     Case: 14-20420   Document: 00513183774      Page: 1   Date Filed: 09/08/2015




        IN THE UNITED STATES COURT OF APPEALS
                 FOR THE FIFTH CIRCUIT     United States Court of Appeals
                                                    Fifth Circuit

                                                                          FILED
                                                                     September 8, 2015
                                 No. 14-20420
                                                                       Lyle W. Cayce
                                                                            Clerk
ROBERT LUDLOW, Individually and on behalf of all others similarly
situated,

                                            Plaintiff - Appellee Cross-Appellant

THOMAS P. DINAPOLI, Comptroller of the State of New York;
OHIO PUBLIC EMPLOYEES RETIREMENT SYSTEM,

                                            Plaintiffs - Appellees

PETER D. LICHTMAN; LESLIE J. NAKAGIRI; PAUL HUYCK,

                                            Movants - Appellees Cross-
                                            Appellants

v.

BP, P.L.C.; ANTHONY HAYWARD; DOUGLAS J. SUTTLES,

                                            Defendants - Appellants Cross-
                                            Appellees




                Appeals from the United States District Court
                     for the Southern District of Texas


Before JOLLY, HIGGINBOTHAM, and DAVIS, Circuit Judges.
PATRICK E. HIGGINBOTHAM, Circuit Judge:
      In this case, our court returns – not for the first time, and likely not for
the last – to events related to the 2010 Deepwater Horizon oil spill. The
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                                      No. 14-20420
plaintiffs, all holders of BP securities, bring suit against the company and two
of its executives, former CEO Anthony Hayward and former Chief Operating
Officer Douglas Suttles. 1 They allege that BP made two distinct series of
misrepresentations in violation of federal securities law: one series regarding
its pre-spill safety procedures, and one regarding the flow rate of the oil after
the spill occurred.
       The plaintiffs moved to certify two classes; one for the pre-spill
misrepresentations, and one for the post-spill misrepresentations. The district
court certified the post-spill class, concluding that the plaintiffs had
established a model of damages consistent with their liability case and capable
of measurement across the class, as required by the Supreme Court’s recent
decision in Comcast Corp. v. Behrend. 2 It refused to certify the pre-spill class,
holding that the plaintiffs had not satisfied Comcast’s common damages
burden.
       Both sides petition for review. We affirm.
                                             I.
                                             A.
       The events of the 2010 Deepwater Horizon spill are well known to bench
and bar and will be only briefly limned here. BP was the co-owner and co-
lessee of the Macondo exploratory well, which was located in the Gulf of
Mexico, about fifty miles from the Louisiana coast. 3 The well was drilled by
the Deepwater Horizon offshore drilling vessel. A catastrophic blowout ensued.
       …[O]n April 20, 2010, while the Deepwater Horizon was preparing
       to depart from the site in anticipation of the permanent extraction
       operation. As part of this preparation, the well had been lined and


       1Collectively, “BP.”
       2133 S. Ct. 1425, 1433-34 (2013).
      3 In re Deepwater Horizon, 753 F.3d 570, 571 (5th Cir. 2014); see also United States v.

Kaluza, 780 F.3d 647, 650 (5th Cir. 2015) (discussing pre-spill operations and ownership).
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                                      No. 14-20420
      sealed with cement. Before the Deepwater Horizon departed, this
      cement failed, resulting in the high-pressure release of gas, oil, and
      other fluids. The blowout preventer also failed, thus allowing these
      fluids to burst from the well, flowing up through the riser and onto
      the deck of the Deepwater Horizon. The oil and gas subsequently
      caught fire, and the ensuing blaze capsized the Deepwater
      Horizon, which was still connected to the well via the riser. The
      strain from the sinking vessel severed the riser, and for nearly
      three months oil flowed continuously through the broken riser and
      into the Gulf of Mexico. Authorities eventually installed a cap over
      what remained of the riser, and oil continued to leak for two days,
      with the well finally sealed on July 15, 2010. 4
During the eighty-seven days of the spill, some five million barrels of oil
(approximately 60,000 barrels per day) spilled into the Gulf.
      Before the spill, BP was not silent about its safety plans and procedures.
The plaintiffs point to three broad categories of pre-spill statements they argue
portrayed BP’s safety policies as being more advanced on paper than they were
in practice:
      1. Statements touting BP’s progress in implementing the
      recommendations of the independent commission known as the
      “Baker Panel” following the 2005 explosion at the Company’s
      Texas City refinery. The Baker Panel was convened to review and
      suggest improvements to BP’s safety practices, the efficacy of
      which was seriously in doubt following a series of high-profile
      safety mishaps. The Baker Panel released a report in January
      2007 (the “Baker Report”), which included a series of specific
      recommendations intended to improve BP’s safety culture and
      processes. Plaintiffs claim that, following the release of the Baker
      Report, Defendants repeatedly publicized their progress on the
      Report’s recommendations as a way to assuage the public that BP
      had turned a corner on safety. In reality, according to Plaintiffs,
      nothing about BP’s safety programs had changed, and BP
      remained an accident waiting to happen. Alleged misstatements
      in this category were made in November 2007, February 2008,
      April 2008, December 2008, and March 2010.


      4   Deepwater Horizon, 753 F.3d at 571.
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                                        No. 14-20420
       2. Statements describing BP’s Operating Management System
       (“OMS”) as a system being applied across all of BP’s lines of
       business, worldwide, in an attempt to standardize safety
       processes. Statements in this category were allegedly misleading
       because they omitted that OMS would not govern safety practices
       at contractor-owned sites, such as the Deepwater Horizon drilling
       rig. Statements in this category were also allegedly misleading
       because they represented that OMS had been implemented in the
       Gulf of Mexico by the time of the Deepwater Horizon explosion,
       when Plaintiffs claim it had not. Alleged misstatements in this
       category were made in February 2009, March 2009, April 2009,
       February 2010, March 2010, and April 2010.
       3. Statements from two agency filings—the Initial Exploration
       Plan (“IEP”) and the Gulf of Mexico Regional Oil Spill Response
       Plan (“OSRP”)—describing BP’s ability to respond to a
       catastrophic deepwater oil spill. According to Plaintiffs, these
       statements were grossly inaccurate, and BP had no contingency
       plans and no adequate response equipment for a disaster. The
       documents were filed with the relevant federal agency, the U.S.
       Department of the Interior’s Minerals Management Service
       (“MMS”), in March 2009 and June 2009 respectively. Plaintiffs
       claim that they were publicly available documents upon filing.
       They were also scrutinized in the media following the Deepwater
       Horizon explosion. 5
The alleged misstatements continued, the plaintiffs posit, after the spill
occurred; this time, they were about the spill rate:
       4. Statements made after the April 20, 2010 Deepwater Horizon
       explosion regarding the magnitude of the resulting oil spill.
       According to Plaintiffs, Defendants perpetuated the fiction that
       the spill was only approximately 5,000 barrels per day, even as
       internal BP estimates showed that the true number was much




       5In re BP p.l.c. Sec. Litig. (“BP Class Certification I”), No. 10-md-2185, 2013 WL
6388408, at *1-2 (S.D. Tex. Dec. 6, 2013). As the district court noted, “the first two categories
are closely related. Specifically, OMS was a response to one of the Baker Report
recommendations. Therefore, the alleged misrepresentations regarding OMS might be
considered an extension, or a subset, of the alleged misrepresentations regarding BP's
progress on the Baker Panel recommendations.” Id. at *2.
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                                       No. 14-20420
       higher. Alleged misstatements in this category were made in late
       April 2010 and May 2010. 6
                                              B.
       The plaintiffs, all BP shareholders, brought suit, alleging, inter alia, that
BP’s alleged misstatements violated section 10(b) of the Securities and
Exchange Act of 1934 (the “Exchange Act”) and SEC Rule 10b-5. 7 After thrice
narrowing the case at the motion to dismiss stage, 8 the district court turned to
whether a class ought to be certified. At first, it said no, reasoning that while
the plaintiffs had satisfied most of the requirements of Federal Rule of Civil
Procedure 23, they “failed to discharge their burden to establish that damages
in this case can be measured on a class-wide basis consistent with their
theories of liability,” 9 as required by the Supreme Court’s decision in Comcast
Corp. v. Behrend. Owing to Comcast’s recency, however, the district court
allowed the plaintiffs another opportunity to move for class certification.
       On their second attempt, the “[p]laintiffs modified their proposed
subclasses and articulated differing damages methodologies for each.” 10 The
first sub-class involved plaintiffs who had purchased stock before the spill
began (the “Pre-Spill” class).          Here, the claim was that BP, by making
statements suggesting they had made safety and process improvements that
they had not actually implemented had “lulled the market into believing that
BP was a safer company than it actually was.” 11 The Pre-Spill plaintiffs’
damages theory relied on a “materialization of the risk” claim. In essence, that


       6 Id.
       7 Respectively, 15 U.S.C. § 78j(b) and 17 C.F.R. § 240.10b-5.
       8 See In re BP p.l.c. Sec. Litig., 843 F. Supp. 2d 712 (S.D. Tex. 2012); In re BP p.l.c.

Sec. Litig., 852 F. Supp. 2d 767 (S.D. Tex. 2012); In re BP p.l.c. Sec. Litig., 922 F. Supp. 2d
600 (S.D. Tex. 2013).
       9 BP Class Certification I, 2013 WL 6388408, at *18.
       10 In re BP p.l.c. Sec. Litig. (“BP Class Certification II”), No. 10-md-2185, 2014 WL

2112823, at *2 (S.D. Tex. May 20, 2014).
       11 Id. at *2.

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                                      No. 14-20420
BP had understated the risk of catastrophe, and when that risk materialized,
they could recover its resulting damages. They argued that the economic
effects of the spill, as captured by the fall in BP’s stock price after the spill
occurred, were the “foreseeable consequences of the materially misstated risk
(i.e., BP’s ability to prevent and effectively respond to serious process safety
incidents such as the Macondo spill).” 12 Accordingly, plaintiffs seek recovery
of the entire fall in stock price caused by materialization of the risk of the spill.
The district court rejected this theory, and refused to certify the Pre-Spill
class. 13
       The second sub-class presents purchasers of the stock after the spill
started (the “Post-Spill” class). “Plaintiff’s theory in the post-explosion time
frame is that Defendants misrepresented the internal estimates of the oil spill;
that the stock market price failed to fall to the level reflecting the magnitude
of the crisis facing BP; that the market learned the truth; and that the stock
market price corrected.” 14 Said differently, because of BP’s misstatements, the
stock price was higher than it should have been. The damages model, in turn,
relied on a theory that the “inflation” in the stock price caused by the
misstatements would be exposed by at the fall in the price when certain
“corrective events” brought the “true” information to the market’s attention.
That is, they seek recovery of the difference between a model-driven “true”
stock price and the actual stock price. The district court accepted this damages
theory as consistent with the liability theory and certified the sub-class. 15




       12 Id. at 47394.
       13 See BP Class Certification II, 2014 WL 2112823, at *12.
       14 Id. at *13.
       15 See BP Class Certification II, 2014 WL 2112823, at *13-14.

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                                       No. 14-20420
       Both parties petitioned for review pursuant to Rule 23(f). 16 The plaintiffs
challenged the district court’s refusal to certify the Pre-Spill class, and the
defendants appeal the court’s certification of the Post-Spill class. We granted
both petitions.
                                              II.
       We review the certification or denial of class certification for abuse of
discretion within the ambit of the controlling rules of substance and
procedure. 17 And to properly evaluate the district court’s discretion, we briefly
review the substantive and procedural law it applied.
                                              A.
       Section 10(b) of the Exchange Act and SEC Rule 10b-5 “prohibit making
any material misstatement or omission in connection with the purchase or sale
of any security.” 18 Its implicit private right of action has six elements:
       (1) a material misrepresentation (or omission),
       (2) scienter, i.e., a wrongful state of mind,
       (3) a connection with the purchase and sale of a security,
       (4) reliance, often referred to in cases involving public securities
       markets (fraud-on-the-market cases) as “transaction causation”
       (5) economic loss, and
       (6) loss causation, i.e., a causal connection between the material
       misrepresentation and the loss. 19
It is helpful to focus on three “occurrences” – the misrepresentation, security
transaction, and economic loss – and two “relationships,” transaction



       16  Fed. R. Civ. P. 23(f) (“A court of appeals may permit an appeal from an order
granting or denying class-action certification under this rule if a petition for permission to
appeal is filed with the circuit clerk within 14 days after the order is entered.”).
        17 Bell v. Ascendant Solutions, Inc., 422 F.3d 307, 311 (5th Cir. 2005).
        18 Halliburton Co. v. Erica P. John Fund, Inc. (“Halliburton II”), 134 S. Ct. 2398, 2408

(2014).
        19 Dura Pharm., Inc. v. Broudo, 544 U.S. 336, 341 (2005) (internal citations, quotation

marks, and emphasis omitted).
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causation, which links the misrepresentation and security transaction, and
loss causation, which connects the misrepresentation to the economic loss.
       Turning first to transaction causation, “‘[t]he traditional (and most
direct) way’ for a plaintiff to demonstrate [transaction causation] ‘is by showing
that he was aware of a company’s statement and engaged in a relevant
transaction . . . based on that specific misrepresentation.’” 20 In Basic Inc. v.
Levinson 21 the Supreme Court recognized that requiring direct proof of
reliance “would place an unnecessarily unrealistic evidentiary burden on the
Rule 10b-5 plaintiff who had traded on an impersonal market.” 22 Instead, if a
plaintiff buys shares in a well-developed, impersonal market, she can in certain
circumstances rely on a rebuttable presumption of reliance. 23                         This
presumption is based on the “‘fraud-on-the-market’ theory, which holds that
‘the market price of shares traded on well-developed markets reflects all
publicly      available       information,        and,      hence,       any      material
misrepresentations.’” 24 This presumption is rebuttable. 25
       Loss causation is a legal requirement distinct from reliance that
demands a causal connection between the misstatement and claimed economic
loss. 26 Akin to a concept of proximate cause in tort law, its task is to isolate



       20 Amgen Inc. v. Conn. Ret. Plans & Trust Funds, 133 S. Ct. 1184, 1192 (2013) (quoting
Erica P. John Fund, Inc. v. Halliburton Co. (“Halliburton I”), 131 S. Ct. 2179, 2183 (2011)).
       21 485 U.S. 224 (1988).
       22 Halliburton II, 134 S. Ct. at 2407 (quoting Basic, 485 U.S. at 245).
       23 See id. at 2408.
       24 Id. (quoting Basic, 485 U.S. at 247). To benefit from this presumption “a plaintiff

must make the following showings to demonstrate that the presumption of reliance applies
in a given case: (1) that the alleged misrepresentations were publicly known, (2) that they
were material, (3) that the stock traded in an efficient market, and (4) that the plaintiff
traded the stock between the time the misrepresentations were made and when the truth
was revealed.” Id.
       25 See id. at 2414-16; Basic, 485 U.S. at 248.
       26 See Dura Pharmaceuticals, Inc. v. Broudo, 544 U.S. 336, 341 (2005); see also

Halliburton I, 131 S. Ct. at 2186 (“Loss causation addresses a matter different from whether
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                                       No. 14-20420
“those economic losses that misrepresentations actually cause,” rather than “to
provide investors with broad insurance against market losses.” 27 A plaintiff
must prove that the misstatements – not “other intervening causes, such as
‘changed economic circumstances, changed investor expectations, new
industry-specific or firm-specific facts, conditions, or other events’” – were the
cause of her claimed economic injury, 28               unaided by any presumptions
attending efforts to prove transaction causation. 29
       Congress has not specifically defined “economic loss” for purposes of a
securities violation. It has provided an upper cap on damages. 30 At the same
time, the “out-of-pocket measure,” sometimes called the “price inflation”
metric, is often used. Under this theory, “a purchaser of securities may recover
against a defendant . . . only the ‘difference between the price paid and the
“[true]” value of the security . . . at the time of the initial purchase by the
defrauded buyer.’” 31 While our court has not held that this metric is the
exclusive way to measure damages in 10b-5 cases, we do insist that cognizable
damage must be caused by the misstatements in question. That is, a loss does




an investor relied on a misrepresentation, presumptively or otherwise, when buying or selling
a stock.”).
       27 Dura, 544 U.S. at 345.
       28 Halliburton I, 131 S. Ct. at 2186 (quoting Dura, 544 U.S. at 342-43).
       29 See, e.g., Robbins v. Koger Prop., Inc., 116 F.3d 1441, 1448 (11th Cir. 1997),
       30 See 15 U.S.C. § 78u-4(e)(1) (“Except as provided in paragraph (2), in any private

action arising under this chapter in which the plaintiff seeks to establish damages by
reference to the market price of a security, the award of damages to the plaintiff shall not
exceed the difference between the purchase or sale price paid or received, as appropriate, by
the plaintiff for the subject security and the mean trading price of that security during the
90-day period beginning on the date on which the information correcting the misstatement
or omission that is the basis for the action is disseminated to the market.”).
       31 In re Letterman Bros. Energy Sec. Litig., 799 F.2d 967, 972 (5th Cir. 1986) (quoting

Huddleston v. Herman & MacLean, 640 F.2d 534, 55 (5th Cir. 1981), aff’d in part, rev’d in
part on other grounds, 459 U.S. 375 (1983)); see also FindWhat Investor Grp. v.
FindWhat.com, 658 F.3d 1282, 1311-12 (11th Cir. 2011); In re Enron Corp., Sec., 529 F. Supp.
2d 644, 716 (S. D. Tex. 2006).
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                                       No. 14-20420
not constitute an “economic loss” for these purposes unless loss causation can
be established.
                                             B.
       “To obtain class certification, parties must satisfy [Federal Rule of Civil
Procedure] 23(a)’s four threshold requirements, as well as the requirements of
Rule 23(b)(1), (2), or (3).” 32 All parties agree Rule 23(a)’s requirements have
been satisfied. The only dispute here is whether the requisites of Rule 23(b)(3)
have been met, “that the questions of law or fact common to class members
predominate over any questions affecting only individual members, and that a
class action is superior to other available methods for fairly and efficiently
adjudicating the controversy.” 33
       In Comcast Corp. v. Behrend, 34 the Supreme Court turned to damages,
commonality, and predomination in a Rule 23(b)(3) class. It is that relationship
upon which this case turns. There, the Court held:
       [A] model purporting to serve as evidence of damages in this class
       action must measure only those damages attributable to that
       theory. If the model does not even attempt to do that, it cannot
       possibly establish that damages are susceptible of measurement
       across the entire class for purposes of Rule 23(b)(3). Calculations
       need not be exact, but at the class-certification stage (as at trial),
       any model supporting a plaintiff’s damages case must be
       consistent with its liability case, particularly with respect to the
       alleged . . . effect of the violation. And for purposes of Rule 23,
       courts must conduct a rigorous analysis to determine whether that
       is so. 35




       32 Funeral Consumers Alliance, Inc., v. Service Corp Int’l, 695 F.3d 330, 345 (5th Cir.
2012) (quoting Maldonado v. Ochsner Clinic Found., 493 F.3d 521, 523 (5th Cir. 2007)).
       33 Fed. R. Civ. P. 23(b)(3).
       34 133 S. Ct. 1426 (2013).
       35 Id. at 1433 (internal citations and quotation marks omitted).

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In short, in order to certify a class, the damages methodology must be “sound”
and must “produce[] commonality of damages.” 36
                                             III.
                                              A.
        We begin with the Post-Spill Class.
                                              1.
        The plaintiffs’ expert, Chad Coffman, purports to calculate damages by
using an “out-of-pocket losses” measure. This is a model-driven calculation,
which calculates the damages as the difference between the inflated price at
which        the   plaintiffs   bought     their    stock,   buoyed      by   BP’s     alleged
misrepresentations about the magnitude of the spill, and the “true” price,
meaning the theoretical price that the BP stock would have traded for had the
relevant information been properly disclosed.
        While the details of Coffman’s Post-Spill model are complex, it is
straightforward in principle. Coffman conducted an “event study” of BP’s stock
price during the Spill. “An event study . . . is a statistical regression analysis
that examines the effect of an event[, such as the release of information,] on a
dependent variable, such as a corporation’s stock price.” 37 Those events are


        36 Id. at 1434; see also In re Deepwater Horizon, 739 F.3d 790, 815 (5th Cir. 2014)
(“Comcast held that a district court errs by premising its Rule 23(b)(3) decision on a formula
for classwide measurement of damages whenever the damages measured by that formula are
incompatible with the class action's theory of liability.”). In Deepwater Horizon, we indicated
that Comcast’s common measure of damages requirement would not be a bar if the plaintiffs
sought to settle a liability-only class measure. Id. at 817. The plaintiffs argue that Deepwater
Horizon holds that Comcast does not apply to a liability-damages class like this one. See
Appellant (Pls.) Br. at 48. We cannot agree – by its terms Deepwater Horizon applies only to
classes where predominance was based on the commonality of liability, not, as here, liability
and damages, where we ask whether in operation the commonality is undone by the damages
theory.
        37 FindWhat Investor Grp. v. FindWhat.com, 658 F.3d 1282, 1313 (11th Cir. 2011)

(quoting United States v. Schiff, 602 F.3d 152, 173 n.29 (3d Cir. 2010)) (alterations in
original). “Event studies can be used to determine retrospectively the cause of a stock price
movement. The analyst first estimates a ‘predicted return,’ based on the firm's average return
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                                        No. 14-20420
called “corrective disclosures” or “corrective events,” which means that the
disclosure has partially or entirely corrected a previous misrepresentation. 38
Coffman identified six events that he argues showed the public that the
amount of oil escaping from the rig was far greater than BP had initially
represented. 39 He then calculated the stock price decline on those days, “after
controlling for market and industry forces.” Then, he used a “constant dollar”
measure of price inflation, which “appears to equate the amount of a stock-
price drop on a given corrective disclosure day . . . with the ‘inflation’ caused
by a preceding misrepresentation. This ‘constant dollar’ amount of inflation is
then carried back to the date of the proceeding misrepresentation, such that
any share purchased in the interim is deemed ‘inflated’ by that amount.” 40




during a control period as well as on market and industry factors. If the actual stock price
moves differently than the predicted return, the analyst then determines whether such
‘abnormal returns’ are the result of chance or are instead statistically attributable to the
information release.” See id. at 1313 n.31.
        38 See In re Williams Sec. Litig.-WCG Subclass, 558 F.3d 1130, 1137-38 (10th Cir.

2009); Bell v. Ascendant Solutions, Inc., 422 F.3d 307, 316 (5th Cir. 2005).
        39 The six events were: (1) On April 29, 2010, the United States Coast Guard

announced “that the National Oceanic and Atmospheric Administration had increased its
estimate of the Macondo spill-rate five-fold, from 1,000 barrels per day to as much as 5,000
barrels per day.” (2) On May 3, 2010, “satellite surveillance indicated that the Spill was larger
than expected and that BP could not give an estimate of the rate of the Spill.” (3) On May
10, 2010, “the market came to know that the containment dome attempt failed, at the
environmental impact of the Spill would be greater than previously known and that daily
costs for clean-up were higher than previously disclosed.” (4) On June 1, 2010, “BP
unsuccessfully attempted a ‘junk shot’ and ‘top kill’ to stem the flow of oil from the Spill. In
particular, the ‘top kill’ failure was significant in that it was BP’s best hope for containment
of the Spill prior to the drilling of a relief well.” (5) On June 9, 2010, “there was increased
rhetoric from the U.S. Government concerning BP’s dividend and holding BP fully
accountable for the salaries of workers who were to be put out of work due to the Spill. Such
pressure caused the market to question whether BP would pay its quarterly dividend.” (6)
On June 14, 2010, “the U.S. government increased pressure on BP to improve its clean-up
plans, the coast of Alabama began to feel the brunt of pollution from the Spill, expectations
of BP’s liability were increasing due to the impending meeting between BP and the President
of the U.S., and BP’s Board of Directors met on this day to discuss alternatives to paying its
dividend.”
        40 BP Class Certification I, 2013 WL 6388408, at *7.

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      To visualize this approach, imagine a graph, with the x-axis measuring
the date (starting when the misstatements were made and ending when after
the last corrective event occurred) and the y-axis representing the scale of the
price inflation. The inflation starts with some positive number and then –
proceeding in a step -function – declines by a certain dollar amount after each
corrective event is disclosed, eventually ending with zero.              To calculate
damages, plaintiffs need only to know the date they bought the shares
(measured on the x-axis), and then multiply the price inflation on that date by
the total number of shares. Coffman also concludes that his “methodology
could be easily updated to remove inflation if a specific disclosure were
eliminated, the misstatements occurred later, or confounding information
reduced the relevant amount for one of the disclosures.” In essence, the model
would allow for the removal of one of the purported corrective “steps,” reducing
the total amount of inflation – and thus economic loss – accordingly.
                                            2.
      BP does not challenge Coffman’s contention that an out-of-pocket
measure of damages would be appropriate in this type of case. Instead, it first
focuses on the nature of the Coffman model itself. It argues that he did not
actually calculate an “out-of-pocket” measure of damages, as he claimed, 41
pointing to a paragraph of his reply report:
      [I]f the true range of spill rates had been disclosed, some of which
      ranged well over 100,000 barrels per day (more than 100x the
      initial spill rate estimate and over 20x the spill rate estimate that
      the market still believed was BP’s best estimate over a month
      later), it is possible that BP’s stock price would have declined to
      the levels it ultimately reached by June 2010. Instead of engaging
      in this hypothetical exercise, however, the more objective, reliable,
      and accepted method for assessing the out-of-pocket losses caused



      41   See Appellant (BP) Br. 38-43.
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                                      No. 14-20420
       by the intentional misleading of the market is to observe how the
       market price declines as the truth is partially revealed.
BP targets the word “possible,” positing that this word indicates that Coffman’s
methodology “does not satisfy Plaintiff’s burden of proving by a preponderance
of the evidence that Coffman’s methodology calculates damages on a class-wide
basis in a matter that is neither speculative nor arbitrary.” 42
       Construing this argument as one stating that Coffman did not put forth
the type of the model he claimed he did, we disagree. Read in context, the
passage is not so unequivocal as to require us to hold that the district court
abused its discretion in certifying the class. Rather, Coffman first notes that
determining BP’s stock price absent the allegedly deceptive statements would
be a “hypothetical exercise.” This is correct, of course – as all attempts to
narrate what did not materialize in fact necessarily involves hypotheticals. As
we read the Coffman report, the reference to the “possible” decline of BP’s stock
price is an uncontroversial statement that it would be impossible to determine
to a certainty what the price of BP stock would have been had the statements
in question never been made. Comcast requires a “sound” methodology, not
certainty. 43 Here, in the next sentence, Coffman stated that he used the
corrective disclosure methodology to proxy the inflated stock price, a statement
which is consistent with the detailed description of his work in his report, and
a methodology often used in these types of cases. 44 The isolated use of the word
“possible,” in the face of evidence indicating that Coffman had, as he said he




       42 Appellant (BP) Br. 40.
       43 Id. at 1434.
       44 See, e.g., FindWhat Investor Grp. v. FindWhat.com, 658 F.3d 1282, 1313 (11th Cir.

2011); In re Williams Sec. Litig.-WCG Subclass, 558 F.3d 1130, 1137-38 (10th Cir. 2009); Bell
v. Ascendant Solutions, Inc., 422 F.3d 307, 316 (5th Cir. 2005).
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                                        No. 14-20420
did, used the “out-of-pocket” damages methodology, does not defeat
certification. 45
                                               3.
        BP’s next argument proceeds in two parts. First, that the district court
misconstrued Comcast when it “conclude[ed] that it could not consider flaws in
the plaintiff’s damages methodology because those flaws overlap with a merits
inquiry.” 46 Second, it puts forward a specific application of this argument,
proposing that the district court failed to determine whether the corrective
events Coffman relies on were tied to the specific misstatements he says they
were.
                                               a.
        In its order certifying the Post-Spill class, the district court expressed
concern over certain aspects of the Coffman model:
        The Court shares Defendants’ concerns regarding the apparent
        disconnect between some corrective events and the fraud which
        they are alleged to have corrected. Most notably, it is difficult to
        imagine how BP’s cancellation of its June 2010 dividend in
        response to intense political pressure “corrected” Defendants’ flow
        rate statements. Nonetheless . . . failure to prove loss causation
        is not, at present, an impediment to class certification. The Court
        reiterates its understanding that Plaintiffs’ task at the class
        certification stage is to present a legally viable, internally
        consistent, and truly class-wide approach to calculating damages.




        45 BP also points to an April 29, 2010, article in the Huffington Post, which suggested
that the Spill had exceeded “BP’s ‘worst-case scenario,” as calculated in 2009. See Appellant
(BP) Br. at 39-40. This article, it argues, disclosed (and thus corrected) BP’s earlier alleged
misrepresentations, and did so months before Coffman calculated in his model. However, BP
did not make this argument to the district court, rather, it only cited the Huffington Post
article once, in the context of challenging the Pre-Spill class. See, e.g., R. 33615. “The general
rule of this court is that arguments not raised before the district court are waived and will
not be considered on appeal.” Celanese Corp. v. Martin K. Eby Const. Co., 620 F.3d 529, 531
(5th Cir. 2010).
        46 Appellant (BP) Br. at 43.

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                                       No. 14-20420
       Whether Plaintiffs have properly executed under the approach is
       a question for a different day. 47
BP argues that the district court committed reversible legal error in failing to
resolve these concerns over the nexus of corrective events and underlying
misstatements at the class certification stage. We disagree.
       To shed light on the permissible versus mandated tasks of the district
court at this stage of litigation, we look to the thread of two separate lines of
recent Supreme Court jurisprudence. The first is Comcast, where the Court
emphasized the necessity of establishing, before a class could be certified,
congruence between theories of damages and liability. It held that a:
       model purporting to serve as evidence of damages in [a] class
       action must measure only those damages attributable to that
       theory. If the model does not even attempt to do that, it cannot
       possibly establish that the damages are capable of measurement
       across the entire class for purposes of Rule 23(b)(3). 48
Stated another way, the theory of damages “must be consistent with [the]
liability case,” 49 and the district court is required to “conduct a rigorous
analysis [at the class certification stage] to determine whether that is so.” 50
       The second line of cases turn to the proof required at the class
certification stage. In Halliburton I, the Court unanimously held that loss
causation need not be proved in order to certify a class, 51 later, in Amgen,
emphasizing that the plaintiff need not prove an element of its case at the
certification whose resolution “is common to the class.” 52



       47 Class Certification II, 2014 WL 2112823, at *14.
       48 Comcast, 133 S. Ct. at 1433.
       49 Id.
       50 Id. (internal quotation marks omitted)
       51 Halliburton I, 131 S. Ct. at 2186.
       52 Amgen, 133 S. Ct. at 1197; see also id. at 1196 (“A failure of proof on the common

question of materiality ends the litigation and thus will never cause individual questions of
reliance or anything else to overwhelm questions common to the class. Therefore, under the
plain language of Rule 23(b)(3), plaintiffs are not required to prove materiality at the class-
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                                    No. 14-20420
       Recall that the plaintiffs’ theory of liability is that BP misrepresented
the Spill’s flow rate. The theory of damages is that the stock price was inflated
as a result of BP’s misrepresentations, as revealed by six corrective events.
Some    of   those   events   are   unequivocally    connected    to   the   alleged
misrepresentations, i.e., a Coast Guard statement several days after the spill
reporting that the spill rate estimate was five-fold higher than first
anticipated, 53 and some are more removed, e.g., BP announcing that its
directors were meeting to discuss alternatives to paying a dividend. The
district court refused to consider excluding certain corrective events from the
plaintiffs’ damages model at the certification stage. Our question is: in doing
so, was it following Amgen’s mandate not to require proof of class-wide
elements, or was it violating Comcast’s direction that it must determine the
mesh of liability and damage theory?
       While the counter argument does not lack purchase, we conclude that
the district court acted appropriately. As a conceptual matter, the theory of
liability is consistent with the theory of damages: the liability stems from BP’s
flow-rate misstatements, and the loss forming the basis for Plaintiffs’ damages
model comes from the inflated stock price caused by those misstatements. This
situation, then, is not like Comcast, where the plaintiffs’ theory of damages
was based on four district alleged antitrust distortions, but the theory of
liability was based on only one of them. 54 There, it was undisputed that the
plaintiffs’ “methodology . . . identifies damages that are not the result of that
wrong.” 55 Under that model, some plaintiffs sought to recover under a theory
of damages that corresponded to a theory of liability no longer in the case. This


certification stage. In other words, they need not, at that threshold, prove that the
predominating question will be answered in their favor.”).
        53 Id. at 47434.
        54 See Comcast, 133 S. Ct. at 1434.
        55 Id.

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                                      No. 14-20420
case is different. Here, the dispute is whether the specific corrective events
Coffman identified as a measure if stock price inflation are adequately tied to
the alleged misstatements. Each plaintiff’s theory of damages remains tied to
a theory of liability common to all plaintiffs, satisfying the Amgen standard of
commonality.
       Addressing the corrective events question at the class certification stage
raises two problems. First, it is in tension with Halliburton I’s holding that no
proof of loss causation is required at the class certification stage. 56 Recall, loss
causation is “a causal connection between the material misrepresentation and
the loss;” 57 it measures the loss caused by the misstatement. We recognize
that other circuits have held that loss causation and damages are not entirely
congruent. They have said that loss causation requires plaintiffs to prove that
the misstatement was only “a substantial cause of [the] plaintiff’s loss,” but
that to prove damages, plaintiffs must “isolate[] and remove[]” other
contributing forces to the decline in value. 58 This makes sense. Plaintiffs must
prove that the portion of the price fall that they seek in damages is directly
attributable to the misrepresentation, so that they do not recover a windfall.
But they do not need to prove it at the certification stage. Halliburton I holds
that we do not yet require plaintiffs to prove that the defendant’s
misrepresentation was a “substantial cause” of loss at this stage; 59 it would not
make sense to now require them show that the same misrepresentation was
the “sole” cause of that very loss.
       Second, in Amgen, the Court made clear that questions “common to the
class” need not be proved at the class certification stage, so long as they are


       56Halliburton I, 131 S. Ct. at 2186.
       57See Dura, 544 U.S. at 344-45.
      58 Miller v. Asensio & Co., Inc., 364 F.3d 223, 233 (4th Cir. 2004) (quoting Robbins v.

Koger Props., Inc., 116 F.3d 1441, 1447 n.5 (11th Cir. 1997)).
      59 Halliburton I, 131 S. Ct. at 2186.

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                                       No. 14-20420
capable of common resolution. 60            Here, the question of whether certain
corrective disclosures are linked to the alleged misrepresentations in question
is undeniably common to the class, and is “susceptible of a class-wide
answer.” 61 So is the measure of damages which is dependent on the answer to
that question, without reference to any individual class members.
       We conclude that the district court did not err in refusing to resolve
concerns about the inclusion of certain corrective events at the class
certification stage.
                                             b.
       BP’s next argument is a twist on its first. It argues that several of the
corrective events in question actually measure a different type of damages –
not stock price inflation stemming from the misrepresentation about the spill
rate, but from the consequences of the spill itself. 62 We agree that damages
stemming from the spill itself are not recoverable under the plaintiffs’ theory
of liability. 63 However, for similar reasons to those we just expressed, the
district court did not abuse its discretion in not requiring the plaintiffs to prove
– at this stage in the litigation – that all of the corrective events measured the
effect of the misrepresentation, rather than the spill itself.
       In answering this question, it is useful to focus on the specific nature of
the dispute.      The plaintiffs say that their corrective events reveal the
consequences of the nondisclosure. BP says they do not; but rather reflect the
consequences of the spill. The core dispute, then, is about the “fit” between the



       60 Amgen, 133 S. Ct. at 1197.
       61 Id. at 1196.
       62 See Appellant (BP) Br. 49-53.
       63 See, e.g., Dura, 544 U.S. at 345 (2005) (holding that the securities statutes have a

private of action “not to provide investors with broad insurance against market losses, but to
protect them against those economic losses that misrepresentations actually cause”)
(emphasis added).
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                                      No. 14-20420
corrective event and the misstatements. But the tightness of that fit is a
question common to the class, for which Amgen did not require proof at the
certification stage. To conclude otherwise would vitiate Halliburton I’s
requirement that loss causation need not be proved at this stage, since proving
the quality of the fit at this stage would also require bringing forward the
plaintiff’s proof of loss causation.
       There is one wrinkle. If certain corrective events were later determined
to be independent of the misrepresentations, but those corrective events could
not be disaggregated from the damages model, the plaintiffs would travel to a
place forbidden by Comcast: they would recover damages other than those
“resulting from the particular . . . injury on which [defendant’s] liability in this
action is premised.” 64 However, Coffman’s methodology allows for the removal
of corrective events later found to not “correct” the misrepresentations. The
ability to do so, not the actual execution of that correction, is what Comcast
requires at this stage. 65
                                              c.
       BP’s final challenge to this class certification is of the same genus. It
argues that Coffman’s model includes corrective events linked only to pre-
explosion      misstatements,        rather        than     post-explosion     flow     rate
misstatements. 66 This challenge also goes mainly to the “fit” of the corrective




       64  Comcast, 133 S. Ct. at 1433.
       65  See Comcast, 133 S. Ct. at 1433 (“We start with an unremarkable premise. If
respondents prevail on their claims, they would be entitled only to damages resulting from
reduced overbuilder competition, since that is the only theory of antitrust impact accepted
for class-action treatment by the District Court. It follows that a model purporting to serve
as evidence of damages in this class action must measure only those damages attributable to
that theory. If the model does not even attempt to do that, it cannot possibly establish that
damages are susceptible of measurement across the entire class for purposes of Rule
23(b)(3).”).
        66 See Appellant (BP) Br. at 56-58.

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                                  No. 14-20420
events, a question which can be answered with respect to the entire class, and
so is not one that needs to be proved at the certification stage.
                                        4.
      We conclude that the district court did not abuse its discretion in
certifying the Post-Spill class, and AFFIRM.
                                        B.
      We now turn to the district court’s refusal to certify the Pre-Spill class.
                                        1.
      Recall that the Post-Spill damages theory is based on a “out-of-pocket”
or “stock price inflation” theory. That is, the theory alleges that the stock price
was higher than it would have been, and the damage is the difference between
the “true” price and the “paid” price. The Pre-Spill damage theory is different.
It is “based on [a] ‘materialization of the risk’ theory,” where the “investors are
harmed by [] corrective events that represent materializations of the risk that
was improperly disclosed.” Coffman’s model posits that “[t]he catastrophic
explosion, oil spill, and direct consequences of the Spill reflect the foreseeable
consequences of the materially misstated risk . . . . Thus, under the logic of the
theory, the losses suffered by the investors as a result of the materialization of
this risk are causally tied to the misrepresentations themselves.” Or, said
differently, BP allegedly misstated the efficacy of its safety procedures,
creating an impression that the risk of a catastrophic failure was lower than it
actually was. These statements resulted in an “investor being defrauded into
taking a greater risk than disclosed,” taking away plaintiffs’ “opportunity to
decide whether to divest in light of the heightened risk.” The Plaintiffs claim
that when that risk materialized, in the form of the Spill, and BP’s stock price




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                                       No. 14-20420
fell as a result, the investor who was defrauded into taking on that heightened
risk can recover the bulk of that fall as her damages. 67
                                             2.
       The question here is not whether the “materialization of the risk” theory
can provide a viable measure of damages for a Rule 10b-5 case. 68 Rather, it is
whether a damages model based on this theory is “susceptible of measurement
across the entire class for purposes of Rule 23(b)(3),” as required by Comcast. 69
We conclude that the district court did not abuse its discretion in holding that
the Pre-Spill damages theory was not capable of class-wide determination.
That theory hinges on a determination that each plaintiff would not have
bought BP stock at all were it not for the alleged misrepresentations – a
determination not derivable as a common question, but rather one requiring
individualized inquiry.
       Consider the following scenario: The true risk of a major spill was 2%,
but BP’s statements had improperly represented the risk as 0.5%. Further
imagine two different plaintiff-investors. The first is a low-risk pension fund,
whose investment policy forbids investing in companies for whom the risk of a
catastrophic event is greater than 1%. The second is a high-risk fund whose
risk threshold is higher than 2%. Both plaintiffs invested in BP based on BP’s
statements representing the risk as 0.5%.                  In this hypothetical, BP’s
misstatements caused the low risk pension fund to make an investment



       67 The model does provide a methodology that attempts to isolate which part of the
stock price resulted from the materialization of the understated risk, and which resulted from
other factors. See id. at 47406-11.
       68 Other courts have suggested that materialization of the risk can be an adequate

measure of loss causation in appropriate cases. See, e.g., Schleicher v. Wendt, 618 F.3d 679,
683 (7th Cir. 2010); In re Vivendi Universal, S.A. Sec. Litig., 634 F. Supp. 2d 352, 569
(S.D.N.Y. 2009). We need not decide whether that holding is accurate- suffice to say that
these cases did not directly address class certification in a post-Comcast world.
       69 Comcast, 133 S. Ct. at 1433.

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                                        No. 14-20420
forbidden under its policy. It would not have bought BP stock at all had it
known the true risk of a catastrophe.              This is the type of plaintiff the
materialization-of-the-risk theory is designed to compensate. By contrast, the
high-risk fund still might have purchased the stock, even had it known the
“true” risk, though presumably at a lower price that accounted for the
increased risk. For the second type of plaintiff, full materialization-of-the-risk
damages would prove a windfall.
      The loss causation element requires a clear causal link between the
misrepresentation and the economic loss, ensuring in a Rule 10b-5 case
ensures that investors are protected only “against those economic losses that
misrepresentations actually cause.” 70           The securities laws do not provide
“broad insurance against market losses.” 71 For the first plaintiff, who would
not have purchased the stock absent the misrepresented risk, the decline in
the stock’s value when the risk actually materialized may well be causally
linked to the misrepresentation, in which case that full stock price decline
following the materialization of the catastrophic event could constitute a valid
economic loss. The second plaintiff, by contrast, might have purchased the
stock even assuming the true risk. Although she would be entitled to damages
based on the inflated price she paid, she cannot be compensated for the
materialization of a risk she may have been willing to take.
      The problem is that the Coffman model here does not provide any
mechanism for separating these two classes of plaintiffs. And because it lacks
the ability to do so, it cannot provide an adequate measure of class-wide
damages under Comcast. 72




      70 Dura, 544 U.S. at 345.
      71 Id.
      72 Comcast, 133 S. Ct. at 1433.

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                                       No. 14-20420
       In    response,     the    plaintiffs    point     to   the    fraud-on-the-market
presumptions set out in Basic.            They argue that “if the[y] . . . prove the
prerequisites of fraud on the market – which they have done – it is presumed
that the Pre-Spill Class relied on BP’s misrepresentations in purchasing the
[stock] and the misrepresentations were a cause-in-fact of their losses.” 73 This
is half true.      The first statement, arguing that the fraud-on-the-market
presumption applies if the plaintiffs show four basic facts, is correct. 74 The
second statement is not correct. The fraud-on-the-market theory does not
provide any presumptions with regard to loss causation – whether the
misstatement caused the loss. 75 And here, where the economic loss depends
on the posture of the plaintiff vis-à-vis risk tolerance, that loss causation, and
thus damage, cannot be presumed nor can it be found class-wide.
       Moreover, the fraud-on-the-market presumption is rebuttable, 76 and
plaintiffs’ own model may well have rebutted it. Under Basic, courts presume
reliance because (a) all information in an efficient market is priced into a
security and (b) investors typically make investment decisions based upon
price and price alone. 77 That is, if an investor makes investment decisions
based upon price, he or she necessarily buys any particular stock in reliance
upon all of the information or misinformation incorporated into its price. But
plaintiffs’ own model asserts that they relied on something other than price:
risk. By claiming that class members may have divested themselves of BP



       73 See Appellant (Pls.) Br. at 35.
       74 See Halliburton II, 134 S. Ct. at 2408. Those four showings are: “(1) that the alleged
misrepresentations were publicly known, (2) that they were material, (3) that the stock
traded in an efficient market, and (4) that the plaintiff traded the stock between the time the
misrepresentations were made and when the truth was revealed.” Id.
       75 Dura, 544 U.S. at 342.
       76 Basic, 485 U.S. at 248.
       77 Basic, 485 U.S. at 247.



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                                         No. 14-20420
stock if they had known about the true risk of an accident in the Gulf – as
distinguished from that risk’s impact on BP’s stock price – the plaintiffs are
arguing that their investment decisions were based substantially upon factors
other than price. The plaintiff’s argument thus undercuts one of the rationales
for the Basic presumption of reliance.
       To summarize, plaintiffs’ materialization-of-the-risk theory cannot
support class certification for two reasons. Unlike the stock inflation model,
the materialization-of-the-risk model cannot be applied uniformly across the
class, as Comcast requires, because it lumps together those who would have
bought the stock at the heightened risk with those who would not have. It also
presumes substantial reliance on factors other than price, a theory not
supported by Basic and the rationale for fraud-on-the-market theory.
       For these reasons, we AFFIRM the district court’s decision not to certify
the Pre-Spill class.
                                                3.
       Finally, the plaintiffs argue that the district court erred in denying their
motion to file a renewed motion for class certification, using a different theory
of damages.
       As an initial note, we likely lack jurisdiction to review this denial. Rule
23(f) vests us with interlocutory jurisdiction only over “an order granting or
denying class-action certification.” 78 An order denying leave to file an amended
motion for class certification does not fall into that narrow category. 79 Even


       78  Fed. R. Civ. P. 23(f).
       79  See, e.g., McNamara v. Felderhof, 410 F.3d 277, 281 (5th Cir. 2005) (concluding that
a district court’s order reaffirming its prior ruling on class certification was not “an order . . .
granting or denying class action certification”) (quoting Fed. R. Civ. P. 23(f)); White v.
Imperial Adjustment Corp, 75 F. App’x 972, 974 (5th Cir. 2003) (“Because the district court’s
order did not grant or deny class certification, the district court’s decision was not ‘an order
of the district court granting or denying class certification’ for purposes of appeal under Rule
23(f).”); see also Carpenter v. Boeing Co., 456 F.3d 1183, 1191 (10th Cir. 2006) (“An order that
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                                       No. 14-20420
we were to conclude otherwise, we cannot conclude that the district court
abused its discretion in refusing – after issuing two through and well-reasoned
opinions – to give the plaintiffs a third bite at the apple. 80
                                              IV.
       We AFFIRM the judgment of the district court.




leaves class-action status unchanged from what was determined by a prior order is not an
order ‘granting or denying class action certification.’”).
        80 See, e.g., Bell v. Ascendant Solutions, Inc., 422 F.3d 307, 316 (5th Cir. 2005) (“Nor

are we persuaded that we should require that [the plaintiffs] get a second bite at the class
certification apple; inadequate briefing on an issue critical to class certification for which a
party bears the burden of proof is no basis for us to order a repêchage round.”).
                                              26
