Fourth Circuit Reverses Class Certification in Securities-Fraud Case

Summary

On July 20, 2026, the U.S. Court of Appeals for the Fourth Circuit reversed the district court’s certification of a securities-fraud class action against S&C client The Boeing Company.[1] The court held that Comcast Corp. v. Behrend[2] requires securities plaintiffs, at the class-certification stage, to put forth “evidentiary proof” of a “damages methodology” showing how damages are calculable on a class-wide basis in a manner that is (1) “consistent with their liability theory” and (2) “not speculative.”[3]  And it requires district courts to “conduct a rigorous analysis to determine whether plaintiffs have satisfied this burden.”[4]

Before this decision, some district courts had accepted what has become a common playbook by securities plaintiffs: at class certification, plaintiffs have their expert provide a generic description of the measure of damages in securities cases (out-of-pocket damages) without providing case-specific analysis or an explanation of how the expert intends to measure the alleged inflation in the stock price. The Fourth Circuit’s decision is the first appellate decision to squarely reject this approach as insufficient to satisfy Comcast, and it provides important support for defendants seeking to oppose certification of overly expansive securities-fraud classes.

Background

Damages Methodology at Class Certification. In Comcast Corp. v. Behrend, the Supreme Court held that plaintiffs seeking to certify a class cannot satisfy Rule 23(b)(3)’s predominance requirement without “evidentiary proof” of a damages methodology that measures damages on a class-wide basis “consistent with [their] liability case,” in a manner that permits “a just and reasonable inference” of damages and is not “speculative.”[5] Comcast requires district courts to conduct a “rigorous analysis” to determine whether plaintiffs have satisfied this burden.[6] In recent years, plaintiffs’ experts have sought to satisfy Comcast in securities-fraud cases simply by describing the “out-of-pocket” measure of damages generally used in Section 10(b) actions and promising to develop a specific methodology for measuring artificial inflation after the class has been certified. The plaintiffs followed that approach in this case.

Factual Background and Class-Certification Proceedings in Boeing. Plaintiffs, two pension funds, filed a putative class action against Boeing and its former officers under Sections 10(b) and 20(a) of the Securities Exchange Act.[7] They alleged that, between September 30, 2019 and May 14, 2024, Boeing “repeatedly” misrepresented its commitment to safety in the wake of two accidents involving the 737 MAX in 2018 and 2019.[8] According to plaintiffs, statements about safety and quality and Boeing’s regulatory compliance artificially inflated or maintained the price of Boeing’s stock.[9] Plaintiffs contended that the truth began to emerge when the door plug detached from an Alaska Airlines aircraft midflight on January 7, 2024.[10]

In support of class certification, plaintiffs followed the standard approach, submitting a report that simply described the “out-of-pocket” measure of damages. Under that formula, each class member’s damages equal the artificial inflation per share at the time of purchase minus the artificial inflation per share at the time of sale. Plaintiffs asserted that this formula is the “standard and well-accepted method for calculating class-wide damages” in Section 10(b) cases.[11] Notably, plaintiffs’ expert did not commit to any particular technique for calculating artificial inflation, instead identifying three possible options—constant-dollar inflation, constant-percentage inflation, or an unspecified third approach—for tracking how artificial inflation changed over the class period.[12]

Boeing opposed certification, arguing that plaintiffs had “proposed no methodology at all” and had not shown that their damages approach was consistent with plaintiffs’ liability theory—that otherwise generic statements about safety and quality became material through repetition, which meant that any inflation would have increased over time.[13] In reply, plaintiffs submitted a rebuttal report that maintained that the out-of-pocket method was appropriate, that disaggregation techniques could be applied at a later stage, and that plaintiffs’ theory of liability was inflation maintenance.[14]

The district court shortened the class period, but certified the class. The district court held that the out‑of‑pocket formula “‘fit[s] plaintiffs’ theory of liability’”—“‘that investors were damaged by purchasing Boeing stock at inflated prices due to defendants’ fraud’”—and that plaintiffs need not conduct detailed damages modeling at the class-certification stage.[15]

Less than one week after the district court certified the class and less than one month after plaintiffs had submitted their expert’s rebuttal report, plaintiffs submitted a merits damages report from the same expert. In that report, plaintiffs’ expert opined that a constant-percentage inflation methodology was appropriate because all the alleged misstatements “‘fundamentally concealed the same underlying truth.’”[16]

Fourth Circuit’s Decision

In a unanimous opinion authored by Judge Quattlebaum, and joined by Judges Richardson and Rushing, the Fourth Circuit reversed the certification of a class. The court began by holding that Comcast—although decided in the antitrust context—applies to securities-fraud class actions, rejecting a narrower reading of Comcast that some courts have adopted.[17] The court also clarified what Comcast requires from plaintiffs and the district court before a class may be certified under Rule 23(b)(3). The court further explained why the damages methodology set forth in plaintiffs’ class-certification reports and their post-certification merits report failed to satisfy Comcast.

Plaintiffs’ Comcast burden. The Fourth Circuit distilled Comcast into five requirements that plaintiffs must meet to obtain class certification.

1. Plaintiffs must “put forth a damages ‘methodology,’” not merely “a legal description of what damages are generically.”[18] The court explained that “[a] menu of options that the party will decide on later is not a damages methodology,” and that “it is...insufficient for plaintiffs to give examples of what they might, or could, do to measure damages.”[19] The Fourth Circuit held that the out-of-pocket measure is simply a “legal description of damages” that would “apply in any securities fraud case” and not a methodology that satisfies Comcast.[20]
2. Although plaintiffs are not required to actually calculate class members’ damages at class certification, plaintiffs’ damages methodology must demonstrate that damages can be “measured on a class-wide basis.”[21] The Fourth Circuit rejected plaintiffs’ argument that if the “problems with their damages affect the entire class,” then those problems do not raise a Comcast issue.[22] The court explained that doing so would “put the cart before the horse” and improperly enable plaintiffs to “get around Comcast’s frontloading mandate.”[23]
3. Plaintiffs must demonstrate that their damages methodology is “consistent” with their liability theory.[24] The Fourth Circuit held that plaintiffs must “identify both comparators, stating their theory or theories of liability to compare against their identified damages methodology,” and must “show that the methodology and the liability theory are sufficiently consistent.”[25] The court explained that the liability theory “cannot be stated at such a high level of generality that it gives no factual context for the plaintiffs’ claims.”[26] In other words, “[a] generic description” of a liability theory “that fits every case”—such as that “‘investors were damaged by purchasing Boeing stock at inflated prices due to defendants’ fraud’”—does not satisfy Comcast.[27] The Fourth Circuit held that plaintiffs must “tip their hand” to provide district courts with the information needed to “compare the plaintiffs’ damages methodology to their liability theory.”[28] The court ultimately concluded that plaintiffs’ constant-percentage inflation methodology was inconsistent with their liability theory based on numerous alleged misstatements over a three-year period that covered a “variety of different types of information.”[29]
4. Plaintiffs’ methodology must raise “‘a just and reasonable inference’” of damages and cannot be “‘speculative.’”[30]
5. Plaintiffs must submit “evidentiary proof” at class certification because Rule 23 does not set forth a mere pleading standard.[31] The Fourth Circuit explained that this requirement means that class certification typically requires an evidentiary hearing, and that plaintiffs generally cannot rely on the complaint’s allegations.[32]

District courts’ obligation. Comcast requires district courts to “‘conduct a rigorous analysis’”—a “‘close look’”—to determine whether plaintiffs have satisfied each of the above requirements.[33] The Fourth Circuit made clear that “certification orders are not like participation trophies that are handed out to everyone on the tee ball team.”[34] The court noted that this rigorous analysis “might often overlap with the merits” and cannot be deferred to summary judgment or trial.[35]

Applying Comcast to Plaintiffs’ submissions. After addressing the deficiencies with plaintiffs’ class-certification submissions and the district court’s analysis, the Fourth Circuit rejected plaintiffs’ argument that their merits expert report submitted after the class was certified cures any deficiencies.[36] At the outset, the court was “suspicious” that harmless-error principles could apply given Comcast’s directive that the rigorous analysis “‘be performed before a class is certified.’”[37] The Fourth Circuit further held that the error was not harmless because plaintiffs’ merits report was itself inconsistent with plaintiffs’ liability theory.[38] The court explained that plaintiffs “alleged 40 different misstatements over a three-year period” concerning “safety and quality in manufacturing,” Boeing’s “culture,” “the production of safe airplanes at a stable and growing rate,” and “regulatory compliance.”[39] The court concluded that it “isn’t consistent with these allegations” to assert that these “varying statements—of different kinds, at different points in time, with different industry and macroeconomic conditions and with evolving investors’ perceptions of the riskiness of a Boeing investment—would maintain the alleged fraud by an exact percentage that never changes.”[40] As the court put it, plaintiffs “made their bed and now have to lie in it.”[41]

Implications

The Fourth Circuit’s decision provides important guidance to public companies and their officers facing securities class actions. The decision joins a growing line of appellate authority—including the Sixth Circuit’s recent decision for S&C client FirstEnergy,[42] the Second Circuit’s decision for S&C client Goldman Sachs,[43] and the Fifth Circuit’s decision for S&C client BP[44]—that gives avenues to defendants to defeat class certification in securities-fraud actions. Several implications warrant emphasis:

First, plaintiffs must commit to an actual damages methodology at the class-certification stage. It is not enough for a plaintiff’s expert to invoke the “out-of-pocket” measure of damages and defer difficult questions of implementation to the merits stage.

Second, plaintiffs must commit to, and specify, a theory of liability. General assertions that misstatements artificially inflated or maintained a company’s stock price will not suffice. This can present a meaningful hurdle to certification in event-driven securities litigation—where plaintiffs sue in the wake of a negative event (such as an airline accident) and contend that earlier generic statements were fraudulent. These cases oftentimes involve long class periods, where plaintiffs often plead inflation and maintenance in the alternative and assert that numerous generic or aspirational statements about corporate values, safety, culture, or compliance were false or misleading.

Third, the required “consistency” comparison invites careful scrutiny of the fit between the plaintiffs’ damages methodology and their specific liability theory. Where—as in Boeing’s case—plaintiffs allege numerous different misstatements made over a multi-year period and in changing market conditions, a constant inflation methodology may be difficult to reconcile with the theory of liability. In securities class actions, plaintiffs frequently take a kitchen-sink approach in their pleadings in the hope that certain statements survive the motion to dismiss; plaintiffs will now face significant risk that such an approach will present them with a problem in later certifying a class.

Fourth, district courts cannot defer these questions to summary judgment or trial. Comcast’s rigorous analysis must be performed before a class is certified.