MACQUARIE INFRASTRUCTURE CORP. ET AL. v. MOAB PARTNERS, L. P., ET AL.
No. 22-1165
SUPREME COURT OF THE UNITED STATES
April 12, 2024
601 U. S. ____ (2024)
SOTOMAYOR,
CERTIORARI TO THE UNITED STATES COURT OF APPEALS FOR THE SECOND CIRCUIT. Argued January 16, 2024.
(Slip Opinion)
OCTOBER TERM, 2023
Syllabus
NOTE: Where it is feasible, a syllabus (headnote) will be released, as is being done in connection with this case, at the time the opinion is issued. The syllabus constitutes no part of the opinion of the Court but has been prepared by the Reporter of Decisions for the convenience of the reader. See United States v. Detroit Timber & Lumber Co., 200 U. S. 321, 337 (1906).
Syllabus
MACQUARIE INFRASTRUCTURE CORP. ET AL. v. MOAB PARTNERS, L. P., ET AL.
CERTIORARI TO THE UNITED STATES COURT OF APPEALS FOR THE SECOND CIRCUIT
No. 22-1165. Argued January 16, 2024—Decided April 12, 2024
Petitioner Macquarie Infrastructure Corporation owns a subsidiary that operates terminals to store bulk liquid commodities, including No. 6 fuel oil, a byproduct of the refining process with a typical sulfur content close to 3%. In 2016, the United Nations’ International Maritime Organization formally adopted IMO 2020, a regulation capping the sulfur content of
In response, Moab Partners, L. P., sued Macquarie and various officer defendants. Moab alleged, among other things, that Macquarie violated Securities and Exchange Commission Rule 10b-5(b)—which makes it unlawful to omit material facts in connection with buying or selling securities when that omission renders “statements made” misleading—because it had a duty to disclose the IMO 2020 information under Item 303 of SEC Regulation S–K. Item 303 requires companies to disclose “known trends or uncertainties that have had or that are reasonably likely to have a material favorable or unfavorable impact on net sales or revenues or income from continuing operations” in periodic filings with the SEC.
Held: Pure omissions are not actionable under Rule 10b-5(b). Rule 10b-5(b) makes it unlawful “[t]o make any untrue statement of a material fact or to omit to state a material fact necessary in order to make the statements made, in the light of the circumstances under which they were made, not misleading.”
A pure omission occurs when a speaker says nothing, in circumstances that do not give any special significance to that silence. Half-truths, on the other hand, are “representations that state the truth only so far as it goes, while omitting critical qualifying information.” Universal Health Services, Inc. v. United States ex rel. Escobar, 579 U. S. 176, 188 (2016). Rule 10b-5(b) requires disclosure of information necessary to ensure that statements already made are clear and complete. Logically and by its plain text, Rule 10b-5(b) therefore covers half-truths, not pure omissions, because it requires identifying affirmative assertions (i.e., “statements made“) before determining if other facts are needed to make those statements “not misleading.”
Statutory context confirms what the text plainly provides. Section 11(a) of the Securities Act of 1933 prohibits any registration statement that “omit[s] to state a material fact required to be stated therein.”
“Silence, absent a duty to disclose, is not misleading under Rule 10b-5.” Basic Inc. v. Levinson, 485 U. S. 224, 239, n. 17 (1988). A duty to disclose, however, does not automatically render silence misleading under Rule 10b-5(b). The failure to disclose information required by Item 303 can support a Rule 10b-5(b) claim only if the omission renders affirmative statements made misleading.
Congress and the SEC require it to disclose.” Brief for Respondent Moab Partners 1. But private parties remain free to bring claims based on Item 303 violations that create misleading half-truths, and the SEC retains authority to prosecute violations of its own rules and regulations, including Item 303. Pp. 4-8.
Vacated and remanded.
SOTOMAYOR, J., delivered the opinion for a unanimous Court.
Opinion of the Court
NOTICE: This opinion is subject to formal revision before publication in the United States Reports. Readers are requested to notify the Reporter of Decisions, Supreme Court of the United States, Washington, D. C. 20543, pio@supremecourt.gov, of any typographical or other formal errors.
SUPREME COURT OF THE UNITED STATES
No. 22-1165
MACQUARIE INFRASTRUCTURE CORPORATION, ET AL., PETITIONERS v. MOAB PARTNERS, L. P., ET AL.
ON WRIT OF CERTIORARI TO THE UNITED STATES COURT OF APPEALS FOR THE SECOND CIRCUIT
[April 12, 2024]
JUSTICE SOTOMAYOR delivered the opinion of the Court.
Securities and Exchange Commission (SEC) Rule 10b-5(b) makes it unlawful to omit material facts in connection with buying or selling securities when that omission renders “statements made” misleading. Separately, Item 303 of SEC Regulation S–K requires companies to disclose certain information in periodic filings with the
I
A
Section 10(b) of the Securities Exchange Act of 1934 makes it “unlawful for any person ... [t]o use or employ, in connection with the purchase or sale of any security ... [,] any manipulative or deceptive device or contrivance in contravention of such rules and regulations as the [SEC] may prescribe.” 48 Stat. 891,
implements this prohibition and makes it unlawful for issuers of registered securities to “make any untrue statement of a material fact or to omit to state a material fact necessary in order to make the statements made, in the light of the circumstances under which they were made, not misleading.”
Section 13(a) of the Exchange Act requires issuers to file periodic informational statements. See
B
Macquarie Infrastructure Corporation owns infrastructure-related businesses, including a subsidiary that operates large “bulk liquid storage terminals” within the United States. These terminals handle and store liquid commodities, such as petroleum, biofuels, chemicals, and oil products. One liquid commodity stored in these terminals is No. 6 fuel oil, a high-sulfur fuel oil that is a byproduct of the refining process. In 2016, the United Nations’ International Maritime Organization formally adopted IMO 2020, a regulation that capped the sulfur content of fuel oil used in shipping at 0.5% by the beginning of 2020. No. 6 fuel oil typically has a sulfur content closer to 3%. In the ensuing
years, Macquarie did not discuss IMO 2020 in its public offering documents. In February 2018, however, Macquarie announced that the amount of storage capacity contracted for use by its subsidiary‘s customers had dropped in part because of the structural decline in the No. 6 fuel oil market. Macquarie‘s stock price fell around 41%.
Moab Partners, L. P. sued Macquarie and various officer defendants, alleging, among other things, a violation of §10(b) and Rule 10b-5. The crux of Moab‘s argument was that Macquarie‘s public statements “were false and misleading” because it “concealed from investors that [its subsidiary‘s] single largest product ... was No. 6 fuel oil,” which “faced a near-cataclysmic ban on the bulk of its worldwide use through IMO 2020.” City of Riviera Beach Gen. Employees Retirement System v. Macquarie Infrastructure Corp., 2021 WL 4084572, *6 (SDNY, Sept. 7, 2021)
The Second Circuit reversed. The court reasoned that there are “two circumstances which impose a duty on a corporation to disclose omitted facts.” 2022 WL 17815767, *1 (Dec. 20, 2022). First, a duty arises when there is “‘a statute or regulation requiring disclosure,’ ... such as Ite[m] 303.” Ibid. (quoting Stratte-McClure v. Morgan Stanley, 776 F. 3d 94, 101 (CA2 2015)). Second, “[e]ven when there is no existing independent duty to disclose information, once a company speaks on an issue or topic, there is a duty to tell the whole truth.” 2022 WL 17815767, *1 (internal
quotation marks omitted). “Crediting [Moab‘s] allegations as true, IMO 2020‘s significant restriction of No. 6 fuel oil use was known to [Macquarie] and reasonably likely to have material effects on [Macquarie‘s] financial condition or results of operation.” Id., at *3. Because Moab had “adequately alleged a ‘known trend[] or uncertaint[y]’ that gave rise to a duty to disclose under Item 303,” id., at *2 (alterations in original), the court applied its binding precedent to conclude that Macquarie‘s Item 303 violation alone could sustain Moab‘s §10(b) and Rule 10b–5 claim. See ibid. (“The failure to make a material disclosure required by Item 303 can serve as the basis ... for a claim under Section 10(b)“).
The courts of appeals disagree on whether a failure to make a disclosure required by Item 303 can support a private claim under §10(b) and Rule 10b-5(b) in the absence of an otherwise-misleading statement.1 This Court granted certiorari to resolve that disagreement. 600 U. S. ____ (2023).
II
Rule 10b-5(b) makes it unlawful “[t]o make any untrue statement of a material fact or to omit to state a material fact necessary in order to make the statements made, in the light of the circumstances under which they were made, not misleading.”
prohibits omitting a material fact necessary “to make the statements made ... not misleading.” Ibid. This case turns on whether this second prohibition bars only half-truths or instead extends to pure omissions.
A pure omission occurs when a speaker says nothing, in circumstances that do not give any particular meaning to that silence. Take the simplest example. If
Rule 10b-5(b) does not proscribe pure omissions. The Rule prohibits omitting material facts necessary to make the “statements made ... not misleading.” Put differently, it requires disclosure of information necessary to ensure that statements already made are clear and complete (i.e., that the dessert was, in fact, a whole cake). This Rule therefore covers half-truths, not pure omissions. Logically and by its plain text, the Rule requires identifying affirmative assertions (i.e., “statements made“) before determining if
other facts are needed to make those statements “not misleading.” See, e.g., 6 Oxford English Dictionary 857 (1933) (def. 3) (defining “statement” as a “written or oral communication setting forth facts, arguments, demands, or the like“); Webster‘s New International Dictionary 2461 (2d ed. 1942) (defining “statement” as the “[a]ct of stating, reciting, or presenting, orally or on paper“). It once again “bears emphasis that §10(b) and Rule 10b-5(b) do not create an affirmative duty to disclose any and all material information. Disclosure is required under these provisions only when necessary ‘to make ... statements made, in the light of the circumstances under which they were made, not misleading.‘” Matrixx Initiatives, Inc. v. Siracusano, 563 U. S. 27, 44 (2011) (quoting
Statutory context confirms what the text plainly provides. Congress imposed liability for pure omissions in §11(a) of the Securities Act of 1933. Section 11(a) prohibits any registration statement that “contain[s] an untrue statement of a material fact or omit[s] to state a material fact required to be stated therein or necessary to make the statements therein not misleading.”
(“When Congress wished to provide a remedy ... it had little trouble in doing so expressly“).
“Silence, absent a duty to disclose, is not misleading under Rule 10b–5.” Basic Inc. v. Levinson, 485 U. S. 224, 239, n. 17 (1988). Even a duty to disclose, however, does not automatically render silence misleading under Rule 10b-5(b). Today, this Court confirms that the failure to disclose information required by Item 303 can support a Rule 10b-5(b) claim only if the omission renders affirmative statements made misleading.
Moab and the United States suggest that a plaintiff does not need to plead any statements rendered misleading by a pure omission because reasonable investors know that Item 303 requires an MD&A to disclose all known trends and uncertainties. That argument fails, however, because it reads the words “statements made” out of Rule 10b-5(b) and shifts the focus of that Rule and §10(b) from fraud to disclosure. See Chiarella v. United States, 445 U. S. 222, 234-235 (1980) (“Section 10(b) is aptly described as a catchall provision, but what it catches must be fraud“). It would also render §11(a)‘s pure omission clause superfluous by making every omission of a fact “required to be stated” a misleading half-truth.
Moab also contends that without private liability for pure omissions under Rule 10b-5(b), there will be “broad immunity any time an issuer fraudulently omits information Congress and the SEC require it to disclose.” Brief for Respondent Moab Partners, L. P. 1. That is not so. For one thing, private parties remain free to bring claims based on Item 303 violations that create misleading half-truths. For another, the SEC retains authority to prosecute violations of its own regulations. The Exchange Act requires that issuers file reports “in accordance with such rules and regulations as the Commission may prescribe,”
the rules and regulations thereunder,”
*
*
*
Pure omissions are not actionable under Rule 10b-5(b). The judgment of the Court of Appeals for the Second Circuit is vacated, and the case is remanded for further proceedings consistent with this opinion.
It is so ordered.