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Welcome to scot Discast, a project
of the Federalist Society for Law and Public

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Policy Studies. Our contributors joined us
from around the country to bring you expert

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commentary on US Supreme Court cases as
they are argued and the decisions are issued.

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The Federalist Society takes no position on
particular legal or public policy issues.

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All expressions are those of the speaker. Hello, and welcome to scot Discast.

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I'm your host, Kyle hammernis On
behalf of the Faculty division of the

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Federalist Society. We are here today
to discuss Macquarie Infrastructure Corporation versus Moab Partners

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LP, in which is Supreme Court
issued a nine zero decision on April twelfth,

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twenty twenty four. It is my
honor to introduce our guests today,

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Professor Adam Pritchard. Professor Pritchard is
the Francis and George Sgustos Professor of Law

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at the University of Michigan. Professor
Pritchard teaches corporate and securities law and recently

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publish book titled A History of Securities
Law in the Supreme Court. And with

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that, I like to turn things
over to our guests to discuss the overview

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of the case and the court's decision. So I think there is nothing surprising

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about this opinion. So this is
a nine to zero decision from the Supreme

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Court written by Justice Soda Mayor for
the Court, and she dispatches the question

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presented in an eight page opinion.
So the Court gets points for being concise

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in this case. From the court's
perspective, it didn't need to spend a

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lot of pages because the question was
very straightforward. So this is a securities

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fraud class action. And McCary Infrastructure
is in, among other things, the

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business of storing liquid bulk chemicals in
various terminals. So they have storage tanks

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and they store various large items,
and one of the items they stored was

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fuel oil for container ships that had
a high sulfur content. And the UN

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agency that's responsible for regulating the use
of oil on the high seas had threatened

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to prohibit the use of a certain
kind of oil, the high sulfur oil,

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and eventually it did, and when
it did, that had a dramatic

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effect on shareholders expectations about mccary's future
profitability, and the stock price took a

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big hit. And as is customary
after the stock price took a big hit.

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Securities class action was brought alleging that
McCary had deceived investors by not disclosing

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the impact that a change in the
regulations by the un would have on its

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business. So, in the usual
securities fraud class action, the plaintiffs alleged

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that the company has made a misstatement, a material misstatement that has affected the

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price of the security. The plaintiffs
did that here. But what makes the

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case noteworthy or attracted the attention of
the Supreme Court was that, in addition

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to making claims about misstatements by McCary, the plaintiffs alleged that McCary had failed

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to disclose the information about the probability
of the fuel oil being banned viihilation of

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a disclosure obligation They had under Item
three to three of Regulation SK which mandates

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that companies disclose known trends or uncertainties
that have had or that are reasonably likely

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to have a material favorable or unfavorable
impact on net sales or income from continuing

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operations. So the argument here was
this was going to have a negative effect

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non revenue and income and they failed
to disclose it. Under three to three

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and that investors were deceived. This
is what we call in the securities class

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action space a pure omission. They
failed to disclose when there was a legal

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obligation imposed by the sec for public
companies to disclose. In this context,

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the plaintiffs brought their claim under Rule
ten B five B of the Exchange Act

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of nineteen thirty four, and that
provision makes it illegal to make any untrue

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statement of a material fact, or
to omit to state a material fact necessary

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in order to make the statements made
in light of the circumstances under which they

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were made not misleading. That second
clause, omitting to state a material fact

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in light of the circumstances made making
other statements misleading was what was a issue

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here. So that's called the half
truth provision. That if you tell part

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of the truth, but you leave
out some of the important context around that,

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and you make what you said misleading
due to the omission, that's clearly

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actionable under rule time ten B five
B. But here the plaintiffs hadn't pointed

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to any statements that were made misleading
by the failure to disclose. The prospect

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this kind of fuel oil would be
banned. This mattered because a pure omission

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based on language under Rule ten B
five B, it looks questionable whether that's

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actionable under ten B five B,
and for the Court it seemed to matter

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a good deal that there is a
parallel provision of the Securities Act, which

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Congress passed in nineteen thirty three,
the year before the Exchange Act was passed,

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which makes it illegal to include material
misstatements and a registration registration statement file

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in connection with a public offering.
But Section eleven of the Securities Act also

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makes it illegal to omit to state
a material fact required to be stated therein

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or necessary to make the statements therein
not misleading. So Section eleven prohibits not

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only misleading half truths, but also
prohibits omitting to satisfy a disclosure requirement that

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the sec has specified has to be
included in your registration statement. So if

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Maccari had been selling securities to the
public pursuant to a registration statement, their

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failure to include this disclosure of the
fuel oil regulations clearly would have been actionable

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under section eleven. But for the
court, the absence of this language from

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section eleven omitted to state a material
fact required to be stated. Therein was

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dispositive of whether or not it was
actionable under rule ten be FI, and

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so that was the holding, was
that the failure to include this clause meant

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that it wasn't actionable under rule ten
B five B. So this was not

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surprising. It is a very textual
opinion from the Supreme Court. It turns

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in part on what it means to
make a statement. The failure to make

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a statement is not a statement under
rule ten B five B, according to

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Justice Sodomyor, and she has eight
other votes for that. So that's a

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very clear holding. There's no ambiguity. So if I was surprised by anything,

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and maybe I'm not surprised anymore,
it was the narrowness of the holding.

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So at the end of the opinion, Justice Sotomayor includes a footnote talking

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about the things that the Court is
not deciding in the context of this case.

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And the Court says in this footnote, we are not deciding what constitutes

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a statement is made, when a
statement is misleading, is a half truth,

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or whether rules ten BE five A
and ten B five C support liability

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for pure omissions. And that's the
critical narrowing clause is that last provision ten

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five A and C prohibit deceptive devices
or things that would act as a fraud

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upon an investor, so they have
a different formulation from ten B five B,

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and the Court specifically disclaimed whether failure
to satisfy a required disclosure item could

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be actionable as a scheme to defraud. So what that means for securities litigation

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going forward is that claims that might
have been framed as a pure omission under

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ten B five B that avenue is
foreclosed, but alleging that it's a deceptive

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device or contrivance under ten B five
A or ten B five C is still

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available to the plaintiffs. So we
have eliminated one potential question, but we

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have not eliminated the substantive issue going
forward for the lower courts. So this

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narrowness in securities cases coming from the
Supreme Court is I think a conspicuous trend

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over the last ten years or so. This careful case by case development of

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the law presumably helps the Court to
not make mistakes by making overarching statements.

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But if you're only going to decide
sixty cases a year and a maximum of

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two are going to be securities cases. These very narrow pronouncements from the Supreme

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Court are going to leave lower courts
grappling with a lot of questions and plaintiffs

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and defendants spending a lot of time
and money squabbling over these questions that don't

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get resolved by the Supreme Court.
Thank you for listening to this episode of

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Discussed. Discussed is a project of
the Federalist Society, not for profit educational

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organization of conservative and libertarian law students, law professors, and lawyers, founded

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upon the principles that the state exists
to preserve freedom, that the separation of

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governmental power is essential to our constitution, and that it is emphatically the province

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and duty of the judiciary to say
what the law is, not what it

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