U.S. District Judge Donald C. Nugent of the U.S. District Court for the Northern District of Ohio found the participants failed to allege facts that, if true, would prove that they bought KeyCorp stock at inflated prices and suffered a loss when the true value was revealed to the market. “Plaintiffs do not identify a single instance in which the truth regarding some alleged prior misrepresentation was ever revealed to the market, or in which KeyCorp’s stock price dropped significantly as a result,” Nugent wrote in his opinion.  

According to the opinion, the participants admitted that the alleged misrepresentations about accounting and tax problems involving the leveraged leases and high-risk homebuilder loans were known to the market before the class period began. In addition, the KeyCorp defendants noted that the only disclosures the participants point to that were followed by a drop in KeyCorp’s stock price were announcements of new adverse developments, not corrections of earlier false statements.  

Nugent pointed out that the facts in Metyk v. KeyCorp are identical to facts in a previous case, Taylor v. KeyCorp, which also claimed misrepresentations by KeyCorp caused its stock price to be artificially inflated. The 6^th U.S. Circuit Court of Appeals upheld the dismissal of the Taylor case noting that in Dura Pharmaceuticals Inc. v. Broudo, the Supreme Court held that “an inflated purchase price will not itself constitute … economic loss.” Rather, stock must be purchased at an inflated price and sold at a loss for an economic injury to occur. 

Taylor disputed that out-of-pocket loss is an appropriate measure of her injury, suggesting that the court use an alternative-investment theory—that she would have made more money on her investments if her holdings had been transferred away from KeyCorp stock and placed in the S&P 500 index. The 6th Circuit held that such a measure of damages is not appropriate in this case (see “6th Circuit Affirms Dismissal of KeyCorp Stock Suit”).    

When a plaintiff alleges that the withholding of information affected share prices, “the appropriate measure of damages [is] the difference between the investment as taken and the investment as it would have been if not tainted by withheld information,” but damages based upon an entirely different investment vehicle, such as the S&P 500, are not fairly “traceable” to the defendants’ breach, the 6^th Circuit found.