Ong Ex Rel. Ong v. Sears, Roebuck & Co.

Citations: 459 F. Supp. 2d 729; 2006 U.S. Dist. LEXIS 80294; 2006 WL 2990438Docket: 03 C 4142

Court: District Court, N.D. Illinois; October 18, 2006; Federal District Court

SummaryOriginalCytator Case TreatmentBackward CitatorAnalysis

EnglishEspañolSimplified EnglishEspañol Fácil

Plaintiffs Thomas G. Ong, Thomas G. Ong IRA, and the State Universities Retirement System of Illinois filed a federal securities class action against defendants including Sears, Roebuck & Co., its wholly-owned subsidiary Sears, Roebuck Acceptance Corp. (SRAC), and various officers and financial institutions involved in SRAC's debt securities offerings. The class action encompasses individuals who purchased SRAC securities during the specified Class Period of October 24, 2001, to October 17, 2002, as well as those who actively traded SRAC securities before this period.

The plaintiffs allege that Sears misrepresented information about its credit card operations, creating a false impression of stability and profitability that inflated the market value of SRAC debt securities. Specific allegations include manipulation of delinquency and charge-off rates, reliance on subprime creditors, and concealment of portfolio losses. These actions purportedly violated several provisions of the Securities Act of 1933 and the Securities Exchange Act of 1934, including Sections 11, 12(a)(2), 15, 10(b), and 20(a), along with Rule 10b-5.

The initial complaint faced multiple motions to dismiss, leading to a partial grant of those motions in September 2004. Following this, a Second Amended Class Action Complaint was filed, which introduced SURSI as an additional plaintiff and included further claims regarding the defendants' knowledge (scienter) of their misleading actions.

In September 2005, a court partially granted and partially denied motions to dismiss in the case Ong ex rel. Ong v. Sears, Roebuck Co. Following this, on October 28, 2005, the plaintiffs filed a Third Amended Class Action Complaint, which included allegations of 10(b) securities fraud and 20(a) control person liability against the Sears Defendants. The defendants sought dismissal of these counts, arguing that the Supreme Court's decision in Dura Pharmaceuticals changed the requirements for proving loss and causation in securities fraud claims. However, the court denied the defendants' motion.

The case involves Sears, a major North American retailer, and its wholly-owned subsidiary, SRAC, which manages financing through debt securities, including three offerings made during the relevant class period. The plaintiffs, who purchased these securities, allege a close financial relationship between Sears and SRAC, whereby SRAC's income is primarily derived from its dealings with Sears. This interdependence affects both companies' financial operations, as SRAC's borrowing costs are influenced by its investment yields in Sears' notes, making it crucial for Sears to maintain low borrowing costs. Consequently, the financial market's perception of Sears directly impacts SRAC's credit ratings.

Plaintiff claims a direct correlation between the market prices of Sears and SRAC Debt Securities. Following Sears' disclosure of issues in its credit card operations on October 17, 2002, Sears' stock plummeted by approximately 32%, while SRAC Debt Securities dropped 8.6%. The interest rate on a proposed SRAC bond offering also surged significantly after the announcement. Plaintiffs argue that investors would reasonably expect the ratings and yields on SRAC Debt Securities to align with the performance of Sears' stock, effectively making SRAC Debt Securities akin to direct investments in Sears.

Sears was once a leading credit card issuer but faced declining retail sales and competition from discount retailers. In 1993, Sears began accepting general credit cards, leading to a drop in usage of its proprietary Sears Cards. To counteract declining sales, Sears launched the Sears MasterCard in late 2000, which gained significant receivables and positioned Sears National Bank among the top bank card issuers. Despite executives portraying Sears' credit operations as robust, the reality included targeting subprime borrowers, misleading reporting of charge-off and delinquency rates, and potentially lenient regulatory oversight for Sears National Bank. This obscured the true state of Sears' credit portfolio, which was experiencing rising delinquencies and charge-offs.

Plaintiffs allege that Sears engaged in fraudulent billing practices by incentivizing sales personnel to charge customers for additional services, like extended warranties, without their knowledge or consent, leading to inflated but uncollectible receivables. They also claim that Sears executives issued numerous false and misleading statements to misrepresent the success and profitability of Sears' credit operations. The court acknowledges that Plaintiffs have adequately alleged these false statements but does not reiterate them, noting that from Q3 2001 to Q2 2002, Defendants reported stable delinquency rates and improving credit quality while the reality showed rising delinquency and charge-off rates, particularly in its subprime portfolios. 

The true state of Sears' credit portfolios reportedly began to surface in October 2002, starting with the announcement of a leadership change in the credit department. On October 7, 2002, Sears reaffirmed a previously projected 22% earnings per share increase but adjusted its forecast for the credit segment to a mid-single-digit growth, a significant decrease from earlier predictions. Analysts expressed concern about the implications of the leadership change for credit operations, leading to a drop in Sears' stock price. Following this negative news, Sears announced an increase in its allowance for bad debts by $222 million, resulting in a 26% reduction in quarterly earnings compared to the prior year, and revised its annual earnings forecast down to a 15% increase. Mr. Lacy attributed the credit issues to the lack of transparency from the former executives, leading to their termination.

Mr. Liska indicated that "Middle America" balances constituted a significant portion of Sears' credit portfolio, representing 48% as of the latest figures, down from 60% in 1998. He redefined "Middle America" as a euphemism for "subprime," contrasting this with Mr. Keleghan's earlier distinction of "middle market" consumers. Deterioration of Middle America accounts was noted to occur more rapidly in a poor economy. Following Sears' disclosure of a 26% earnings drop on October 17, 2002, which shocked investors and analysts, Sears' stock price plummeted by approximately 32%, with extraordinary trading volume. SRAC Debt Securities also fell significantly, and a planned $800 million debt offering faced adverse pricing changes due to the negative disclosures. Analysts attributed the rise in interest rates on SRAC's debt securities to Sears' disclosures. On November 12, 2002, Sears' 10-Q revealed deteriorating performance in its credit card portfolios, with rising delinquency rates, an unusual charge-off policy, and practices that allowed for the avoidance of charge-offs. Analysts expressed concern over Sears' aggressive write-off policy and potential inadequacies in accounting for charge-offs. Subsequently, Sears announced an increase in reserves for uncollectible accounts and lost its "A" credit rating in early 2003, with continued acknowledgment of rising delinquency rates in their 2002 Form 10-K.

On March 26, 2003, Sears announced its intent to sell all credit operations to enhance value for investors and concentrate on its retail business. On June 17, 2003, Plaintiffs Thomas G. Ong and Thomas G. Ong IRA initiated a lawsuit against Sears, SRAC, and several individuals, alleging federal securities law violations tied to the June 21, 2002, Offering of SRAC Debt Securities. The court appointed Plaintiffs as Lead Plaintiffs under the Private Securities Litigation Reform Act of 1995 shortly thereafter. 

The First Amended Complaint, filed on October 16, 2003, included additional defendants and sought to represent two classes: those who purchased SRAC Debt Securities during the Class Period and those who purchased publicly traded SRAC Debt Securities issued before the Class Period. Plaintiffs claimed misrepresentation by Defendants in the initial public offerings of the securities, violating the Securities Act of 1933 and the Securities Exchange Act (SEA). Specific allegations included violations of Section 11 and Section 12(a)(2) against Underwriter Defendants, and Section 10(b) and Rule 10b-5 against individual Sears Defendants for misleading investors into buying at inflated prices. 

In response to motions to dismiss filed by Defendants in January 2004, the court ruled that Plaintiffs lacked standing for claims related to earlier offerings but allowed claims against Merrill Lynch, the underwriter for the June 21, 2002, Offering, to proceed. Claims under Section 10(b) were upheld against certain Defendants while others were dismissed due to insufficient evidence of misleading statements or intent. Claims under Section 20(a) regarding control person liability remained intact for all individual Sears Defendants. Subsequently, on November 15, 2004, Plaintiffs filed a Second Amended Class Action Complaint to address the identified deficiencies.

The Underwriter Defendants in the 3/18/02 and 5/21/02 Offerings filed motions to dismiss the Sections 11 and 12(a)(2) claims, arguing that the Plaintiffs lacked standing for the 3/18/02 Offering and did not sufficiently allege damages for the 5/21/02 Offering. The court concurred, ruling that the named Plaintiff SURSI lacked standing for the Section 12(a)(2) claim against CSFB and Goldman Sachs because SURSI purchased securities on the aftermarket. Additionally, the court dismissed the Sections 11 and 12(a)(2) claims related to the 5/21/02 offering, noting that SURSI had not suffered a cognizable loss since the value of its notes had increased by the time of the lawsuit.

Regarding the Sears Defendants, the court found sufficient allegations of fraudulent intent (scienter) to support the Sections 10(b) and Rule 10b-5 claims against certain individuals (Mr. Lacy, Mr. Liska, and Mr. Keleghan), but dismissed the claims against other individual Sears Defendants for lack of evidence of fraudulent intent. The Section 20(a) "control person" claims survived for all individual Defendants, including Mr. Vishwanath. The court allowed amendment of the Section 15 claim against the individual Sears Defendants as controlling persons of SRAC, noting that SRAC had not been named as a primary violator in the Section 11 claims.

Plaintiffs subsequently filed their Third Amended Class Action Complaint on October 28, 2005, which closely mirrored the Second Complaint but included SRAC as a Defendant for the Section 11 claims. The class definitions remained unchanged, comprising an "Issuer Class" for those who purchased SRAC Debt Securities between October 24, 2001, and October 17, 2002, and a "Trader Class" for those who acquired SRAC Debt Securities traded in public markets during the class period. The complaint alleges violations of Section 11 due to failure to conduct reasonable investigations and misrepresentations in the Registration Statement, and accuses the Underwriter Defendants of violating Section 12(a)(2) through material misrepresentations that misled investors and supported inflated prices of SRAC Debt Securities.

Count VII alleges that Defendants Lacy, Liska, Richter, Trost, Slook, Raymond, and Bergmann violated Section 15 of the Securities Act by acting as controlling persons of SRAC, influencing decision-making and the dissemination of allegedly false and misleading statements related to Sears and SRAC. Count VIII claims that Sears, SRAC, and individual Sears Defendants (excluding Mr. Vishwanath) violated Section 10(b) of the Securities Exchange Act (SEA) and Rule 10b-5 by orchestrating a deceptive scheme to mislead investors into purchasing SRAC Debt Securities at inflated prices during the Class Period. Plaintiffs assert that the Sears Defendants made false statements regarding the companies' business operations and future prospects while omitting necessary material facts, doing so knowingly or with reckless disregard for the truth, which resulted in economic damage to Plaintiffs who purchased the securities. Count IX charges individual Sears Defendants with violating Section 20(a) of the SEA based on their controlling person status related to the alleged Section 10(b) violations in Count VIII. 

Defendants seek to dismiss Counts VIII and IX under FED. R. Civ. P. 12(b)(6), arguing Count VIII fails to state a claim due to insufficient pleading of actual economic loss and proximate causation, particularly in light of the Supreme Court's ruling in Dura. They assert that Count IX must also be dismissed if Count VIII fails. 

The motion to dismiss addresses the sufficiency of the complaint rather than its merits, with courts required to accept all alleged facts as true and favor the plaintiff's reasonable inferences. A motion to dismiss is granted only when it is evident that no set of facts could support the claim. Rule 9(b) mandates a heightened standard for fraud allegations, requiring specific details regarding misleading statements and the basis for any allegations made on information and belief. The Private Securities Litigation Reform Act (PSLRA) imposes stricter requirements for securities fraud claims, necessitating particularity in alleging misleading statements and the defendant's state of mind, though it does not extend to the elements of economic loss and proximate causation, which only require adherence to Rule 8(a)(2).

To establish a claim under Section 10(b) of the Securities Exchange Act (SEA) and SEC Rule 10b-5, a plaintiff must demonstrate several elements: (1) a material misrepresentation or omission, (2) scienter, (3) a connection to the purchase or sale of a security, (4) reliance on the misrepresentation (transaction causation), (5) economic loss, and (6) loss causation, which links the misrepresentation to the loss. Defendants argue that Plaintiffs have failed to adequately plead economic loss and loss causation. They assert that, following the Dura decision, plaintiffs must show actual economic loss that is proximately caused by the misrepresentation, not other factors. Specifically, Defendants claim that Plaintiffs have not demonstrated actual economic loss since they did not sell all their securities or prove that the securities lost value, merely alleging an inflated purchase price. Additionally, Defendants contend that Plaintiffs have not established loss causation because they have not adequately excluded unrelated factors that could have impacted the securities' value. The Dura case emphasized that an inflated purchase price alone does not equate to economic loss, as a purchaser initially owns an asset worth the purchase price. The Supreme Court criticized the Ninth Circuit's ruling for potentially allowing recovery without actual loss and stressed that even a subsequent sale at a loss does not confirm that the loss was due to the misrepresentation. Therefore, plaintiffs must sufficiently allege and prove causation and loss, adhering to the general pleading requirements of Rule 8(a)(2), which necessitates a clear statement of the claim. However, the court acknowledged that neither the Federal Rules nor securities statutes impose additional pleading requirements specifically for proximate causation or economic loss.

The legal document emphasizes the necessity for a plaintiff to provide a defendant with fair notice regarding the nature of their claim and its supporting grounds. The Dura case established that a complaint alleging securities fraud must do more than simply state that the plaintiffs paid an inflated price; it must also indicate a loss and establish a causal connection between the defendant's actions and that loss. The court clarified that this requirement does not impose a significant burden on plaintiffs. It rejected the notion that Dura imposed stricter pleading standards for loss and causation under Rule 10(b), confirming that a notice-pleading standard applies. The court cited precedents indicating that plaintiffs can adequately plead loss and causation without heightened requirements, and that the Dura decision does not alter the pleading standards dictated by Rule 8(a)(2). It concluded that plaintiffs are only required to provide some indication of loss and its causal relationship to the defendant's misrepresentations, as outlined by the Dura ruling.

The court finds that Plaintiffs' Third Complaint meets the pleading standards for alleging loss and causation under their 10(b) claim in Count XIII. Addressing the actual loss element, Defendants argue that Plaintiffs have not demonstrated an economic loss because they have not sold all their SRAC Debt Securities. They assert that under the precedent set by Dura, securities fraud plaintiffs must realize a loss through sale. The court rejects this argument, clarifying that Dura does not impose a requirement for plaintiffs to sell their securities to substantiate economic loss. Instead, Dura merely mandates that plaintiffs demonstrate economic loss and causation resulting from the defendant's misrepresentation. The court emphasizes that the language used in Dura regarding sales pertains to hypothetical scenarios and does not create an implied requirement for realization of loss through sale. Consequently, the court concludes that the Ninth Circuit’s interpretation is inconsistent with legal standards, affirming that a plaintiff does not need to sell securities to establish economic loss and loss causation. The court distinguishes the Defendants' reliance on a single district court case which mandates selling securities, asserting that it does not align with the broader interpretation of Dura.

Purchasers invoking the insurance policy warned against by Dura face speculative losses, and those who bought securities during the Class Period without selling have not established proximate causation or economic loss, thus are excluded from the putative class. The court finds Defendants' reliance on a prior case's brief treatment of this issue to be misplaced, as the holding was reversed after reassignment to another judge. In Royal Dutch II, Judge Pisano held that neither Dura nor the PSLRA mandates that a plaintiff must sell securities to allege fraud, emphasizing that such a requirement would contradict the PSLRA's damage calculations. Additionally, imposing a "sell-to-sue" requirement could disrupt market stability. This court agrees with Judge Pisano's reasoning and rejects the abrogated holding from Royal Dutch I.

Defendants’ argument that the Third Complaint mirrors Dura's complaint is flawed; while they claim Plaintiffs have not sufficiently alleged economic loss, they acknowledge specific price declines of SRAC notes. Defendants argue these claims are insufficient because not all notes were alleged to have declined, demonstrating inconsistency in their position. The reference to "152 SRAC note series" is overly broad, encompassing all offerings during the Class Period rather than specific declines. Thus, the Third Complaint is distinguishable from Dura.

Plaintiffs have filed securities fraud claims on behalf of a class that purchased SRAC notes during a specified Class Period, although they only acquired SRAC Debt Securities from three particular offerings dated March 18, 2002, May 21, 2002, and June 21, 2002. Defendants argue that Plaintiffs must detail specific price declines for all SRAC debt series; however, such specificity is not necessary at the pleading stage. To demonstrate economic loss, a plaintiff only needs to provide indications of loss, as established in Dura Pharmaceuticals, where the failure to claim a significant decline in share price was critical. For purposes of a motion to dismiss, it suffices to allege that the market price of securities fell after corrective disclosures by the defendants. 

Plaintiffs have made both general and specific claims of a decline in the value of SRAC Debt Securities following Sears’ October 2002 disclosures regarding issues in its credit operations. They assert a general steep drop in value at the end of the Class Period and cite two specific declines related to the June 21, 2002 Offering, occurring after Sears announced lower expected earnings and a significant charge against earnings. Additionally, Plaintiffs allege a direct correlation between the prices of SRAC notes and Sears' financial condition, suggesting an investment in SRAC was akin to investing directly in Sears. Despite Defendants contesting the alleged relationship between the two companies' securities, the court assumes all facts alleged by Plaintiffs are true and interprets reasonable inferences in their favor. The court concludes that the Plaintiffs' specific allegations concerning declines in Sears’ stock price are adequate to imply declines in SRAC Debt Securities' value. While specific price declines for the earlier offerings were not alleged, the combination of specific declines from the June 21 offering and the general assertion of a value drop suffices to meet the pleading requirements, as no further specificity is mandated at this stage.

The complaint lacks sufficient notice to the defendants regarding the specific economic losses claimed by the plaintiffs. Defendants assert that plaintiffs do not fulfill the loss causation requirement essential in a Rule 10(b) action, which mandates that plaintiffs must demonstrate that the defendants' misrepresentation or fraudulent actions directly caused their economic losses, as established in Dura Pharmaceuticals and further defined by the Seventh Circuit. This requirement emphasizes that a plaintiff must show that, "but for" the defendant's misconduct, the loss would not have occurred. At the pleading stage, plaintiffs are expected to provide some indication of this causal connection but are not required to prove that all losses stem from the defendant's misrepresentations. A mere claim of damages due to purchasing overpriced securities is insufficient.

Defendants argue that plaintiffs fail to meet the new pleading standards set by Dura, which they interpret as necessitating allegations that economic losses were solely attributable to earlier misrepresentations. They contend that plaintiffs have not adequately excluded other potential factors affecting the sale price of the SRAC Debt Securities. However, the court clarifies that Dura did not alter the pleading standards for loss causation, affirming that notice pleading remains applicable. No authority supports the defendants' claim that a heightened fact-pleading standard applies to loss causation in 10(b) cases.

Defendants contend that Plaintiffs must demonstrate the absence of other factors contributing to the decline in the price of SRAC notes. They reference the Dura case, which states that the connection between an inflated purchase price and subsequent economic loss is not always strong. A lower resale price may result from various factors unrelated to the initial misrepresentation, including changing economic conditions or new information about the company. The Court in Dura clarified that while a plaintiff must show proximate cause, they do not need to eliminate all other potential causes of a price decline. The decision reversed the Ninth Circuit's position that a mere allegation of inflated purchase price sufficed for establishing loss causation. The Court emphasized the necessity for plaintiffs to link the price decline to defendants' wrongful actions but did not prescribe a specific method for making this connection. The passage highlights the challenges faced by plaintiffs in proving proximate causation. The Seventh Circuit's Caremark case illustrates a successful pleading of proximate cause, where Caremark argued that it undervalued risks based on Coram's failure to disclose ongoing merger negotiations, asserting that its injuries stemmed from reliance on the misrepresentation. This argument was deemed sufficient at the pleading stage despite the possibility of other disclosed factors contributing to the injury.

Caremark's allegations regarding the decline in the value of securities are not undermined by the mention of other potential causes in the complaint. Acknowledging that multiple factors can affect a security's price, the Seventh Circuit emphasizes that the burden to negate these other factors lies with the plaintiff at trial, not at the pleading stage. The decisions in Caremark and Bastian establish that plaintiffs in securities fraud cases must allege and prove loss causation, but Dura does not alter this requirement. The Seventh Circuit maintains that plaintiffs need not demonstrate that their losses were solely due to the defendant's misrepresentations; rather, the misrepresentation must be a substantial factor contributing to the loss. Other circuits support this view, affirming that plaintiffs are not required to exclude other contributing factors at the pleading stage. The core requirement remains that the plaintiff must allege how the defendant's misrepresentations directly caused their economic losses, adhering to notice-pleading standards. The precise standards for pleading loss causation are somewhat unclear, but a complaint must indicate how the defendant’s actions led to the plaintiff's financial harm.

Courts have established that loss causation is adequately pleaded when a plaintiff claims to have purchased securities at artificially inflated prices due to a defendant's misrepresentations, followed by a price drop upon the revelation of the truth. In *Asher v. Baxter Int'l, Inc.*, the court found sufficient allegations of loss causation when plaintiffs claimed Baxter misrepresented its financial health, leading to an inflated stock price that plummeted after the truth was disclosed. Similarly, in *In re Immune Response Sec. Litig.*, the court accepted loss causation claims related to misrepresentations about an HIV drug's effectiveness, which resulted in a stock collapse after disappointing study results.

In *In re Loewen Group Inc. Sec. Litig.*, plaintiffs also successfully alleged loss causation through claims of purchasing stock at inflated prices before a subsequent drop. Conversely, in *In re Sara Lee*, the court found insufficient causal connection between the alleged misrepresentations and the plaintiffs' losses.

Turning to the current case, plaintiffs allege that Sears executives made numerous false statements regarding the stability and profitability of its credit operations, which misled investors. They assert that these misrepresentations caused SRAC debt securities to trade at inflated prices. Following the disclosure of the actual state of Sears' credit operations, particularly after significant announcements in October 2002, the value of Sears stock and SRAC notes declined sharply, establishing a causal link between the misrepresentations and the resulting losses.

Sears disclosed a $222 million charge for bad debt on October 17, 2002, which led to a 32% drop in its stock price and an 8.6% decline in SRAC notes, demonstrating that the misrepresentations inflated the stock price and directly caused the subsequent price drop when the truth emerged. Plaintiffs adequately alleged economic loss linked to this decline, establishing loss causation by connecting it to the misrepresentations and corrective disclosures. 

Defendants contended that Plaintiffs did not sufficiently demonstrate loss causation as they failed to link the October 2002 disclosures to the price of SRAC Debt Securities at the time of their actual sales—specifically, Plaintiff Ong's sale in January 2003 and SURSI's sales in November 2002. They argued that a securities fraud plaintiff must connect the misrepresentation to the price at the time of sale. 

However, the argument misinterprets "economic loss," which occurs when the security's value declines following corrective disclosures, not solely when a sale is executed. The required economic injury is established at the decline, irrespective of whether the plaintiff has sold the securities. Damages in a Securities Exchange Act Rule 10(b) action are calculated by the difference between the purchase price and the actual value had the truth been known, rather than the difference between purchase and sale prices. The federal securities laws permit recovery of actual loss, which is best measured by the price drop upon the revelation of the truth. A focus on the eventual sale price would unjustly deny recovery to plaintiffs who hold onto their securities in hopes of price recovery.

Defendants argue that a plaintiff who buys a security at an inflated price due to misrepresentations, holds it through a price drop after corrective disclosures, and later sells when the price recovers to the original purchase price, would not suffer economic loss. If the price does not recover, they contend the plaintiff cannot establish causation after such a long duration. However, the court notes that the plaintiff is still injured by initially overpaying for the security, and this injury remains unaddressed. The court rejects the idea that a plaintiff must sell immediately after a price decline, which would impose an improper sell-to-sue requirement not mandated by § 10(b). The court concludes that the plaintiffs have adequately alleged both economic loss and loss causation in their § 10(b) claim (Count VIII) and thus denies the motion to dismiss this claim. Consequently, Count IX, related to the control person liability under § 20(a), also survives dismissal since it relies on the existence of a primary violation under § 10(b). The court denies the defendants' motion to dismiss Counts VIII and IX of the plaintiffs' Third Complaint. 

Notes detail specific transactions by various plaintiffs, asserting that two defendants were senior executives during the relevant period, though clarity about their roles on the board remains vague. Additional definitions concerning financial terms, such as Libor and charge-offs, are provided for context.

Delinquency rates measure the proportion of overdue credit card receivables relative to total outstanding loans. Merrill Lynch, the sole underwriter of the June 21, 2002 Offering, answered the Second Amended Class Action Complaint on January 28, 2005. Notably, the plaintiffs did not include a Rule 10(b) claim against Mr. Vishwanath in this complaint. The court previously dismissed Count VIII against defendants Bergmann, Richter, Trost, Slook, and Raymond, leaving only claims against Sears, SRAC, Mr. Lacy, Mr. Liska, and Mr. Keleghan viable. Counts II, IV, and V were also dismissed against the Underwriter Defendants. The plaintiffs acknowledged these dismissals but reasserted their claims for potential appeal. Following the Supreme Court's ruling in Dura on April 19, 2005, the plaintiffs filed a Third Complaint on October 28, 2005. 

The plaintiffs argue that Rule 12(g) prevents the defendants from contesting their loss and causation allegations since these issues were not raised in earlier motions. However, Rule 12(g) allows for waiver only of certain arguments, while Rule 12(h)(2) permits raising a failure to state a claim defense at any stage. Therefore, the court concluded that the defendants did not waive their arguments regarding loss and causation. 

The court also noted that imposing a sell-to-sue requirement could jeopardize companies like Sears and SRAC, as corrective announcements often lead to sharp declines in stock prices. Such a requirement could force all misled investors to sell, exacerbating the price drop and potentially harming the company’s financial stability. In contrast, if some investors retained their shares, it might allow for a price recovery. Additionally, a certification statement from SURSI indicated a significant price drop in SRAC shares, with purchases made at prices significantly higher than those at which shares were sold later, demonstrating the decline in value following the offering.