Opinion ID: 3048173
Heading Depth: 4
Heading Rank: 2

Heading: July 26, 2004 Conference Call

Text: 34 On July 26, 2004, MIVA held a public conference call to discuss financial results for the second quarter of 2004.22 On the call, Defendant Thune (COO) commented on revenue trends for the Company this way: While both our revenue and Espotting’s revenue in April was down versus January, by June revenue was increasing. And we believe that every one of our divisions can grow revenue from Q2 to Q3, despite the seasonal softness typical in the summer months, when individual Internet usage usually declines. In part, this revenue growth will come from executing on opportunities created by the four transactions we have completed this year. (Compl. ¶ 78) (some emphasis omitted). To begin with, Thune’s statement that “we believe that every one of our divisions can grow revenue from Q2 to Q3” is non-actionable. Statements regarding future performance are actionable only if “they are worded as guarantees or are supported by specific statements of fact or if the speaker does not genuinely or reasonably believe them.” Merchant Capital, 483 F.3d at 767 (internal quotation marks and alteration omitted). There are no allegations in the Complaint suggesting any of these possibilities. Therefore, the only potentially actionable part of Thune’s statement is the factual claim that “by June revenue was increasing.” (Compl. ¶ 78). Nowhere in 22 The Plaintiffs do not individually name the officers who participated in the July 26, 2004 conference call except for Defendant Thune. See In re MIVA, 511 F. Supp. 2d at 1254; (see also Compl. ¶ 78). 35 the Complaint, however, do the Plaintiffs allege that this statement was inaccurate, i.e., that revenue was not increasing by June 2004. Indeed, on appeal, the Plaintiffs effectively concede that this statement was not false. Instead, the Plaintiffs argue that the statement was misleading because it was only a half-truth, suggesting that “[t]he portrayal of MIVA as a growth company with increasing revenue was highly misleading because [the] Defendants knew their revenue stream included the illicit click-fraud operators who counted for a significant portion of the Company’s purported financial growth.”23 (Appellant Reply Br. at 6). Rule 10b-5 prohibits not only literally false statements, but also any omissions of material fact “necessary in order to make the statements made, in the light of the circumstances under which they were made, not misleading.” 17 C.F.R. § 240.10b-5(b). By voluntarily revealing one fact about its operations, a duty arises for the corporation to disclose such other facts, if any, as are necessary to ensure that what was revealed is not “so incomplete as to mislead.” Backman v. 23 The Plaintiffs appear to have abandoned the argument they made to the district court that the Defendants were obliged to disclose the bid deflation trend pursuant to the SEC Staff Accounting Bulletin (“SAB”) 101. The district court rejected this argument, observing that, “[w]hile disclosure of the bid deflation trend may have been required in filings with the SEC under SAB 101 . . . , there is no mandatory obligation to disclose such a trend in a conference call.” In re MIVA, 511 F. Supp. 2d at 1255. The Plaintiffs have not raised this argument again in their briefs to this Court, and we do not consider it. See Instituto de Prevision Militar, 546 F.3d at 1353 (holding that arguments not made to appellate court are abandoned). 36 Polaroid Corp., 910 F.2d 10, 16 (1st Cir. 1990) (en banc) (quoting Texas Gulf Sulphur, 401 F.2d at 862); accord Rudolph, 800 F.2d at 1043 (“Where a defendant’s failure to speak would render the defendant’s own prior speech misleading or deceptive, a duty to disclose arises.”); Lormand v. US Unwired, Inc., 565 F.3d 228, 248 (5th Cir. 2009) (“[T]he disclosure required by the securities laws is measured not by literal truth, but by the ability of the statements to accurately inform rather than mislead prospective buyers.”). “[E]ven absent a duty to speak, a party who discloses material facts in connection with securities transactions assumes a duty to speak fully and truthfully on those subjects.” In re K-tel Intern., Inc. Sec. Litig., 300 F.3d 881, 898 (8th Cir. 2002) (internal quotation marks and alteration omitted). In sum, “a defendant may not deal in half-truths.” First Va. Bankshares, 559 F.2d at 1314. A statement is misleading if “in the light of the facts existing at the time of the [statement] . . . [a] reasonable investor, in the exercise of due care, would have been misled by it.” Texas Gulf Sulphur, 401 F.2d at 863. Thus, the “appropriate primary inquiry” is “into the meaning of the statement to the reasonable investor and its relationship to truth.” Id. at 862. According to the Plaintiffs, because the Defendants “failed to disclose that the only reason for the purported ‘increase’ [in revenue] was the inclusion of 37 illegitimate traffic, which would inevitably have to be removed,” Defendant Thune’s statement was fatally misleading. (Appellant Br. at 24). However, the Plaintiffs’ argument fails. Requiring that disclosures be “‘complete and accurate’ . . . does not mean that by revealing one fact about a product, one must reveal all others that, too, would be interesting, market-wise.” Backman, 910 F.2d at 16. A corporation has a duty to neutralize only the “natural and normal implication” of its statements. See Donald C. Langevoort, Half-Truths: Protecting Mistaken Inferences by Investors and Others, 52 Stan. L. Rev. 87, 94 (1999). Defendant Thune’s statement would be misleading only if it “conveyed to the public a false impression” of the quality of the Company’s click traffic. See Texas Gulf Sulphur, 401 F.2d at 862. However, Defendant Thune’s statement -- a general report about an actual increase in total revenue in the preceding month across the Company as a whole, which at that time included MIVA’s recently acquired companies, as well -- conveyed no message regarding the underlying quality of MIVA’s click traffic. Thune’s statement did not even mention MIVA’s click traffic or click revenue. No reasonable investor would believe that a conclusory, but apparently accurate, report of company-wide revenue growth naturally implied that all was well within every component of the company that could possibly affect revenue in the future. Otherwise, factual reporting of past 38 earnings -- disclosure of which the securities laws always encourage and frequently require24 -- would become a treacherous endeavor indeed. Under the Plaintiffs’ preferred rule, company reports of revenue growth -- no matter how factually accurate and no matter the level of generality -- would be made at the company’s peril, carrying a concomitant obligation to reveal a detailed picture of every aspect of the company’s operations that could possibly bear on future revenue. This is not the rule. “Factual recitations of past earnings, so long as they are accurate, do not create liability under Section 10(b).” In re Advanta Corp. Sec. Litig., 180 F.3d 525, 538 (3d Cir. 1999); see also Serabian v. Amoskeag Bank Shares, Inc., 24 F.3d 357, 361 (1st Cir. 1994) (“[D]efendants may not be held liable under the securities laws for accurate reports of past successes, even if present circumstances are less rosy . . . .”). Defendant Thune’s statement -- a factually accurate report regarding total revenue growth across the Company as a whole -- did not create a false impression about MIVA’s click fraud problems and, therefore, was not misleading under the circumstances. See 17 C.F.R. § 240.10b-5(b). 24 See, e.g., Santa Fe Ind., Inc. v. Green, 430 U.S. 462, 477-78 (1977) (“[T]he fundamental purpose of the 1934 Act [was] ‘to substitute a philosophy of full disclosure for the philosophy of caveat emptor.’” (quoting Affiliated Ute Citizens v. United States, 406 U.S. 128, 151 (1972)) (alteration omitted)). 39 Because Thune’s statement made during the July 26, 2004 conference call was neither false nor misleading, the district court was correct to conclude that the statement could not supply a basis for liability, and thus to dismiss as nonactionable all claims relying on it.