Opinion ID: 1782194
Heading Depth: 3
Heading Rank: 1

Heading: Applicable Standard of Materiality

Text: Because there are few Alabama cases construing the Alabama Securities Act, we review federal cases construing federal securities law to aid in properly interpreting the corresponding provisions of the Alabama Securities Act. See Buffo v. State, 415 So.2d 1158, 1162 (Ala.1982) (holding that because there are few Alabama cases construing § 8-6-17, Ala.Code 1975, federal cases should be reviewed). Section 8-6-19(a)(2), Ala.Code 1975, is similar to § 12(a)(2), Securities Act of 1933, codified as 15 U.S.C. § 771(a)(2). See Banton v. Hackney, 557 So.2d 807, 826 (Ala.1989)(stating that § 8-6-19(a)(2), Ala. Code 1975, is similar to § 12(2) of the Securities Act of 1933). [5] Thus, we look to federal cases that have interpreted materiality under § 12(a)(2) of the Securities Act of 1933. The standard of materiality is the same for various provisions of federal securities law, including § 12(a)(2) of the Securities Act of 1933. See Rombach v. Chang, 355 F.3d 164, 178 n. 11 (2d Cir.2004)(stating that the standard for a materially misleading statement is the same under § 12(a)(2), § 10(b), and § 11). Specifically, federal courts have adopted the materiality standard of § 14 of the Securities Exchange Act of 1934 as set forth in TSC Industries, Inc. v. Northway, Inc., 426 U.S. 438, 96 S.Ct. 2126, 48 L.Ed.2d 757 (1976), in construing various provisions of federal securities law, including the provisions of the Securities Act of 1933. Goss v. Clutch Exch., Inc., 701 P.2d 33, 36 (Colo.1985)(citing various federal cases). Under TSC Industries, Inc., a misrepresentation or omission of fact is material if there is substantial likelihood that a reasonable shareholder would consider it important in deciding how to vote. 426 U.S. at 449, 96 S.Ct. 2126. Moreover, [t]here must be a substantial likelihood that the disclosure of the omitted fact would have been viewed by the reasonable investor as having significantly altered the `total mix' of information made available. 426 U.S. at 449, 96 S.Ct. 2126 (footnote omitted). The jury generally determines materiality as a question of fact, but alleged misrepresentations may be immaterial as a matter of law if the trial court determines that no reasonable investor could have been swayed by the alleged misrepresentation or omission. In re Amdocs Ltd. Sec. Litig., 390 F.3d 542, 547 (8th Cir.2004); see also Parnes v. Gateway 2000, Inc., 122 F.3d 539, 546-48 (8th Cir.1997) (explaining situations where materiality is not necessarily a factual question for a jury when a misrepresentation or an omission is immaterial as a matter of law). Specifically, [a]lleged misrepresentations and omissions can be immaterial as a matter of law if they: 1) are of such common knowledge that a reasonable investor can be presumed to understand them; 2) present or conceal such insignificant data that, in the total mix of information, it simply would not matter; 3) are so vague and of such obvious hyperbole that no reasonable investor would rely upon them; or 4) are accompanied by sufficient cautionary statements. Amdocs Ltd., 390 F.3d at 548. Cautionary statements must relate directly to the alleged misrepresentations or omissions to render them immaterial as a matter of law. Amdocs Ltd., 390 F.3d at 548; see also Parnes, 122 F.3d at 548 (stating that the bespeaks caution doctrine provides that misrepresentations or omissions are immaterial if sufficient, specific cautionary statements accompany the alleged misrepresentations and omissions). In determining materiality, we do not attribute to investors a childlike simplicity. Parnes, 122 F.3d at 547.