Macquarie Infrastructure Corp. v. Moab Partners, L. P.
601 U.S. 257
| SCOTUS | 2024Background
- Macquarie Infrastructure Corporation owned a subsidiary that operated terminals storing No. 6 fuel oil, a high-sulfur product heavily affected by an international regulation (IMO 2020) adopted in 2016 to cap sulfur levels in shipping fuel by 2020.
- Macquarie did not discuss the potential business impact of IMO 2020 in public offering documents before announcing a significant loss in contracted storage and a 41% stock price drop in February 2018.
- Moab Partners, a shareholder, sued Macquarie under SEC Rule 10b–5(b), claiming Macquarie violated its duty to disclose under Item 303 of Regulation S–K, which requires companies to disclose known trends likely to materially affect financial results.
- The district court dismissed Moab's claim, but the Second Circuit reversed, finding that failure to disclose under Item 303 could itself sustain a Rule 10b–5 claim.
- The Supreme Court granted certiorari to resolve a split among the circuits as to whether pure omissions (failing to disclose required information without making any misleading statement) create liability under Rule 10b–5(b).
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Whether a pure omission under Item 303 supports a private claim under Rule 10b–5(b) even if no statement is rendered misleading | Macquarie's omission of IMO 2020's impact, required by Item 303, supports a 10b–5 claim even without misleading statements | Rule 10b–5(b) targets only omissions that make actual statements misleading (half-truths), not pure omissions | Pure omissions are not actionable under Rule 10b–5(b); only omissions that render affirmative statements misleading are covered |
| Whether Item 303 creates an independent duty actionable under Rule 10b–5(b) | Duty to disclose under Item 303 means failure to disclose is actionable | Rule 10b–5(b) liability arises only when a required disclosure makes an affirmative statement misleading, not from Item 303 alone | No, the failure to disclose under Item 303 alone, without a misleading statement, does not support Rule 10b–5(b) liability |
| Standard under which silence (failure to disclose) becomes actionable fraud | Silence is actionable when there is a regulatory duty to disclose, such as under Item 303 | Silence is only actionable when it makes an explicit statement misleading; not every regulatory omission is actionable | Silence, without making statements misleading, is not actionable under Rule 10b–5(b) |
| SEC/private enforcement for omissions unrelated to misleading statements | Private plaintiffs and SEC can both enforce Item 303 disclosures via Rule 10b–5 | Only SEC, not private actions, can enforce pure omissions under Item 303; private actions limited to misleading statements | Private parties can sue only for misleading statements (half-truths); SEC retains authority for pure regulatory omissions |
Key Cases Cited
- United States v. Detroit Timber & Lumber Co., 200 U.S. 321 (explaining the non-binding nature of syllabus/headnote vs. opinion)
- Basic Inc. v. Levinson, 485 U.S. 224 (“Silence, absent a duty to disclose, is not misleading under Rule 10b–5”)
- Universal Health Services, Inc. v. United States ex rel. Escobar, 579 U.S. 176 (distinguishes half-truths from pure omissions in fraud)
- Omnicare, Inc. v. Laborers Dist. Council Constr. Industry Pension Fund, 575 U.S. 175 (discusses misleading statements and liability for failure to disclose mandated facts)
- Chiarella v. United States, 445 U.S. 222 (Rule 10b–5 focuses on fraud, not general disclosure)
- Blue Chip Stamps v. Manor Drug Stores, 421 U.S. 723 (Congress' express remedies vs. judicial implication)
- Ernst & Ernst v. Hochfelder, 425 U.S. 185 (contrast in statutory language and intent for liability)