Opinion ID: 75504
Heading Depth: 2
Heading Rank: 3

Heading: Allegations Concerning GYS

Text: In this case, with respect to the allegations concerning GY&S, Plaintiffs have not alleged any misstatements by GY&S upon which Plaintiffs relied. Indeed, Plaintiffs admit that no misrepresentations attributable to GY&S were ever made to Plaintiffs. Instead, Plaintiffs base their claim on GY&S’s “significant role in drafting, creating, reviewing or editing allegedly fraudulent letters or press releases.” Such allegations of substantial assistance in the alleged fraud were the kinds of allegations that were rejected in Central Bank.6 See, e.g., Wright, 152 F.3d at 171 (concluding that, under Central Bank, the plaintiffs who purchased stock in a company that issued a press release containing false and misleading information, with a notation that the information was unaudited and which did not mention the name of its outside auditor, could not recover from the auditor for its private approval of the information contained in the press release). Plaintiffs argue that primary liability should attach to those who were never identified to investors as having played a role in the misrepresentations. We 6 We also note that, in 1995, Congress authorized the SEC to bring enforcement actions against one who “knowingly provides substantial assistance to another person” in violation of the federal securities laws. See 15 U.S.C. § 78t(e) (West. Supp. 2001). Noticeably, Congress did not create a private cause of action in this subsection. See, e.g., Wright, 152 F.3d at 176. 21 disagree. To permit Plaintiffs’ allegations against GY&S to survive a motion to dismiss would permit Plaintiffs to avoid the “reliance” requirement for stating a claim under Rule 10b-5. See Central Bank, 511 U.S. at 180, 114 S. Ct. at 1449 (recognizing that liability cannot attach “when at least one element critical for recovery under 10b-5 is absent: reliance”); Basic Inc., 485 U.S. at 243, 108 S. Ct. at 989 (noting that “reliance is an element of a Rule 10b-5 cause of action”). Holding GY&S primarily liable for its alleged conduct would “effectively revive aiding and abetting liability under a different name, and would therefore run afoul of the Supreme Court’s holding in Central Bank.” Wright, 152 F.3d at 175 (quotation omitted).
We also conclude that GY&S is not primarily liable for any alleged material omissions. “[A] defendant’s omission to state a material fact is proscribed only when the defendant has a duty to disclose.” Rudolph v. Arthur Andersen & Co., 800 F.2d 1040, 1043 (11th Cir. 1986). This Court has recognized that a duty to disclose arises not only “[w]here a defendant’s failure to speak would render the defendant’s own prior speech misleading or deceptive,” but also “‘where the law imposes special obligations, as for accountants, brokers, or other experts, depending on the circumstances of the case.’” Id. (quoting Woodward v. Metro 22 Bank of Dallas, 522 F.2d 84, 97 n.28 (5th Cir. 1975)). Some of the factors that we consider in determining whether a duty to disclose exists include: “the relationship between the plaintiff and defendant, the parties’ relative access to the information to be disclosed, the benefit derived by the defendant from the purchase or sale, defendant’s awareness of plaintiff’s reliance on defendant in making its investment decision, and defendant’s role in initiating the purchase or sale.” Id. (citing First Virginia Bankshares v. Benson, 559 F.2d 1307, 1314 (5th Cir. 1977)). Other factors that we consider include “the extent of the defendant’s knowledge and the significance of the misstatement, fraud or omission,” as well as “[t]he extent of the defendant’s participation in the fraud.” Id. Consideration of these factors leads us to the conclusion that GY&S had no duty to make any disclosures to Plaintiffs concerning its client, Cascade. First, there was no attorney-client relationship between Plaintiffs and GY&S that might have created a fiduciary obligation on the part of GY&S towards Plaintiffs. See Chiarella v. United States, 445 U.S. 222, 230, 100 S. Ct. 1108, 1115 (1980) (noting that “silence in connection with the purchase or sale of securities may operate as a fraud actionable under § 10(b) . . .[,b]ut such liability is premised upon a duty to disclose arising from a relationship of trust and confidence between parties to a transaction”); Schatz v. Rosenberg, 943 F.2d 485, 492 (4th Cir. 1991) (holding 23 “that unless a relationship of ‘trust and confidence’ exists between a lawyer and a third party, the federal securities laws do not impose on a lawyer a duty to disclose information to a third party”). Second, because of its fiduciary obligations to its client, Cascade, GY&S had certain privileges not to disclose information about Cascade. See Barker v. Henderson, Franklin, Starnes & Holt, 797 F.2d 490, 497 (7th Cir. 1986) (“Neither lawyers nor accountants are required to tattle on their clients in the absence of some duty to disclose. To the contrary, attorneys have privileges not to disclose.”) (internal citations omitted). Third, as we have already noted, no statements attributable to GY&S were ever made to Plaintiffs; therefore, Plaintiffs could not have relied on GY&S in making their investment decisions. Cf. Rudolph v. Arthur Andersen & Co., 800 F.2d 1040, 1045 (11th Cir. 1986) (where investors in a company sued the company’s auditor for failure to disclose alleged fraud, we concluded that the plaintiffs could, consistent with their allegations, possibly prove a set of facts in which the auditor, whose audit reports had been included in the company’s Private Placement Memorandum, could be held to have a duty to disclose). Finally, there are no allegations that GY&S solicited any purchase of Cascade securities or prepared any solicitation documents. Under these circumstances, we conclude that the district court correctly concluded that GY&S had no duty to disclose any fraud surrounding 24 Cascade to Plaintiffs.7