Opinion ID: 201208
Heading Depth: 2
Heading Rank: 4

Heading: The South American Joint Venture

Text: 40 Plaintiffs allege that defendants omitted the fact that the filing of a bankruptcy petition was an event of default under a loan guarantee made for a South American joint venture. The loan guarantee by its terms involved a two-step process required to trigger GCX's obligations: first, an event of default had to occur and second, the loan guarantee had to be called. Plaintiffs argue that GCX's failure to disclose that the Chapter 11 petition was an event of default in the 2000 Form 10-K constitutes a material omission. 41 We agree with the district court that there is no question that [GCX] disclosed the fact that it had guaranteed 50% of the debt of the South American joint venture. Baron, 285 F.Supp.2d at 103. The 2000 Form 10-K also disclosed the current status of the joint venture as well as the amount of GCX's guarantee obligations. 42 Plaintiffs admit that the default as to the South American joint venture was not a current default during the relevant class period. They argue, however, that the failure to disclose the effect of the bankruptcy filing on the joint venture was a material omission. We disagree. It is not a material omission to fail to point out information of which the market is already aware. See In re Donald Trump Casino Sec. Litig., 7 F.3d 357, 377 (3d Cir.1993) (no violation where investors were not informed of the weakened economic conditions in particular geographic areas). Plaintiffs admit that the filing of a voluntary petition for reorganization under Chapter 11 is considered a standard event of default for most guarantee obligations in the financial markets. In addition, as plaintiffs acknowledge, a default and an event of default are different things under the bankruptcy code. See generally U.S. Fid. & Guar. Co. v. Braspetro Oil Servcs. Co., 369 F.3d 34, 51 (2d Cir.2004) (explaining that where failure to comply with contract clauses was event of default as specified in contract, the court must still examine whether there was actual default on performance). 43 Moreover, given the structure of the financial transaction, the event of default did not materially alter GCX's financial obligations. The loan still had to be called; the record makes clear that the company's obligations under the guarantee were not triggered until it was called in January 2002, more than six months after the end of the class period at issue in this case, and as disclosed in GCX's Quarterly Report (Form 10-Q) for the quarter ending January 31, 2002. 6