Macquarie Infrastructure Corp. v. Moab Partners, L. P., 601 U.S. ___ (2024)
The case revolves around Macquarie Infrastructure Corporation and its subsidiary's business of storing liquid commodities, including No. 6 fuel oil. In 2016, the United Nations' International Maritime Organization adopted a regulation, IMO 2020, which capped the sulfur content of fuel oil used in shipping at 0.5% by 2020. No. 6 fuel oil typically has a sulfur content closer to 3%. Macquarie did not discuss IMO 2020 in its public offering documents. In 2018, Macquarie announced a drop in the amount of storage capacity contracted for use by its subsidiary's customers, partly due to the decline in the No. 6 fuel oil market, leading to a 41% fall in Macquarie's stock price.
Moab Partners, L.P. sued Macquarie and various officer defendants, alleging a violation of §10(b) and Rule 10b–5. Moab argued that Macquarie's public statements were misleading as it concealed the impact of IMO 2020 on its subsidiary's business. The District Court dismissed Moab's complaint, but the Second Circuit reversed the decision, stating that Macquarie had a duty to disclose under Item 303 and that its violation could sustain Moab’s §10(b) and Rule 10b–5 claim.
The Supreme Court of the United States held that the failure to disclose information required by Item 303 cannot support a private action under Rule 10b–5(b) if the failure does not render any "statements made" misleading. The Court clarified that Rule 10b–5(b) does not proscribe pure omissions, but only covers half-truths. The Court vacated the judgment of the Court of Appeals for the Second Circuit and remanded the case for further proceedings consistent with its opinion.
A failure to disclose information required by Item 303 of SEC Regulation S-K cannot support a private action under SEC Rule 10b–5(b) when the failure does not render any “statements made” misleading.
SUPREME COURT OF THE UNITED STATES
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 fuel oil used in shipping at 0.5% by 2020. In the ensuing years, Macquarie did not discuss IMO 2020 in its public offering documents. In February 2018, however, Macquarie announced a drop in the amount of storage contracted for use by its subsidiary due in part to the decline in the No. 6 fuel oil market. Macquarie’s stock price fell 41%.
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. 17 CFR §229.303(b)(2)(ii). The District Court dismissed Moab’s complaint. The Second Circuit reversed, concluding in part that Moab’s allegations concerning the likely material effect of IMO 2020 gave rise to a duty to disclose under Item 303, and Macquarie’s Item 303 violation alone could sustain Moab’s §10(b) and Rule 10b–5 claim. See 2022 WL 17815767, *1–*2.
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.” 17 CFR §240.10b–5(b). In addition to prohibiting “any untrue statement of a material fact”—i.e., false statements or lies—the Rule also 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 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. 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.” 15 U. S. C. §77k(a). By its terms, §11(a) creates liability for failure to speak. Neither §10(b) nor Rule 10b–5(b) contains language similar to §11(a), and that omission is telling.
“Silence, absent a duty to disclose, is not misleading under Rule 10b–5.” Basic Inc. v. Levinson, 485 U.S. 224, 239, n. 17. 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. 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 the Exchange Act requires issuers to file periodic informational statements in which companies must furnish the information required by Item 303. But that argument 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 (“Section 10(b) is aptly described as a catchall provision, but what it catches must be fraud”). 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 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.
Judgment VACATED and case REMANDED. Sotomayor, J., delivered the opinion for a unanimous Court. |
Argued. For petitioners: Linda T. Coberly, Chicago, Ill. For respondent Moab Partners, L.P.: David C. Frederick, Washington, D. C.; and Ephraim McDowell, Assistant to the Solicitor General, Department of Justice, Washington, D. C. (for United States, as amicus curiae.) |
Reply of Macquarie Infrastructure Corp., et al. submitted. |
Motion of the Solicitor General for leave to participate in oral argument as amicus curiae and for divided argument GRANTED. |
Reply of Barclays Capital Inc. submitted. |
Reply of petitioners Macquarie Infrastructure Corp., et al. filed. (Distributed) |
Reply of respondent Barclays Capital Inc. in support of vacatur filed. (Distributed) |
Reply of respondent Barclays Capital Inc. filed. (Distributed) |
Amicus brief of Institutional Investors submitted. |
Motion of United States for leave to participate in oral argument and for divided argument submitted. |
Amicus brief of Former SEC Officials submitted. |
Brief amicus curiae of United States filed. (Distributed) |
Amicus brief of Consumer Advocates submitted. |
Amicus brief of Law and Business Professors submitted. |
Brief amici curiae of Consumer Advocates filed. (Distributed) |
Brief amici curiae of Institutional Investors filed. (Distributed) |
Brief amici curiae of Law and Business Professors filed. (Distributed) |
Brief amici curiae of Former SEC Officials filed. (Distributed) |
Motion of the Solicitor General for leave to participate in oral argument as amicus curiae and for divided argument filed. |
Brief of Moab Partners, L.P. submitted. |
Brief of respondent Moab Partners, L.P. filed. (Distributed) |
CIRCULATED |
Record received from the United States Court of Appeals for the Second Circuit. The record is electronic and is available with the Clerk. |
Amicus brief of The Society for Corporate Governance submitted. |
Amicus brief of Washington Legal Foundation submitted. |
Record requested from the United States Court of Appeals for the Second Circuit. |
Amicus brief of Atlantic Legal Foundation submitted. |
Amicus brief of Securities Industry and Financial Markets Association, Chamber of Commerce of the United States of America, and Business Roundtable submitted. |
Brief amicus curiae of Atlantic Legal Foundation filed. |
Brief amici curiae of Securities Industry and Financial Markets Association, et al. filed. |
Brief amicus curiae of The Society for Corporate Governance filed. |
Brief amicus curiae of Washington Legal Foundation filed. |
SET FOR ARGUMENT on Tuesday, January 16, 2024. |
Joint Appendix submitted. |
Brief of Macquarie Infrastructure Corp., et al. submitted. |
Brief of Barclays Capital Inc. submitted. |
Joint appendix filed. (Statement of costs filed) |
Brief of petitioners Macquarie Infrastructure Corp., et al. filed. |
Brief of respondent Barclays Capital Inc. in support of vacatur filed. |
Brief of respondent Barclays Capital Inc.in support of vacatur filed. |
Petition GRANTED. |
DISTRIBUTED for Conference of 9/26/2023. |
Reply of petitioners Macquarie Infrastructure Corp., et al. filed. (Distributed) |
Brief of respondent Moab Partners, L.P. in opposition filed. |
Motion to extend the time to file a response is granted and the time is further extended to and including August 11, 2023. |
Motion to extend the time to file a response from August 2, 2023 to August 11, 2023, submitted to The Clerk. |
Brief amicus curiae of Washington Legal Foundation filed. |
Brief amici curiae of Securities Industry and Financial Markets Association, et al. filed. |
Motion to extend the time to file a response is granted and the time is extended to and including August 2, 2023. |
Motion to extend the time to file a response from July 3, 2023 to August 2, 2023, submitted to The Clerk. |
Waiver of right of respondent Barclays Capital Inc. to respond filed. |
Petition for a writ of certiorari filed. (Response due July 3, 2023) |
Application (22A920) granted by Justice Sotomayor extending the time to file until May 30, 2023. |
Application (22A920) to extend the time to file a petition for a writ of certiorari from April 27, 2023 to May 30, 2023, submitted to Justice Sotomayor. |