Loss Causation and Class Certification

Courts have long faced difficulty interpreting loss causation under Section 10b-5 of the Securities Act of 1934. This difficulty stems from the seemingly irreconcilable conflict between this core element of common law fraud and the procedural demands of Rule 23 of the Federal Rules of Civil Procedure, the typical vehicle for a 10b-5 class action. Recently, some courts and commentators have begun to consider loss causation as an individualized inquiry that is not common among class members, and one that therefore warrants consideration at the class certification stage. The existing justifications center on the conceptually distinct 10b-5 element of reliance, an unsuitable basis for considering loss causation at class certification. This Note provides an alternative justification for consideration of loss causation at class certification: the class definition. It demonstrates that to define the start and end date of the class purchasers or sellers with the requisite certainty demanded by Rule 23 and sound policy, courts must have an understanding of the nature of loss. This can be achieved only through an examination of loss causation at the class certification stage.