United States: Ninth Circuit Strengthens Pleading Standard In Section 11 Claims: In Re Century Aluminum Co. Securities Litigation

On January 2, 2013, the Ninth Circuit provided additional support for an increasingly vigorous application of the Twombly/Iqbal pleading standard.1 In In re Century Aluminum Co. Securities Litigation,2 the Ninth Circuit applied the Twombly/Iqbal pleading standard to the tracing element of “aftermarket” purchasers in connection with a claim brought under Section 11 of the Securities Exchange Act of 1933.3 The Ninth Circuit’s decision marks the first time a circuit court has applied the Twombly/Iqbal standard to the tracing element, significantly heightening the level of factual specificity required in aftermarket purchasers’ claims. The decision indicates an increasing willingness to dismiss claims that require a court to draw unreasonable inferences or accept speculative conclusions from allegations in a complaint.

Under Section 11, any person who buys a security issued under a materially false or misleading registration statement may bring a claim against the issuer of that security. A plaintiff has standing to sue provided he or she either (1) purchased shares in the offering made under the misleading registration statement, or (2) purchased shares in the aftermarket that are traceable back to the relevant offering. Century Aluminum involved the latter scenario.

The Century Aluminum plaintiffs alleged that the company’s prospectus supplement, issued in connection with a secondary offering of 24.5 million shares, contained false and misleading information in violation of Section 11. The plaintiffs conceded that they had purchased shares in the aftermarket rather than directly in the secondary offering. The complaint did not set forth specific facts showing the securities were traceable to the allegedly misleading registration statement, but rather relied on a general allegation that plaintiffs had “purchased Century Aluminum common stock directly traceable to the Company’s Secondary Offering.”4 The trial court dismissed the complaint, finding that the presence of 49 million shares in the market prior to the secondary offering made the plaintiffs’ general allegations insufficient as a matter of law. On appeal, the Ninth Circuit affirmed, finding that the Twombly/Iqbal pleading standard required plaintiffs to make factual allegations “tending to exclude . . . the alternative explanation” that the plaintiffs’ purchased shares came from the already existing pool.5

On review, the Ninth Circuit began by noting that when a company has issued shares under more than one registration statement, a plaintiff seeking to proceed under Section 11 must “prove that her shares were issued under the allegedly false or misleading registration statement, rather than some other registration statement.”6 This standard requires plaintiffs who purchased in the aftermarket to trace the chain of title for their shares back to the secondary offering. As the court recognized, the tracing requirement is “often impossible” for aftermarket purchasers to meet.7

Turning to the Twombly/Iqbal pleading standard, the Ninth Circuit explained that a complaint’s allegations, at a minimum, must suggest the claim has a plausible chance of success. Specifically, “the complaint must allege factual content that allows the court to draw the reasonable inference that the defendant is liable for the misconduct alleged.”8 This requires the exclusion of any “obvious alternative explanations.”9 In the case before it, the Ninth Circuit reasoned that the complaint was deficient because the plaintiffs’ allegations were consistent with their shares not only having come from the secondary offering but also from the pool of previously issued shares.10 To succeed, the court determined, the plaintiffs would have had to allege specific facts excluding the possibility that their purchased shares came from the already existing pool.

The Ninth Circuit also addressed allegations that shares purchased by one of the named plaintiffs, Peter Abrams, were traceable because Abrams had directed his broker to purchase shares from the secondary offering. The complaint alleged that Abrams’s broker had purchased shares from Citigroup, which was in a joint venture with one of the underwriters of the secondary offering. Finding even these allegations insufficient, the court stated that Citigroup could have filled the order with shares from the secondary offering or from previously issued shares it was holding. Consistent with its determination as to the general allegations of tracing, the Ninth Circuit determined that allegations regarding Abrams’s purchases were insufficient without fact-specific allegations excluding the latter possibility, “such as an allegation that Citigroup held only shares issued in the secondary offering.”11

The Ninth Circuit’s determination that the Twombly/Iqbal pleading standard requires factually specific allegations of tracing squarely contradicts the decisions of a few district courts. In recent cases, the District of Maryland and the Southern District of New York have each applied the Twombly/Iqbal standard to aftermarket purchasers’ Section 11 claims.12 Both courts upheld complaints alleging only that plaintiffs purchased shares “pursuant and/or traceable to” the relevant registration statement(s), finding that such general allegations satisfy the Twombly/Iqbal standard.13 However, both courts’ determinations rested, in large part, on pre-Twombly/Iqbal case law and the lack of any authority requiring fact-specific allegations of tracing.14 The Ninth Circuit’s decision in Century Aluminum suggests a different outcome may result in these jurisdictions’ future decisions.

Authority from other circuit courts suggests that they may follow the Ninth Circuit’s reasoning and require factually specific allegations that purchased shares are traceable to the public offering at issue. For example, in a Section 11 case decided before the Supreme Court established the Twombly/Iqbal standard, the Fifth Circuit reasoned that aftermarket purchasers’ allegations must show more than a “very high” statistical probability that their shares are traceable to the relevant offering.15 Although the Fifth Circuit has yet to apply the Twombly/Iqbal standard to Section 11 claims, this early authority suggests that court may find Century Aluminum persuasive.

The Century Aluminum decision alters the Section 11 landscape by making it more difficult for aftermarket purchasers to successfully assert claims. The Ninth Circuit’s statement, “that when a company has offered shares under more than one registration statement, aftermarket purchasers usually will not be able to trace their shares,”16 effectively creates a rebuttable presumption against traceability. Thus, for plaintiffs’ allegations to survive a motion to dismiss, they must rebut the Ninth Circuit’s presumption with factually specific information – a difficult pre-discovery standard for any plaintiff to meet.


1 The Twombly/Iqbal pleading standard is the result of two cases which moved federal courts away from a system of pure notice pleading. See Bell Atl. Corp. v. Twombly, 550 U.S. 544 (2007); Ashcroft v. Iqbal, 556 U.S. 662 (2009). Bell Atlantic Corp. v. Twombly determined that a complaint must be plausible in order to survive a motion to dismiss. 550 U.S. at 556-57. Ashcroft v. Iqbal determined that “plausibility” requires “factual content that allows the court to draw the reasonable inference that the defendant is liable for the misconduct alleged.” 556 U.S. at 678.

2 No. 11-15599, 2013 WL 11887 (9th Cir. Jan. 2, 2013).

3 15 U.S.C. § 77.

4 In re Century Aluminum, 2013 WL 11887, at *2.

5 Id. at *3.

6 Id. at *1 (citing Hertzberg v. Dignity Partners, Inc., 191 F.3d 1076, 1080 n.4 (9th Cir. 1999)).

7 Id. (quoting Barnes v. Osofsky, 373 F.2d 269, 271-72 (2d Cir. 1967)).

8 Id. at *2 (citing Iqbal, 556 U.S. at 678).

9 Id. at *3.

10 Id.

11 Id. (emphasis in original).

12 See In re Mun. Mortgage & Equity, LLC, Sec. & Deriv. Litig., 876 F. Supp. 2d 616 (D. Md. 2012); In re Wachovia Equity Sec. Litig., 753 F. Supp. 2d 326, 372-73 (S.D.N.Y. 2011).

13 In re Mun. Mortgage & Equity, LLC, 876 F. Supp. 2d at 657; see In re Wachovia Equity, 753 F. Supp. 2d at 372-73 (upholding complaint alleging that “Plaintiffs purchased securities pursuant or traceable to Offering Materials that contained material misstatements and omissions of fact” (internal citations omitted)).

14 See In re Wachovia Equity, 753 F. Supp. 2d at 373 (“Although the . . . Defendants assert that there is no set of facts under which Plaintiffs could trace the notes purchased to the Supplemental Offerings, they supply no binding authority for the proposition that anything more is required to plead a Section 11 claim.” (internal citations omitted)).

15 Krim v. pcOrder.com, Inc., 402 F.3d 489, 496 (5th Cir. 2005); see Cozzarelli v. Inspire Pharms. Inc., 549 F.3d 618, 628 (4th Cir. 2008) (stating that “we have serious doubts that plaintiffs even ‘nudged [their Section 11] claims across the line from conceivable to plausible,’” but upholding dismissal of complaint based on rule 9(b) of the Federal Rules of Civil Procedure).

16 In re Century Aluminum, 2013 WL 11887, at *2 (emphasis in original).

The content of this article does not constitute legal advice and should not be relied on in that way. Specific advice should be sought about your specific circumstances.

To print this article, all you need is to be registered on Mondaq.com.

Click to Login as an existing user or Register so you can print this article.

In association with
Related Video
Up-coming Events Search
Font Size:
Mondaq on Twitter
Register for Access and our Free Biweekly Alert for
This service is completely free. Access 250,000 archived articles from 100+ countries and get a personalised email twice a week covering developments (and yes, our lawyers like to think you’ve read our Disclaimer).
Email Address
Company Name
Confirm Password
Mondaq Topics -- Select your Interests
 Law Performance
 Law Practice
 Media & IT
 Real Estate
 Wealth Mgt
Asia Pacific
European Union
Latin America
Middle East
United States
Worldwide Updates
Check to state you have read and
agree to our Terms and Conditions

Terms & Conditions and Privacy Statement

Mondaq.com (the Website) is owned and managed by Mondaq Ltd and as a user you are granted a non-exclusive, revocable license to access the Website under its terms and conditions of use. Your use of the Website constitutes your agreement to the following terms and conditions of use. Mondaq Ltd may terminate your use of the Website if you are in breach of these terms and conditions or if Mondaq Ltd decides to terminate your license of use for whatever reason.

Use of www.mondaq.com

You may use the Website but are required to register as a user if you wish to read the full text of the content and articles available (the Content). You may not modify, publish, transmit, transfer or sell, reproduce, create derivative works from, distribute, perform, link, display, or in any way exploit any of the Content, in whole or in part, except as expressly permitted in these terms & conditions or with the prior written consent of Mondaq Ltd. You may not use electronic or other means to extract details or information about Mondaq.com’s content, users or contributors in order to offer them any services or products which compete directly or indirectly with Mondaq Ltd’s services and products.


Mondaq Ltd and/or its respective suppliers make no representations about the suitability of the information contained in the documents and related graphics published on this server for any purpose. All such documents and related graphics are provided "as is" without warranty of any kind. Mondaq Ltd and/or its respective suppliers hereby disclaim all warranties and conditions with regard to this information, including all implied warranties and conditions of merchantability, fitness for a particular purpose, title and non-infringement. In no event shall Mondaq Ltd and/or its respective suppliers be liable for any special, indirect or consequential damages or any damages whatsoever resulting from loss of use, data or profits, whether in an action of contract, negligence or other tortious action, arising out of or in connection with the use or performance of information available from this server.

The documents and related graphics published on this server could include technical inaccuracies or typographical errors. Changes are periodically added to the information herein. Mondaq Ltd and/or its respective suppliers may make improvements and/or changes in the product(s) and/or the program(s) described herein at any time.


Mondaq Ltd requires you to register and provide information that personally identifies you, including what sort of information you are interested in, for three primary purposes:

  • To allow you to personalize the Mondaq websites you are visiting.
  • To enable features such as password reminder, newsletter alerts, email a colleague, and linking from Mondaq (and its affiliate sites) to your website.
  • To produce demographic feedback for our information providers who provide information free for your use.

Mondaq (and its affiliate sites) do not sell or provide your details to third parties other than information providers. The reason we provide our information providers with this information is so that they can measure the response their articles are receiving and provide you with information about their products and services.

If you do not want us to provide your name and email address you may opt out by clicking here .

If you do not wish to receive any future announcements of products and services offered by Mondaq by clicking here .

Information Collection and Use

We require site users to register with Mondaq (and its affiliate sites) to view the free information on the site. We also collect information from our users at several different points on the websites: this is so that we can customise the sites according to individual usage, provide 'session-aware' functionality, and ensure that content is acquired and developed appropriately. This gives us an overall picture of our user profiles, which in turn shows to our Editorial Contributors the type of person they are reaching by posting articles on Mondaq (and its affiliate sites) – meaning more free content for registered users.

We are only able to provide the material on the Mondaq (and its affiliate sites) site free to site visitors because we can pass on information about the pages that users are viewing and the personal information users provide to us (e.g. email addresses) to reputable contributing firms such as law firms who author those pages. We do not sell or rent information to anyone else other than the authors of those pages, who may change from time to time. Should you wish us not to disclose your details to any of these parties, please tick the box above or tick the box marked "Opt out of Registration Information Disclosure" on the Your Profile page. We and our author organisations may only contact you via email or other means if you allow us to do so. Users can opt out of contact when they register on the site, or send an email to unsubscribe@mondaq.com with “no disclosure” in the subject heading

Mondaq News Alerts

In order to receive Mondaq News Alerts, users have to complete a separate registration form. This is a personalised service where users choose regions and topics of interest and we send it only to those users who have requested it. Users can stop receiving these Alerts by going to the Mondaq News Alerts page and deselecting all interest areas. In the same way users can amend their personal preferences to add or remove subject areas.


A cookie is a small text file written to a user’s hard drive that contains an identifying user number. The cookies do not contain any personal information about users. We use the cookie so users do not have to log in every time they use the service and the cookie will automatically expire if you do not visit the Mondaq website (or its affiliate sites) for 12 months. We also use the cookie to personalise a user's experience of the site (for example to show information specific to a user's region). As the Mondaq sites are fully personalised and cookies are essential to its core technology the site will function unpredictably with browsers that do not support cookies - or where cookies are disabled (in these circumstances we advise you to attempt to locate the information you require elsewhere on the web). However if you are concerned about the presence of a Mondaq cookie on your machine you can also choose to expire the cookie immediately (remove it) by selecting the 'Log Off' menu option as the last thing you do when you use the site.

Some of our business partners may use cookies on our site (for example, advertisers). However, we have no access to or control over these cookies and we are not aware of any at present that do so.

Log Files

We use IP addresses to analyse trends, administer the site, track movement, and gather broad demographic information for aggregate use. IP addresses are not linked to personally identifiable information.


This web site contains links to other sites. Please be aware that Mondaq (or its affiliate sites) are not responsible for the privacy practices of such other sites. We encourage our users to be aware when they leave our site and to read the privacy statements of these third party sites. This privacy statement applies solely to information collected by this Web site.

Surveys & Contests

From time-to-time our site requests information from users via surveys or contests. Participation in these surveys or contests is completely voluntary and the user therefore has a choice whether or not to disclose any information requested. Information requested may include contact information (such as name and delivery address), and demographic information (such as postcode, age level). Contact information will be used to notify the winners and award prizes. Survey information will be used for purposes of monitoring or improving the functionality of the site.


If a user elects to use our referral service for informing a friend about our site, we ask them for the friend’s name and email address. Mondaq stores this information and may contact the friend to invite them to register with Mondaq, but they will not be contacted more than once. The friend may contact Mondaq to request the removal of this information from our database.


From time to time Mondaq may send you emails promoting Mondaq services including new services. You may opt out of receiving such emails by clicking below.

*** If you do not wish to receive any future announcements of services offered by Mondaq you may opt out by clicking here .


This website takes every reasonable precaution to protect our users’ information. When users submit sensitive information via the website, your information is protected using firewalls and other security technology. If you have any questions about the security at our website, you can send an email to webmaster@mondaq.com.

Correcting/Updating Personal Information

If a user’s personally identifiable information changes (such as postcode), or if a user no longer desires our service, we will endeavour to provide a way to correct, update or remove that user’s personal data provided to us. This can usually be done at the “Your Profile” page or by sending an email to EditorialAdvisor@mondaq.com.

Notification of Changes

If we decide to change our Terms & Conditions or Privacy Policy, we will post those changes on our site so our users are always aware of what information we collect, how we use it, and under what circumstances, if any, we disclose it. If at any point we decide to use personally identifiable information in a manner different from that stated at the time it was collected, we will notify users by way of an email. Users will have a choice as to whether or not we use their information in this different manner. We will use information in accordance with the privacy policy under which the information was collected.

How to contact Mondaq

You can contact us with comments or queries at enquiries@mondaq.com.

If for some reason you believe Mondaq Ltd. has not adhered to these principles, please notify us by e-mail at problems@mondaq.com and we will use commercially reasonable efforts to determine and correct the problem promptly.