[PUBLISH] IN THE UNITED STATES COURT OF APPEALS FOR THE ELEVENTH CIRCUIT

________________________ No. 14

- 14790

________________________ D.C. Docket No. 1:11

- cv - 20853

- KMW

RICHARD I. FRIED , P laintiff

- Appellant , versus STIEFEL LABORATORIES, INC., ET AL , Defendant

- Appellee.

________________________ Appeal from the United States District Court for the Southern District of Flo rida

_______________________ ( March 1, 2016 ) Before WILLIAM PRYOR and DUBINA , Circuit Judges , and ROBRENO * , District Judge

. WILLIAM PRYOR, Circuit Judge :

* Honorable Eduardo C. Robreno , United States District Judge for the Eastern District of Pennsylvania , sitting by designation.

Case: 14-14790 Date Filed: 03/01/2016 Page: 1 of 132 This appeal requires us to decide whether a proposed jury instruction was a correct statement of federal s ecurities law. Richard Fried was a n employee of Stiefel Laboratories, a formerly family

- owned pharmaceutical company, and he accrued stock in the company as part of his pension plan. He sold his stock back to Stiefel Labs in January 2009, a few months befo re the company was acquired by a large r pharmaceutical company , and the value of its stock rose substantially. Fried sued Stiefel Labs and its president, Charles Stiefel, on several grounds, including a violation of Section 10(b) of the Securities Exchange Act of 1934 and Rule 10b

- 5. The parties ’ proposed jury instructions stated that , to prevail on a claim under Rule 10b

- 5(b), Fried must prove that Stiefel and Stiefel Labs omitted a material fact necessary to keep other statements from being materially mis leading. Fried requested that the instruction require Fried to prove only that the defendants failed to disclose material information. Fried argues that the district court erred by refus ing to include this jury instruction

. Because Rule 10b

- 5(b) does not p rohibit a

mere failure to disclose material information, Fried’s proposed jury instruction misstated the law. W e affirm. I. BACKGROUND Stiefel Laboratories Inc. was a privately held pharmaceutical company until it was acquired by an affiliate of GlaxoSmithKline LLC in July 2009. Charles

Case: 14-14790 Date Filed: 03/01/2016 Page: 2 of 133 Stiefel served as Stiefel Lab s’ chief executive officer and chairman of the board of d irectors. Stiefel Labs had a tax

- qualified, defined

- contribution pension plan called the Employee Stock Bonus Plan. Under t he P lan, Stiefel Labs annually contributed shares of common stock , cash, or both to the participants’ accounts. The
p articipants had the right to take a distribution of the ir common stock upon death, disability, termination of employment, and certain other events. Once a participant received a distribution of his stock, he had a “put” right, which when exercised required Stiefel Labs to purchase the stock from the participant at a price set forth in the most recent appraisal adopted by the trustee of the Pl an. Richard Fried was the chief financial o fficer of Stiefel Labs from 1987 through 1997. At the time of h is resignation, Fried had 30.788 1 shares of common stock in his Plan account and 10 shares of stock outside of the Plan. After Fried left, Stiefel L abs sent him annual account statement s showing the number of shares held in his Plan account and the price per share set by the Plan’s trustee. Fried periodically met with Stiefel, who he considered a friend, to learn how the company was performing. In Au gust 2007, Fried learned from a n article in the Miami Herald that Stiefel Labs had announced that it had accepted a $500 million private equity investment from the Blackstone Group

. According to the article, “T he

Case: 14-14790 Date Filed: 03/01/2016 Page: 3 of 134 announcement stressed that the company will remain a family

- controlled business.” The article stated that private equity firms often plan an “exit strategy through a public offering of stock

— something that Stiefel has said in the past the company has no interest in.” In September 2007, Fried met with Stiefel and asked him how the Blackstone investment would impact the value of his shares. Stiefel told Fried that Blackstone paid approximately $60,000 per share but that the investment w ould not affect the value of his common stock. After t he meeting, Fried sold his 10 shares of non

- Plan stock but did not sell the stock in his Plan account. In October 2008, Fried met with Stiefel again. Stiefel told him that the company had a promising outlook because several n ew products would be released i n approximately five years but the next f ew years might be challenging due to competition from generic products. Fried testified that he un derstood this conversation as “kind of a sell signal.” In November 2008, Stiefel learned that Sanofi

- Aventis, a Fren ch pharmaceutical company, was interested in acquiring Stiefel Labs. Selling the family

- owned company was “taboo in the past,” but Stiefel presented the idea to his family on Thanksgiving. Two executives of Blackstone , Anjan Mukherjee and Chinh Chu , advised the family that, if they wished to sell, they should do so either immediately or in five years. Stiefel had a short, introductory meeting with the

Case: 14-14790 Date Filed: 03/01/2016 Page: 4 of 135 chief executive o fficer of Sanofi

- Aventis on December 22. They agreed to sign a confidentiality agr eement. Unaware of these negotiations, Fried p ut the common stock from his Plan account to Stiefel Labs on January 6 , 2009, and receive d a price of $16,469 per share. Over the next few months, Blackstone assisted the company in soliciting other bids and wo rking with potential acquirers. On April 20, 2009, GlaxoSmithKline agreed to buy Stiefel Labs for approximately $3.6 billion. After the sale, shareholders received $69,705 per share. Fried sued Stiefel Labs, Stiefel, and several other officers of Stiefe l Labs. After the district court dismissed the complaint in part, Fr ied filed an amended complaint. The amended complaint asserted claims under the Employee Retirement Income Security Act , federal securities law s, and state law. The court bifurcated the tr ial of the claims under the Employee Retirement Income Security Act from the other c laims. The parties later filed a joint stipulation for dismissal of Fried’s claims under the Employee Retirement Income Security Act , and the court dismissed those claims. O n October 31, the district court granted judgment as a matter of law for the defendants on many of Fried’s claims . The only remaining claim

— a claim against Stiefel Labs and Stiefel for fraud under federal securities law based on the 2009 sale of Fried’s 30.7811 shares of common stock

— went to the jury. Case: 14-14790 Date Filed: 03/01/2016 Page: 5 of 136 The parties submi tted proposed jury instructions for the “claims und er Rule 10b

- 5(b). ” The parties a greed on language that explain ed that the defendants had a duty under Rule 10b

- 5 (b) to disclose facts nec essary to make other statements not misleading. Fried requested an additional sentence in the instruction that the defendants had a “duty to disclose all material information .” He stated that this duty arose from a “relationship of trust and confidence” be tween Fried and the defendants. Stiefel and Stiefel Labs objected. The following is the agreed

- upon instruction with Fried’s proposed sentence underlined : An “omission” is a failure to disclose a material fact. The Defendants had a duty to disclose all ma terial information to Mr. Fried. Additionally, the Defendants had a continuing duty to disclose facts that would be necessary to know in order to keep other statements from being materially misleading. That is to say that, if the Defendant has made stateme nts regarding material facts in the past, such as in information sent out to shareholders or statements made in press releases issued by the company, there is a duty to correct statements of material fact if it is learned that the statement, though correct at the time it was made, would be misleading if left unrevised. Likewise, a Defendant has a duty to update prior statements when, though the statement was reasonable when made, subsequent events have rendered the statement materially misleading. This in struction incorporated parts of the pattern instruction for this Circuit for claims under Rule 10b

- 5(b)

. See 11th Cir. Pattern Civ. Jury Instr. 6.2 (2013). At the charge conference , Fried’s counsel explained , “ T here are two duties that we’re talking about. One i s the duty to update or correct. ” He continued, “The additional duty that we want is an additional duty when the corporation is purchasing shares

Case: 14-14790 Date Filed: 03/01/2016 Page: 6 of 137 from the plaintiff shareholder.” The district court refused to include the sentence Fried requested. The jury returned a verdict in fa vor of Stiefel Labs and Stiefel. II. STANDARD OF REVIEW “We review the district court’s refusal to give a proposed jury instruction for an abuse of discretion.” Watkins v. City of Montgomery , 775 F.3d 1280, 1289 (11th Cir. 20 14). A district court abuse s its discretion if “(1) the requested instruction correctly stated the law, (2) the instruction dealt with an issue properly before the jury, and (3) the failure to give the instruction resulted in prejudicial harm to the
reques ting party.” Id. at 1291 (quoting Pensacola Motor Sales, Inc. v. E. Shore Toyota, LLC , 684 F.3d 1211, 1224 (11th Cir. 2012)). III. DISCUSSION Fried argues that his proposed jury instruction correctly stated that Stiefel Labs had a duty as a corporate insider to disclose all material information . An insider of a corporation has a duty to disclose all material nonpublic information or to abstain from trading in the corporation’s stock. Chiarella v. United States , 445 U.S. 222, 22 7 (1980)

. Some courts have stated or assumed that privately held corporations are insiders under Rule 10b

- 5 and have a duty to disclose before trading in their own stock

. See , e.g. , Castellano v. Young & Rubicam, Inc. , 257 F.3d 171, 179 (2d Cir. 200 1); Shaw v. Digital Equip

. Corp. , 82 F.3d 1194, 1204 (1st Cir. 1996) , superseded in other part by 15 U.S.C. § 78u

- 4 ; McCormick v.

Case: 14-14790 Date Filed: 03/01/2016 Page: 7 of 138 Fund Am. Cos. , 26 F.3d 869, 876 (9th Cir. 1994); Jordan v. Duff & Phelps, Inc. , 815 F.2d 429, 434 (7th Cir. 1987); Levinson v. Basic Inc. , 78 6 F.2d 741, 746 (6th Cir. 1986), vacated on other grounds , 485 U.S

. 224 (1988). We need not decide whether a corporation is a n insider because, even if Stiefel Labs was an insider , Fried’s proposed jury inst ruction d id not correctly state the law

. Rule 10b

- 5(b) prohibits misrepresentations and omissions of material fact; it does not prohibit an insider’s failure to disclose all material information before trading in its stock

. I nsider trading is actionable under Rule 10b

- 5(a) and (c). This difference explains why the Eleventh Circuit pattern instructions include one instruction for misrepresentations and omissions under subsection (b) and another instruction for insider trading under subsection (a). Compare 11th Cir. Pattern Civ. Jury Instr

. 6.2 with 11th Cir. Pattern Civ. Jury Instr. 6.3.1

. The sentence Fried proposed neither accurately described a claim under Rule 10b

- 5 (b) nor adequately described insider trading. The parties proposed instructions based on the pattern instruction for claims under Rule 10b

- 5 (b) , but Fried never request ed the pattern or any similar instruction for a claim of insider trading. Fried instead request e d that a sentence be added to the modified version of the pattern instru ction for claims under Rule 10b

- 5 (b) to encompass an insider’s duty to disclose

. Because Fried’s proposed instruction was not a correct statement of the law, the district court did not abuse its discretion by refusing to give it

.

Case: 14-14790 Date Filed: 03/01/2016 Page: 8 of 139 Section 10(b) of the Securities Exchange Act of 1934 prohibits the use of any “manipulative or deceptiv e device or contrivance” in “connection with the purchase or sale of a ny security.” 15 U.S.C. § 78j (b) . And R ule 10b

- 5, promulgated by the Securities and Exchange Commission to implement section 10(b) , makes the following acts or omissions unlawful when done with a specified connection to interstate commerce : (a) To employ any device, scheme, or artifice to defraud, (b) To 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 , or (c) To engage in any act, practice, or course of business which operates or would operate as a f raud or deceit upon any person, i n connection with the pu rchase or sale of any security. 17 C.F.R. § 240.10b

- 5 (emphasis added)

. To prove a violation of Rule 10b

- 5 (b), a plaintiff mus t identify a misrepresentation or an omission of a material fact

. See Stoneridge Inv. Partners, LLC v. Scientific

- Atlanta , Inc. , 552 U.S. 148, 157 (2008). The instructions given by the district court correctly stated the law of Rule 10b

- 5(b). An i ndividual has a duty “to update prior statements if the statements were true when made, but misleading or deceptive if left unrevised,” and a failure to update is an “omission” under subsection (b). Finnerty , 756 F.3d 1310, 13 16

– 17 (11th Cir. 2014) ; accord FindWhat Inv’ r Gr p . v. FindWhat.com , 658 F.3d 1282, Case: 14-14790 Date Filed: 03/01/2016 Page: 9 of 1310 1305 (11th Cir. 2011)

. In t heir proposed instructions, the parties added sentences to the pattern instructions for a claim under Rule 10b

- 5 (b) to explain that Stiefel and Stiefel Labs had “a duty to corr ect statements of material fact if it is learned that the statement, though correct at the time it was made, would be misleading if left unrevised.” Fried agrees that the instruction as given correctly described this duty to update

. Fried argues that an insider’s failure to disclose material facts when trading in the corporation’s stock is also a n “omission” under Rule 10b

- 5(b) , but this interpretation is contrary to the plain text of the Rule

. Rule 10b

- 5 (b) describes an omission that makes other “ stateme nts made ” misleading. 17 C.F.R. § 240.10b

- 5

. That is, it p roscribes fraud only in connection with a n affirmative representation. See Affiliated Ute Citizens of Utah v. United States , 406 U.S. 128, 153 (1972). If the district court had added Fried’s propose d sentence and instructed the jury that the “Defendants had a duty to disclose all material information” and “[a]n ‘omission’ is a failur e to disclose a material fact,” Stiefel and Stiefel Labs could have been erroneously held liable under Rule 10b

- 5(b) ev en if they had never made any statements to Fried. Our pattern instruction, in contrast, correctly defines an “omission” as “the failure to state facts that would be necessary to make the statements made by [ name of defendant ] not misleading to [ name of plaintiff /the SEC ].” 11th Cir. Pattern Civ. Jury Instr. 6.2.

Case: 14-14790 Date Filed: 03/01/2016 Page: 10 of 1311 Fried argues that the “omission” component of Rule 10b

- 5(b) extends beyond the requirement to prevent e arlier statements from becoming misleading and prohibi ts omissions by individuals who owe an other a duty to disclose, b ut Rule 10b

- 5(b) does not proscribe total silence. This Court has explained that a duty to disclose exists where it is necessary to make prior speech not misleading or “where the law imposes special obligations, as for accountant s, brokers, or other experts, depending on the circumstances of the case.” Rudolph v. Arthur Andersen & Co ., 800 F.2d 1040, 1043 (11th Cir. 1986) (quoting Woodward v. Metro Bank , 522 F.2d 84, 98 n. 28 (5th Cir. 1975)). An individual with a duty to disclose may violate Rule 10b

- 5(b) by omitting a material fact from a statement , see First V a . Bankshares v. Benson , 559 F.2d 1307, 1314 (5th Cir. 1977), and an individual with a duty to disclose may commit a fraud under Rule 1 0b

- 5 by failing to disclose material information, cf. Ziemba v. Cascade Int’l, Inc. , 256 F.3d 1194, 1206

– 07 (11th Cir. 2001)

. But t his Court has never held that a failure to disclose material information is an omission under subsection (b) absent a stateme nt made misleading by that failure. An insider who make s no affirmative representation but trades o n nonpublic information may violate Rule 10b

- 5(a) or (c), not Rule 10b

- 5(b). Rule 10b

- 5 (a) and (c) “ are n ot so restricted” as Rule 10b

- 5 (b ) because they do not require making
statements. Affiliated Ute Citizens , 406 U.S. at 152

– 53

. In Chiarella v. United

Case: 14-14790 Date Filed: 03/01/2016 Page: 11 of 1312 States , the Supreme Court considered whether the silence of an employee of a financial printer who traded in stock on the basis of nonpublic information

cons tituted a violation of section 10(b) of the Exchange Act . 445 U.S. at 226. The Supreme Court included only the language from sub sections (a) and (c) as the “pertinent part” of Rule 10b

- 5. Id. at 225. Similarly, when the Supreme Court upheld liability for insider trading based on a theory of misappropriation in United States v. O’Hagan , it included only the language from subsections (a) and (c) as the “relevant” portion of Rule 10b

- 5. 521 U.S. 642, 651 (1997). Two of our sister circuits have stated that an insider’s silence is a violation of Rule 10b

- 5(b), see Desai v. Deutsche Bank Sec

. Ltd ., 573 F.3d 931, 940 (9th Cir. 2009); Garcia v. Cordova , 930 F.2d 826, 828

– 29 (10th Cir. 1991), but both statements were made in passing and neither grapples with the text of subsection (b)

. Even if Fried’s proposed jury instruction had referred to Rule 10b

- 5(a) or (c) instead of Rule 10b

- 5(b), his proposed instruction did not a dequately state the elements of a claim of insider trading. The pattern in struction for insider trading , for example, requires proof that the defendants used a “‘ device, scheme, or artifice’

. . . known as ‘insider trading.’” 11th Cir. Patt ern Civ. Jury Instr. 6.3.1

. It explains that a jury should be instructed about the “specific insider

- trading theory alleged in the particular case ”

— classical insider theory, misappr opriation theory, tipper theory, or tippee theory. Id. The instruction that Fried requested , in contrast ,

Case: 14-14790 Date Filed: 03/01/2016 Page: 12 of 1313 neither explain ed that the corporation had a duty to disclose by virt ue of its role as an insider nor explain ed how insider trading occurs. Indeed , Fried’s proposed instruction did not even mention the term “insider.” As a result , t he inst ructions proposed by Fried did n ot require the jury to find that Stiefel Labs traded “on the basis of” material information. SEC v. Adler , 137 F.3d 1325, 1338 (11th Cir. 1998). This Circuit has stated that the mere possession of material nonpublic information is not sufficient to establi sh liability for insider trading ; an insider must use that information, al though a strong inference of use arises when an insider trades while in possession of material nonpublic information

. Id. at 1337. By attempting to modify an instruction for traditional securities fraud to cover both that kind of claim and a claim of insider trading, Fried described neither claim correctly in his proposed instruction

. IV. CONCLUSION We AFFIRM the judgment in favor of Stiefel and Stiefel Labs. Case: 14-14790 Date Filed: 03/01/2016 Page: 13 of 13