In Hildes v. Arthur Andersen LLP (http://www.metnews.com/sos.cgi?0813//11-56592), the Ninth Circuit issued an important decision regarding negative causation under Section 11 of the Securities Act of 1933. Under Section 11, plaintiffs need not plead causation. Nonetheless, defendants can obtain a dismissal if they can demonstrate facts from the complaint on the indisputable public record which affirmatively disprove causation. Here, the district court dismissed Section 11 claims against Peregrine's outside directors based on negative causation. The plaintiff had agreed to vote his shares in favor of a merger of Harbinger Corp. in which he owned shares and Peregrine, Inc. before Peregrine issued the disputed registration statement. Accordingly, the district court held that causation could not be established. The Ninth Circuit reversed. The Ninth Circuit reasoned that, even though plaintiff had agreed to vote his shares in favor of the merger, he was not irrevocably bound to sell his shares because the sale would necessarily be consummated only if the merger were consummated, and, plaintiff alleged, the merger would not have been consummated if Peregrine had not made material misstatements about its financial condition in its registration statement. Plaintiff's allegations that the merger would not have been consummated were premised on what plaintiff asserted the board and other shareholders would have done had the truth been disclosed. While inherently speculative, the Ninth Circuit credited the allegations that the merger would not have been consummated as "plausible" and thus sufficient to survive a motion to dismiss. The case unfortunately sets a low bar for pleading around negative causation under Section 11.