Opinion ID: 219025
Heading Depth: 3
Heading Rank: 1

Heading: Actionable Omission

Text: Patel maintains the defendants had a duty to disclose the July 2008 incidents at the Pasadena and Merano plants. Patel believes the allegations in his complaint show the defendants had a pattern of disclosing similar disruptions in production. Patel concludes that, in light of MEMC's pre- and post-class period disclosures, the defendants' failure to disclose the incidents rendered MEMC's antecedent 10-K and press releases misleading. The district court concluded the pre-class period disclosures could not create a duty on MEMC's part to disclose the incidents. Citing Gallagher v. Abbott Labs., 269 F.3d 806 (7th Cir.2001), the district court reasoned, Publically-traded companies are not required to disclose all information as soon as it comes into their possession simply because the information is material to stock prices. See id. at 808 (Much of plaintiffs' argument reads as if firms have an absolute duty to disclose all information material to stock prices as soon as news comes into their possession. Yet that is not the way the securities laws work. We do not have a system of continuous disclosure. Instead firms are entitled to keep silent (about good news as well as bad news) unless positive law creates a duty to disclose.). The district court emphasized Patel cites no case law to support the contention that ... a `pattern' [of disclosing events that affect stock prices] can give rise to a duty to disclose promptly all such events. The district court ignored MEMC's post-class period disclosures as irrelevant to establishing whether defendants had a duty to make the disclosures. Like the district court before us, we are unable to find any legal authority directly supporting Patel's pattern theory. Perhaps the best support for Patel's theory may be inferred from recent Supreme Court dictum. The Supreme Court in Matrixx wrote: [I]t bears emphasis that § 10(b) and Rule 10b-5(b) do not create an affirmative duty to disclose any and all material information. Disclosure is required under these provisions only when necessary to make ... statements made, in the light of the circumstances under which they were made, not misleading. 17 C.F.R. § 240.10b-5(b); see also [ Basic Inc. v. Levinson, 485 U.S. 224, 239 n. 17, 108 S.Ct. 978, 99 L.Ed.2d 194 (1988)] (Silence, absent a duty to disclose, is not misleading under Rule 10b-5). Even with respect to information that a reasonable investor might consider material, companies can control what they have to disclose under these provisions by controlling what they say to the market. Matrixx, 131 S.Ct. at 1321-22 (emphasis added). Even if we should infer from Matrixx that a pattern of disclosure may spawn a duty to disclose, we do not believe Patel has alleged circumstances giving rise to such a hypothetical duty here. This is not a case, for example, in which MEMC had just told investors the Pasadena and Merano facilities were fully operational or in perfect working order. Instead, MEMC warned investors its business was vulnerable to any disruption at those plants. Mere allegations that statements in one report should have been made in earlier reports do not make out a claim of securities fraud. In re K-tel Int'l, Inc. Sec. Litig., 300 F.3d 881, 891 (8th Cir.2002) (quoting Acito v. IMCERA Grp., Inc., 47 F.3d 47, 53 (2d Cir.1995)). We decline to recognize a new cause of action absent extraordinary circumstances not present here. To do so could encourage companies to disclose as little as possible. Cf. Higginbotham v. Baxter Int'l, Inc., 495 F.3d 753, 760 (7th Cir.2007) ([W]hat rule of law requires 10-Q reports to be updated on any cycle other than quarterly? That's what the `Q' means.).