On September 29, the Supreme Court granted cert in Macquarie Infrastructure Corp. v. Moab Partners, to decide:

whether the Second Circuit erred in holding—in conflict with the Third, Ninth, and Eleventh Circuits—that a failure to make a disclosure required under Item 303 can support a private claim under Section 10(b), even in the absence of an otherwise-misleading statement. 

(The question, I think, mischaracterizes the Third Circuit; you’ll get a sense of why below, the parties will argue the rest.  But leaving that point aside – )

I have no idea how the case will unfold, of course, but I tend to assume that despite the narrow framing, the real question is whether silence in the face of a regulatory duty to disclose constitutes a misleading omission.  I.e., it does not matter what the particular required disclosure is, or what the cause of action is; the question is whether, if you remain silent when a regulation requires you to speak, that is the equivalent of an affirmatively misleading statement.  The Second Circuit has repeatedly held yes, it is, usually in the context of 10b claims over Item 303 omissions.  Other circuits – well, to be honest, have been muddled.

This…

I was incredibly honored to be selected by Marquette Law School to deliver this year’s Boden Lecture.  The title of my talk was Of Chameleons and ESG, and it is now available for your viewing pleasure on YouTube:

I previously blogged about the shareholder derivative claims against Fox Corp, alleging that it violated its Caremark/Massey duties by defaming Dominion.  And then I had a few follow ups on Caremark generally here and here.

This week, sorry, still more, because two additional shareholder plaintiffs filed complaints in Fox.  One group is led by the New York City Employees’ Retirement System and includes the Oregon Public Employees Retirement Fund; the other is led by Tredje AP-Fonden.  These complaints differ from the ones filed earlier in that the plaintiffs sought books and records under 220, and incorporated the results into their pleadings.

VC Laster has scheduled a hearing on November 9 to choose the leadership structure for the action – in other words, all the cases will be combined, some plaintiff(s) will be lead, and some counsel will be lead. If the parties don’t work that out amongst themselves (and they’ve had plenty of time so far), VC Laster will select one plaintiff/counsel group to control the action.

Under Delaware law, these decisions are made according to what are known as the Hirt factors, which evaluate which group can best represent the shareholders, based on size of stake, absence…

A while ago, the National Center for Public Policy Research – a conservative organization that focuses its advocacy in the corporate and securities space – filed a lawsuit against Starbucks, arguing that its diversity equity and inclusion program ran afoul of Title VII of the Civil Rights Act of 1964, and Section 1981.

Conservative organizations have been launching a number of Section 1981-based challenges to DEI programs, but usually these are on behalf of workers.  The NCPPR case was unusual in that it brought its claims derivatively, as a Starbucks shareholder, on the ground that the directors’ illegal conduct violated their fiduciary duties to the company.

The judge dismissed NCPPR’s complaint a while back, but only now just got around to issuing the opinion, and I find it fascinating.

Starbucks’s key argument was that NCPPR did not, in fact, represent the interests of Starbucks shareholders, and therefore was not a proper representative in a derivative action.  In particular, Starbucks argued that the NCPPR’s concerns were personal, due to its general opposition to DEI policies, and that Starbucks’s major shareholders supported its DEI efforts.  Starbucks cited the fact that BlackRock and Vanguard have both argued that…

Earlier this week, Matt Levine used his column to highlight this paper on SSRN, “Executives vs. Chatbots: Unmasking Insights through Human-AI Differences in Earnings Conference Q&A”

The authors find that on earnings calls, some executives’ responses are so predictable that they are indistinguishable from responses given by a chatbot, and others are unexpected, in the sense that a chatbot would have predicted different answers.  The unexpected/novel responses are associated with stock price reactions because they communicate new information to the market.

Anyway, this interests me because I frequently blog about the issue of puffery, and how courts go about determining whether a statement was material to investors, and I wonder whether something like this method can be useful.  I.e., is it possible shareholders could use it to show that a particular statement at a particular time was unexpected and therefore informative, in the face of a claim that it was immaterial? 

I imagine this exact method will not always be helpful – in a lot of cases, the claim is that the language remained the same even as underlying conditions changed, and so then of course, the statement would not be found to convey new information, and presumably there would…

In posts in this space, and in my articles, I’ve criticized the idea that statements may be deemed immaterial or otherwise of little importance to reasonable investors merely because they are generic or stated at a particular level of generality.  Lots of really important statements are technically “generic,” I would say.  Consider fairness opinions!  Or representations that financial statements are in compliance with GAAP!

Well, joke’s on me because in New England Carpenters’ Guaranteed Annuity and Pension Funds v. DeCarlo, 2023 WL 5419147 (2d Cir. Aug. 23, 2023), the Second Circuit held that the general phrasing in a clean audit opinion may, in fact, render the statements immaterial to investors.  The court affirmed the dismissal of a securities fraud complaint on the ground that – even though the plaintiffs had shown the audit was shoddy and violated auditing standards (and the underlying financials were false) – the plaintiffs had not included specific allegations that the audit statements were material.

As the District Court concluded, the Complaint fails to allege any link between BDO’s misstatements in the 2013 Auditor Opinion and the material errors contained in AmTrust’s 2013 Form 10-K. The audit statements to which the Appellants

…

I’ve previously blogged about difficulties that courts have when determining the scienter of a “corporation” in Section 10(b) cases.  The summary judgment decision Roofer’s Pension Fund v. Papa, 2023 WL 5287783 (D.N.J. Aug. 17, 2023), is another example of the genre.

There, the defendants were alleged to have concealed Perrigo’s collusion with other generic drug makers.  By the time the case got to summary judgment, however, the court concluded that the only individual defendants and named speakers had not acted with scienter.  The plaintiffs maintained that scienter could be shown against the corporate entity by virtue of the knowledge of two non-speaking executives, who were alleged to have been complicit in the collusive scheme.  The question, then, was the legal standard the court would use to determine corporate scienter.  I.e., would the non-speaking executives’ scienter be imputed to the corporate entity?

At that point, the court identified a purported difference among circuit approaches, which – the court lamented – was particularly difficult to examine in the summary judgment context because most of the prior decisions were reached on a motion to dismiss:

The narrow approach, applicable in the Fifth and Eleventh Circuits, requires a plaintiff to identify a corporate

…