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Supreme Court hears dispute over whether Item 303 omissions can support private Rule 10b-5 claims
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Summary
At oral argument in Macquarie Infrastructure Corp. v. Moab, petitioners urged that Rule 10b-5(b) requires a specific misleading statement pleaded under the PSLRA and that Item 303 omissions alone cannot sustain private securities class actions; respondents argued the MD&A or discrete Item 303 omissions can be misleading and cited IMO 2020 and an asserted 40% revenue loss as the omitted fact.
The Supreme Court heard argument in No. 22-1165, Macquarie Infrastructure Corporation v. Moab, over whether a company's failure to disclose information required by Item 303 of Regulation S-K can, by itself, support a private claim under Rule 10b-5(b).
Miss Coberly, counsel for the petitioners, told the justices that the text of Rule 10b-5(b) and the pleading rules Congress added in the Private Securities Litigation Reform Act require plaintiffs to identify a specific misleading statement before alleging omission-based liability. "The text makes clear that an omission is actionable in just one circumstance — when the omitted fact is material and necessary to make a statement not misleading," she said, arguing that treating an entire MD&A as the relevant statement would let plaintiffs convert any failure to comply with Item 303 into a private class action.
The government's side and private-actor respondents pressed a different view. Mister Frederick described the case as "a classic 10b-5(b) misleading half-truth," saying petitioners disclosed some known trends while omitting the uncertainty related to the IMO 2020 rule change that, he said, "would decimate 40% of their revenue." He told the Court reasonable investors would expect the Item 303 discussion in the MD&A to be complete and warned that allowing careful omissions to go unremedied would be "a road map for fraud."
Justices probed both sides with hypotheticals and practical concerns. The Chief Justice asked whether an upbeat statement about sales that omits a looming, consequential regulation would be an omission or a half-truth; Miss Coberly said courts resolve that question by comparing the subject matter and specificity of the statement and the omitted fact. Frederick and a government advocate (Mr. McDowell) contended the regulated nature of Item 303 makes the MD&A an administrable subject for evaluating completeness: if an omission meets Item 303's tests (known, reasonably likely to occur, and reasonably likely to be material), it can render the MD&A misleading for Rule 10b-5 purposes, subject to other elements such as materiality under Basic and scienter.
The argument also ranged over pleading mechanics and remedies. Petitioners emphasized the PSLRA's requirement that each alleged misleading statement be identified in the complaint so defendants can test the claim on a motion to dismiss; respondents said their complaint pleaded the MD&A as an adequate categorical statement and, as an alternative, also pointed to more particularized statements. The parties debated analogies to Section 11 disclosure law and to cases such as Omnicare, Halliburton, Stoneridge and Janus; the government urged that private actions supplement SEC enforcement because the agency cannot review every filing.
After extended questioning and rebuttal — Miss Coberly maintained that permitting Item 303 omissions alone to support Rule 10b-5 claims would effectively import Section 11 language into Rule 10b-5(b) — the case was submitted for decision.
The Court will now consider whether the omission of information required by Item 303 can itself be the predicate for private Rule 10b-5 liability or whether plaintiffs must identify a separate misleading statement in their complaint. No decision date was announced at argument.