Securities
Nova Scotia Health Employees Pension Plan v. Comerica Inc.
Date: Feb. 9, 2026
Issue: Whether Comerica violated Rule 10b-5 and Sections 10(b) and 20(a) of the Securities Exchange Act by misleading investors about how it oversaw its U.S. Department of the Treasury contract.
Case Summary: In a unanimous decision, a Ninth Circuit panel affirmed the dismissal of a lawsuit alleging that Comerica violated the Securities Exchange Act by misleading investors about how it oversaw its U.S. Department of the Treasury contract.
In August 2023, the Nova Scotia Health Employees Pension Plan (NSHEPP) sued Comerica, alleging it violated regulations and contractual requirements governing the U.S. Department of the Treasury’s Direct Express program while serving as its financial agent. Comerica was the sole provider of the Direct Express program, which provides debit cards to individuals without bank accounts, allowing them to access federal benefits, including Social Security and veterans’ benefits. NSHEPP alleged that Comerica failed to meet its operational and fraud-prevention obligations and concealed those failures from investors. NSHEPP further claimed that an article published on May 29, 2023, in American Banker revealed the alleged misconduct.
Judge Stanley Blumenfeld of the Central District of California initially dismissed the complaint but allowed NSHEPP to amend it. He ruled that a brief stock decline after an article, followed by a recovery, did not establish loss causation under Ninth Circuit precedent. NSHEPP later informed the court of the U.S. Department of the Treasury’s decision not to renew Comerica’s Direct Express contract, which caused a more than 10 percent drop in Comerica’s stock. They also noted an upcoming audit report addressing key issues in the case. However, after NSHEPP filed a Third Amended Complaint, Judge Blumenfeld dismissed it again, this time without leave to amend, for failing to adequately show that Comerica’s fraud caused its losses.
On appeal, the panel affirmed the district court’s ruling that NSHEPP failed to establish causation. The panel explained that a plaintiff proves loss causation when the market learns of the defendant’s fraudulent conduct, reacts to that conduct, and the plaintiff suffers a loss because of the market’s reaction. The panel also noted that plaintiffs most often show that the truth became known by identifying one or more corrective disclosures. NSHEPP alleged that three corrective disclosures revealed risks regarding Comerica’s probability of being renewed as Financial Agent for the Direct Express program. The panel rejected each.
First, NSHEPP argued that a May 29, 2023, American Banker article revealed compliance failures by Comerica’s third-party vendors in the Direct Express program and qualified as a corrective disclosure. The article reported that vendors i2c and Conduent failed to comply with regulatory requirements, including processing disputes overseas in violation of federal rules, and summarized prior public investigations and audits. The panel held that Comerica’s 7.4% stock drop after the article was modest, consistent with normal market movement, and quickly reversed, which undermined any claim of loss causation.
Second, NSHEPP pointed to a May 23, 2024, enforcement agreement between the OCC and Comerica’s wealth management subsidiary as a corrective disclosure. The panel found no plausible connection between that agreement and the Direct Express program, as the subsidiary played no role in the program. The panel also determined that the agreement did not reveal any false or misleading statements about Comerica’s financial reporting and explained that speculation about potential misconduct does not establish loss causation.
Finally, NSHEPP identified a July 19, 2024, announcement that the Fiscal Service had preliminarily decided not to renew Comerica as Financial Agent for the Direct Express program as a third corrective disclosure. The panel concluded that NSHEPP failed to show that the market viewed the nonrenewal decision as evidence of fraud. The announcement did not mention compliance issues or suggest that noncompliance was the driving factor. Instead, the panel found it far more likely that the market reacted to Comerica’s loss of a highly lucrative contract rather than to any alleged fraudulent conduct.
Bottom Line: The panel determined that the district court did not abuse its discretion by denying leave to amend and permanently dismissing the case. This decision was based on the court’s prior dismissal of the case twice for failure to adequately plead loss causation. Additionally, the new information presented in the proposed Third Amended Complaint would not resolve this issue.
Documents: Opinion
