Macquarie Infrastructure Corp. v. Moab Partners, L. P.
601 U.S. 257 (2024)
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Rule of Law:
Pure omissions are not actionable under Securities and Exchange Commission (SEC) Rule 10b–5(b); rather, liability under the Rule extends only to 'half-truths,' where an omission renders affirmative 'statements made' misleading.
Facts:
- Macquarie Infrastructure Corporation owned a subsidiary that operated terminals storing bulk liquid commodities, including No. 6 fuel oil, which typically had a sulfur content of approximately 3%.
- In 2016, the United Nations' International Maritime Organization formally adopted IMO 2020, a regulation capping the sulfur content of fuel oil used in shipping at 0.5% by the beginning of 2020.
- In the years following the adoption of IMO 2020, Macquarie did not discuss the regulation in its public offering documents.
- In February 2018, Macquarie announced a significant drop in the amount of storage capacity contracted for use by its subsidiary, attributing part of this decline to the structural decline in the No. 6 fuel oil market, which led to a 41% fall in Macquarie's stock price.
Procedural Posture:
- Moab Partners, L. P. sued Macquarie Infrastructure Corporation and various officer defendants in federal district court, alleging a violation of Section 10(b) of the Securities Exchange Act of 1934 and SEC Rule 10b-5, claiming Macquarie's public statements were false and misleading due to its failure to disclose the impact of IMO 2020 under Item 303.
- The District Court dismissed Moab's complaint, concluding that Moab had not adequately pleaded an uncertainty that should have been disclosed or in which SEC filing it should have been disclosed.
- The Second Circuit Court of Appeals reversed the District Court's dismissal, holding that Moab had sufficiently alleged a 'known trend or uncertainty' under Item 303, which gave rise to a duty to disclose, and that an Item 303 violation alone could sustain Moab's Section 10(b) and Rule 10b-5 claim.
- The Supreme Court of the United States granted certiorari to resolve a disagreement among the courts of appeals regarding whether a failure to make a disclosure required by Item 303 can support a private claim under Section 10(b) and Rule 10b-5(b) in the absence of an otherwise-misleading statement.
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Issue:
Does a failure to disclose information required by Item 303 of SEC Regulation S-K, without rendering any affirmative 'statements made' misleading, constitute a pure omission actionable under Rule 10b–5(b)?
Opinions:
Majority - Justice Sotomayor
No, a failure to disclose information required by Item 303, without rendering any affirmative 'statements made' misleading, does not constitute a pure omission actionable under Rule 10b–5(b). Rule 10b-5(b) prohibits "any untrue statement of a material fact" (false statements) and the omission of a material fact necessary "to make the statements made . . . not misleading" (half-truths). The Court clarified that this second prohibition applies only to 'half-truths,' which are representations that state the truth only in part, while omitting critical qualifying information (e.g., stating one had 'dessert' but omitting it was 'a whole cake'). It does not extend to 'pure omissions,' where a speaker says nothing at all, in circumstances that do not give special significance to that silence. The plain text of Rule 10b-5(b) logically requires the identification of affirmative assertions ('statements made') before determining if additional facts are needed to prevent those statements from being misleading. This interpretation is supported by statutory context, as Section 11(a) of the Securities Act of 1933 explicitly creates liability for pure omissions through language like 'omit[s] to state a material fact required to be stated therein,' a clause notably absent from Section 10(b) and Rule 10b-5(b). While Item 303 creates a duty to disclose certain information, that duty does not automatically render silence misleading under Rule 10b-5(b) for private claims. A Rule 10b-5(b) claim based on an Item 303 violation can only succeed if the omission renders an affirmative statement made misleading. The argument that reasonable investors are aware of Item 303 disclosure requirements, and thus all pure omissions are misleading, effectively reads the words 'statements made' out of the Rule and shifts its focus from fraud to a general disclosure obligation. Private parties can still bring claims based on Item 303 violations that create misleading half-truths, and the SEC retains its authority to prosecute violations of its own regulations, including Item 303.
Analysis:
This decision significantly narrows the scope of private rights of action under SEC Rule 10b-5(b) by explicitly distinguishing between 'pure omissions' and 'half-truths.' It reinforces the principle that Rule 10b-5(b) primarily serves as an anti-fraud provision rather than a general enforcement mechanism for all SEC disclosure requirements. For investors, this means a higher bar for pleading securities fraud claims based on non-disclosure, as they must now identify an affirmative statement made by the company that was rendered misleading by the omission, rather than simply pointing to a failure to comply with a disclosure mandate like Item 303. The ruling highlights the SEC's primary role in prosecuting violations of pure disclosure duties, while limiting private litigation to instances where omissions contribute to affirmative misrepresentations.
