U.S. Supreme Court Rules on Liability for Item 303 Omissions in Shareholder Suits
Summary The U.S. Supreme Court ruled today in Macquarie Infrastructure Corp. v. Moab Partners, L. P., 601 U.S. ___, 2024 WL 1588706 (2024), that a violation of Securities and Exchange Commission Item 303—which requires public companies to disclose “known trends or uncertainties” that could impact their income— cannot, in the absence of an otherwise misleading […]
Julia A. Malkina and Matthew A. Schwartz are Partners and Cason J.B. Reily is an Associate at Sullivan & Cromwell LLP. This post is based on a Sullivan & Cromwell memorandum by Ms. Malkina, Mr. Reily, Mr. Schwartz, Robert J. Giuffra Jr., Judson O. Littleton, and Morgan L. Ratner.
Summary
The U.S. Supreme Court ruled today in Macquarie Infrastructure Corp. v. Moab Partners, L. P., 601 U.S. ___, 2024 WL 1588706 (2024), that a violation of Securities and Exchange Commission Item 303—which requires public companies to disclose “known trends or uncertainties” that could impact their income— cannot, in the absence of an otherwise misleading statement, support a private lawsuit brought under SEC Rule 10b-5(b), a regulation that implements Section 10(b) of the Securities Exchange Act of 1934. In a unanimous opinion by Justice Sotomayor, the Court ruled in favor of Macquarie, reversing the Second Circuit’s decision allowing such claims to survive a motion to dismiss.
The Court’s ruling resolves a circuit split and changes the law in the Second Circuit, which in 2015 held that an Item 303 violation standing on its own could form the basis of a 10b-5(b) claim. See Stratte-McClure v. Morgan Stanley, 776 F.3d 94, 101 (2d Cir. 2015). After Macquarie, a plaintiff must identify a “statement” rendered misleading by the omission. The Court declined, however, to resolve questions about the scope of “statements” that could be rendered misleading by such an omission.
