On November 17, 2022, the First Department issued a decision in Kohl v. Loma Negra Compania Indus. Argentina S.A., 2022 NY Slip Op. 06553, holding that a Section 11 plaintiff was not required to plead or prove loss causation and rejecting a negative causation defense, explaining:
Defendants failed to establish their entitlement to summary judgment, as they did not sustain their burden of proof on the issue of negative loss causation — that is, the principle that investors cannot have suffered loss due to defendants’ false inflation of the securities’ value through misstatements or omissions in the offering documents unless a corrective disclosure has occurred and revealed to the market the inflation of the securities’ value while the investors held them. Under this principle, a plaintiff suffers a loss only if it holds shares at the time of a corrective disclosure.
Defendants’ argument on appeal rests on an incorrect premise: that plaintiff was not only required to plead, and ultimately prove, loss causation, but was also required to show that the loss was caused by a corrective disclosure. However, that premise does not hold in a Securities Act § 11 case, as loss causation is generally not an element of a § 11 claim. Rather, there is a factual presumption that any decline in value of the securities at issue was caused by misrepresentations in the offering documents; thus, a plaintiff is not required to plead (or to prove) loss causation arising from corrective disclosures or, indeed, from anything else.
To be sure, defendants in § 11 cases can seek to reduce or eliminate damages through the affirmative defense of negative causation. But to successfully maintain that affirmative defense, they bear a heavy burden of proving that a plaintiff’s losses were caused by something other than the alleged misrepresentations or omissions in the offering documents. Defendants, who do not dispute that the price of Loma Negra’s American Depository Shares (ADS) declined when plaintiff states it did, make no showing on their motion of what might have caused that decline other than the alleged fraud, misrepresentations, or omissions. As a result, their cross motion for summary judgment premised on negative loss causation was properly denied.
(Internal quotations and citations omitted).