“Securities litigation” isn’t really “litigation” anymore. For the first 15 years of my career, securities class actions that were not dismissed would head into litigation, where we would test class certification, map out our summary judgment motion, and engage in fact discovery designed to establish the facts we needed to prevail on the merits. A great many cases were dismissed on summary judgment or were settled while the summary judgment motion was pending.
But something happened in the early 2010s: securities class actions that survived a motion to dismiss increasingly started to settle reflexively, before significant development of the merits of class certification or summary judgment. This trend yielded a cultural shift – we just don’t litigate securities cases anymore. This is a shame; premature settlement leaves defendants with only one of the three possible pretrial escape hatches, the motion to dismiss, and leaves unused the two other escape hatches, class certification and summary judgment.
Over the years, I’ve explained the reasons for and adverse consequences of this trend and issued calls to action to fellow securities defense lawyers, public companies, and D&O insurers (for example, here). In my own cases, I’ve tried to do something about it in the right cases. Most recently, we won complete dismissal on summary judgment of a securities class action brought against COVID-19 test manufacturer Co-Diagnostics, Inc. in Gelt Trading Ltd. v. Co-Diagnostics, Inc. (District of Utah). Because it’s so (unfortunately) rare for defendants to make a summary judgment motion in securities class actions, much less win, this victory earned American Lawyer “Litigator of the Week” honors.
After describing the Co-Diagnostics case, I’ll share thoughts about picking the right cases to defend through summary judgement.
Gelt v. Co-Diagnostics
At issue was Co-Diagnostics’ May 1, 2020, press release that disclosed, among other things, that its Logix Smart COVID-19 test demonstrated “100% sensitivity and 100% specificity” – well-defined scientific metrics – across independent evaluations. Gelt Trading alleged that the press release was false and/or misleading because it conveyed to investors that the Logix Smart test was “100% accurate,” allegedly inflating Co- Diagnostics’ stock price. Gelt Trading claimed that this artificial inflation was removed, and investors suffered losses, when Co-Diagnostics’ stock price dropped on May 15, 2020, following three disclosures that allegedly revealed the press release to be false.
We were retained to replace prior counsel after the initial motion to dismiss was denied and the case was in the early phases of discovery. On summary judgment, we argued that Plaintiff could not establish any genuine issue of material fact supporting liability as to any element of a Section 10(b) claim—falsity, scienter, reliance, loss causation, or damages. We also argued that Plaintiff’s experts’ testimony—which related to clinical testing and loss causation—should be excluded on summary judgment under Daubert.
On March 4, 2025, after oral argument, the Court granted defendants’ Daubert motion to exclude the testimony of Plaintiff’s loss causation expert and granted summary judgment for Defendants, concluding that Plaintiff could not demonstrate loss causation with or without the excluded testimony.
With respect to the motion to exclude, the Court found that Plaintiff’s loss causation expert’s testimony was not admissible evidence for two reasons: (1) Plaintiff’s expert failed to subscribe his report under penalty of perjury as required under 28 U.S.C. § 1746, and (2) Plaintiff’s expert failed to account for obvious alternative explanations for the May 15 stock price drop. As for the motion for summary judgment, the Court concluded that none of the three alleged corrective disclosures “corrected” the May 1 press release, either because they did not discuss the Company’s Logix Smart Test, or because the allegedly contradictory information was long known to the market and already incorporated in the Company’s stock price. Accordingly, Plaintiff could not establish that the May 1 press release was the cause of Plaintiff’s or the class’s losses. Having reached this conclusion, the Court declined to address the other summary judgment arguments or Daubert motions.
Evaluating Cases for Summary Judgment
I’m not suggesting that, after the denial of a motion to dismiss, cases should always careen toward summary judgment. We need to pick the right cases. How do we do that?
Pick the right defense counsel. The most important decision happens right away: companies should choose defense counsel who are not just good at winning motions to dismiss, but who also have the ability to litigate effectively and efficiently through the subsequent stages of the litigation. Identifying those people requires companies to rely on the guidance of their D&O insurers and broker. This is so for two reasons. First, the right people are not just those who have sufficient SCA summary judgment (and class certification) experience to be effective but also have the right team and economic flexibility to be able to defend the litigation through summary judgment and still leave enough insurance proceeds to settle, if necessary. D&O insurers and brokers can identify these. The vast majority of companies can’t; they haven’t defended a securities class action before. Second, the D&O insurers need to trust defense counsel or they won’t be comfortable with the case analysis and/or strategic decision to defend a case through summary judgment.
Evaluate the case early. The next step happens before the motion to dismiss process begins: defense counsel needs to size up the case early, advise the defendants about the merits, and then have a strategic summit with the insurers, broker, and the individual defendants – not just the GC or head of litigation. Early case assessment doesn’t need to be a ransacking. In the vast majority of cases, it only requires 50 – 100 hours of work by defense counsel to review key documents, speak with key witnesses, and figure out if the case is strong or weak. Evaluate structural flaws in the case – things that more words in a complaint can’t cure. For example, are the challenged statements opinions subject to Omnicare’s high substantive standard? Are they forward-looking opinions giving double protection? Was there a concrete financial motive for the individual defendants to engage in fraud? Is there a loss causation problem? Is there another economic flaw? And assess the story and documents the early assessment revealed. By the strategic summit, a seasoned, full-time securities litigators can size up the case and know where it’s headed. In structurally flawed cases, please resolve to take a beat if the court makes a mistake and denies the motion to dismiss.
Refine the case analysis upon the denial of a motion to dismiss. The next step is more refined case analysis of the chances of winning on summary judgment, element by element. The right cases for summary judgment are ones with strong summary judgment arguments on multiple grounds; more chances to win makes everyone more comfortable. In the Co-Diagnostics case, we had five independent summary judgment arguments, which made the motion a comfortable strategic step. I think the key element on which it’s important to have a good summary judgment argument is falsity – insufficient or even weak falsity evidence tends to set up a strong argument on lack of scienter and loss causation.
This step requires more elaborate fact and expert evaluation. While it can’t be completely finished until the close of discovery, it must be started at the outset of discovery, and good assessments can occur early on and be confirmed as discovery progresses.
Evaluate the economics. If the case is a good summary judgment candidate, it’s essential that the economics of continuing to litigate make sense. The factors of the analysis are: damages analysis, evaluation of settlement value, and defense costs. Good damages analysis is essential – not just plaintiff-style, but exploration of the ways damages can be reduced. From the damages analysis, we can assess settlement value. And defense counsel must make a viscous budget or even give a cap. From this, we can do this math problem: [insurance limits + retention] – [defense cost cap + settlement value]. The result tells us whether the case can be settled within the insurance limits if we lose on summary judgment.
Communicate. Throughout, communication is critical. There must be excellent communication about the merits and economics among defense counsel, the defendants and their D&O insurers and brokers. The better the defendants and their D&O insurers know and trust the chances of winning on summary judgment (and class certification) and at what cost, the more comfortable they will be about defending the case beyond the motion to dismiss.