time a loan had deteriorated enough to warrant a grade of twelve or thirteen, a write-down of its value had already occurred, making a further downgrade within the one-to-thirteen risk-grading system unnecessary. Notably, the Loan Watch List also included any loans designated "nonaccrual," a term we explain below, or past due 90 days or more.
Similar language appeared in Bancorp's second-quarter 10-Q filed on August 9, 2007.
Frank Torchio, Proper Event Study Analysis in Securities Litigation, 35 J. Corp. L. 159, 160-61 (2009) (footnotes omitted).
15 U.S.C. § 78t(a).
We note that because the jury returned a general verdict awarding no damages with respect to the first part of the class period, Bancorp's renewed motion for judgment as a matter of law — and the ruling under review here — concerned only the § 10(b) claim based on statements made during the second period, from April 26, 2007, to October 25, 2007. See In re BankAtlantic Bancorp, Inc. Sec. Litig., No. 07-61542-CIV-UNGARO, slip op. at 19-20, 2011 WL 1585605 (S.D.Fla. Apr. 25, 2011) ("The parties agree on most of the judgment compelled by the verdict — all Defendants are entitled to judgment in their favor for the first period and Defendants [John] Abdo, Jarett Levan, and [James] White are entitled to judgment in their favor for the second. The parties dispute only the proper judgment regarding Defendants Bancorp, Alan Levan, and [Valerie] Toalson as to the second period.").
The court nevertheless went on to consider whether the plaintiffs had shown that the stock price decline "was foreseeable and caused by the materialization of the risk concealed by the fraudulent statement." Id. (quoting ATSI Commc'ns, Inc. v. Shaar Fund, Ltd., 493 F.3d 87, 107 (2d Cir.2007)) (internal quotation marks omitted). Even without a corrective disclosure, the court explained, the plaintiffs could show loss causation if they showed that the subsequent "resignation [of Robert Callander, a director and the chair of Omnicom's audit committee,] and the ensuing negative media attention were foreseeable risks of the fraudulent [bookkeeping] and caused the temporary share price decline in June 2002." Id.; see also id. at 511 (noting that "[e]stablishing either [of the plaintiffs'] theor[ies]" — "that the market reacted negatively to a corrective disclosure of the fraud" or "that negative investor inferences drawn from Callander's resignation and from the news stories in June 2002 caused the loss and were a foreseeable materialization of the risk concealed by the fraudulent statement" — "would suffice to show loss causation"). The court concluded, however, that Callander's resignation and the media's reaction — which ultimately caused the stock price decline — were too tenuously related to the fraudulent bookkeeping to be considered within the "zone of risk" concealed by the fraud. Id. at 513-14.
The Second Circuit entertained a similar theory in Lentell v. Merrill Lynch & Co., 396 F.3d 161 (2d Cir.2005), an earlier fraud-on-the-market case in which investors sued Merrill Lynch asserting a claim based on allegedly false reports making investment recommendations. Id. at 164. There, the court suggested that the plaintiffs would have adequately pled loss causation had they alleged facts showing that the market reacted negatively either to a disclosure of the falsity of Merrill's recommendations or to the materialization of a risk concealed by the reports. See id. at 175 ("There is no allegation that the market reacted negatively to a corrective disclosure regarding the falsity of Merrill's `buy' and `accumulate' recommendations and no allegation that Merrill misstated or omitted risks that did lead to the loss. This is fatal under Second Circuit precedent." (footnote omitted)).
This court has never decided whether the materialization-of-concealed-risk theory may be used to prove loss causation in a fraud-on-the-market case. We need not reach the issue here. Instead, we assume, without deciding, that this approach is valid and explain why, even on that assumption, State-Boston failed to offer evidence sufficient to support a verdict in its favor.
The dollar amount of nonaccrual commercial real estate loans disclosed in the October 2007 8-K was also much greater than the amount of such loans at the time of any of Bancorp's misstatements. The 8-K reported that $156.3 million in commercial real estate loans, both BLB and non-BLB, were designated nonaccrual. But according to the Loan Watch List, as late as August 31, 2007 — after all the misstatements were made — only $25.5 million in commercial real estate loans were designated nonaccrual.
We need not decide whether some other measure of damages would be appropriate in a case — like this one, on State-Boston's theory — in which the materialization of a concealed risk caused the price to decline by more than the difference between the inflated price at which the plaintiff purchased the security and the price the plaintiff would have paid had the risk not been fraudulently concealed. As we explain below, State-Boston has failed for other reasons to present evidence sufficient to support a finding of loss causation. It therefore cannot prevail on the issue of liability, and it is unnecessary to reach the damages issue.
