In its opinion in Loos v. Immersion Corporation, et. al., Case No. 12-15100, the Ninth Circuit affirmed dismissal of a securities class action against our client, Immersion Corporation and certain of its officers and directors. The Ninth Circuit ruled that plaintiffs had failed to plead “loss causation,” an essential element of a securities law violation requiring plaintiffs to allege that the supposed misrepresentation was a “substantial cause” of any losses suffered by shareholders and that such losses were not attributable to other factors. Plaintiffs in the Immersion action had attempted to plead loss causation by pointing to various disappointing earnings releases and to an announcement by the Company of an internal accounting investigation. Each of these announcements caused Immersion’s stock price to fall and therefore, according to plaintiffs, caused damage to the plaintiff shareholder class.
The Ninth Circuit rejected plaintiffs’ arguments, ruling for the first time that a company’s announcement of an internal investigation is not by itself sufficient to establish loss causation because the announcement does not reveal fraud. Instead, such announcements put investors on notice of the potential future disclosure of fraudulent conduct. The Ninth Circuit ruled that the announcement of disappointing earnings is likewise insufficient to allege that any losses to shareholders were the result of fraud.
Defense counsel Susan Muck noted, “We are gratified by the Ninth Circuit’s decision. Public companies increasingly face the prospect of whistleblower or other internal investigations, so we think it is particularly important that such an investigation can be announced without a company inevitably facing shareholder litigation as well.”
The Immersion defendants were represented by Fenwick attorneys Susan Muck, Felix Lee, Jennifer Bretan and Marie Bafus. Jennifer Bretan argued the appeal during oral argument.