Opinion ID: 773420
Heading Depth: 3
Heading Rank: 2

Heading: Information Omitted

Text: 113 More importantly, I think, the information the majority claims should have been disclosed--internal analyses by management of the Act's effect--is immaterial. Our case law clearly establishes that such information need not be disclosed. In In re Sofamor Danek Group, Inc., 123 F.3d 394, 402 (6th Cir. 1997), we held that a company does not have a duty to disclose soft information. [O]ur cases firmly establish the rule that soft information . . . must be disclosed only if . . . virtually as certain as hard facts. Id. (quoting Starkman v. Marathon Oil Co., 772 F.2d 231, 241 (6th Cir. 1985)). Hard information is typically historical information or factual information that is objectively verifiable. Id. The reason for this distinction is that soft information is immaterial. See Starkman, 772 F.2d at 239-41. 114 The effect of the Act on Vencor's revenue is undeniably soft information. There is absolutely no indication that the form or the effect of the Act was objectively verifiable when Vencor made its projections, which the majority seems to admit. On any subject falling short of reasonable certainty, then, a company could offer a patchwork of honesty and omissions. Maj. Op. at 31. But the majority finds untenable . . . both as a matter of policy and precedent, Maj. Op. at 31, that information that is not reasonably certain--that is, information that is by definition immaterial--need not be disclosed. In its mind, the protections for soft information end where speech begins. Maj. Op. at 31. Indeed, according to the majority, the argument defies application: how can a rule of non-disclosure apply to a company's disclosure? Maj. Op. at 31. The answer is simple: exactly as § 78u-5(c)(A)(ii) says it does. Under that section, a forward-looking statement is not actionable to the extent that it is immaterial. 15 U.S.C. § 78u-5(c)(A)(ii). If a statement is not actionable, what principled reason is there for requiring disclosure? 115 The majority's reliance on Rubin to answer this question is unfounded. According to the majority, in Rubin we established that an executive assumes a duty to provide complete and non-misleading information with respect to subjects on which he undertakes to speak. Maj. Op. at 32. That characterization omits the important restriction on the disclosure requirement. If the majority had gone one line further in the Rubin opinion, it would have realized that duty applies only tomaterial information. Having concluded that [the defendants] were under a duty not to misrepresent or omit material factsin connection with the proposed investment . . . . Rubin, 143 F.3d at 268 (emphasis added). The facts omitted in Rubinwere hard facts relating to the transaction--by definition material. Hence, they were required to be disclosed. Here the information at issue is soft information--by definition immaterial--and therefore management was not required to disclose it. Our precedent and § 78u-5(c)(A)(ii) make this clear. 116 The principle espoused by the majority contradicts our position previous to today's ruling. For, as Judge Merritt states inStarkman, we begin . . . with the basic proposition that only material facts--those substantially likely to affect the deliberations of the reasonable shareholder--must be disclosed, and then only if the nondisclosure of the particular material facts would make misleading the affirmative statements otherwise required by the federal securities laws and SEC regulations. Starkman 772 F.2d at 238. The majority's attempt to distinguish Starkman as a case about non-disclosure, Maj. Op. at 30, from this case which it says is about selective disclosure, is not supported by the facts of Starkman. In beginning his opinion in Starkman, Judge Merritt writes, 117 There are three public statements by Marathon management at issue here. First, Marathon's November 11, 1981, press release, which states, in pertinent part that: 118 Our Board of Directors has determined that Mobil Corporation's unsolicited tender offer is grossly inadequate. The offer is not in the best interests of Marathon Oil or its shareholders. It doesn't reflect current asset values and it doesn't permit the long-term investor the opportunity to participate in the potential values that have been developed. 119 . . . . 120 Starkman argues that the failure of any of these communications to disclose the Strong and First Boston and the five-year earnings and cash flow projections constituted an omission of material facts . . . . 121 Starkman, 772 F.2d at 236. In his opinion here, Judge Merritt begins by identifying the statements made by Vencor's executives. During [the class period], defendants made numerous statements concerning the Balanced Budget Act and its effect on Vencor's business. Maj. Op. at 20. He then concludes that these statements were misleading because Vencor did not complete the information already given concerning the Budget Act and earnings estimates. Maj. Op. at 32. In my opinion, the issue in Starkman is the same as the issue here. It is not a question of whether a company can selectively disclose material information--it cannot. Rather it is a question of whether a company that makes statements on a matter is required to disclose immaterial information. Our precedent says no. I do not understand why the majority now says yes. 1