Opinion ID: 583590
Heading Depth: 2
Heading Rank: 1

Heading: The September Releases

Text: 33 Rule 10b-5 provides, in pertinent part, that it shall be unlawful for any person [t]o make any untrue statement of a material fact or to omit to state a material fact necessary in order to make the statements made, in the light of the circumstances under which they were made, not misleading ..., in connection with the purchase or sale of any security. 17 C.F.R. § 240.10b-5. In Basic Inc. v. Levinson, 485 U.S. 224, 108 S.Ct. 978, 99 L.Ed.2d 194 (1988) (Basic), the Supreme Court discussed the meaning of the term material fact in the context of information possessed by a company that was a possible merger target. Since an LBO will normally have the same effect as a merger, i.e., the death of the target company's independent public form, see id. at 238, 108 S.Ct. at 986-87, the Basic standards are applicable to LBOs as well. 34 In Basic, the Court stated that, in order to establish a prima facie case that statements were misleading in violation of Rule 10b-5, a plaintiff must show that the statements were misleading as to a material fact. It is not enough that a statement is false or incomplete, if the misrepresented fact is otherwise insignificant. Basic, 485 U.S. at 238, 108 S.Ct. at 987 (emphasis in original). With respect to the materiality of omissions, in order to establish a prima facie case under Rule 10b-5 the plaintiff must show that there was a  'substantial likelihood'  that a  'reasonable investor' would have considered the omitted information significant at the time. Id. at 231-32, 108 S.Ct. at 983-84 (quoting TSC Industries, Inc. v. Northway, Inc., 426 U.S. 438, 449, 96 S.Ct. 2126, 2132, 48 L.Ed.2d 757 (1976)). Further, for an omission to violate Rule 10b-5,  'there 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.'  Basic, 485 U.S. at 231-32, 108 S.Ct. at 983 (quoting TSC Industries, Inc. v. Northway, Inc., 426 U.S. at 449, 96 S.Ct. at 2132). 35 The mere fact that a company has received an acquisition overture or that some discussion has occurred will not necessarily be material. Those in business routinely discuss and exchange information on matters which may or may not eventuate in some future agreement. Taylor v. First Union Corp., 857 F.2d 240, 244 (4th Cir.1988), cert. denied, 489 U.S. 1080, 109 S.Ct. 1532, 103 L.Ed.2d 837 (1989); see also Jackvony v. Riht Financial Corp., 873 F.2d 411, 415 (1st Cir.1989) (finding immaterial the type of concern about possible acquisition that many large companies frequently express). As stated in Basic, the materiality of a possible future event  'will depend at any given time upon a balancing of both the indicated probability that the event will occur and the anticipated magnitude of the event in light of the totality of the company activity.'  485 U.S. at 238, 108 S.Ct. at 987 (quoting SEC v. Texas Gulf Sulfur Co., 401 F.2d 833, 849 (2d Cir.1968) (en banc ), cert. denied, 394 U.S. 976, 89 S.Ct. 1454, 22 L.Ed.2d 756 (1969)). Basic instructed courts to assess the probability of an event by looking at the indicia of interest in the transaction at the highest corporate levels and by considering, inter alia, board resolutions, instructions to investment bankers, and actual negotiations between principals or their intermediaries ... as indicia of interest. 485 U.S. at 239, 108 S.Ct. at 987. Whether merger discussions in any particular case are material or immaterial will normally depend on the facts of the case. Id. 36 The record in the present case did not disclose any genuine issue to be tried as to whether the September Releases at the time they were issued misstated or omitted any information that was material. Glazers' contentions (a) that defendants sought by those releases to depress the market price of Formica stock by misrepresenting that the company was not available, and (b) that as of September 30 there was material activity by defendants looking toward an LBO, were not supported by evidence sufficient to take the matter to a jury. Glazers presented no evidence that could lead a rational juror to infer that a reasonable investor would have construed the September Releases as representations that the company was not available for acquisition. The second release stated explicitly that Formica would consider any legitimate proposal to acquire the company. One newspaper thus headlined the story Formica for sale. Arbitrageurs were reported as speculating on the price the company might bring in an acquisition. And Malcolm himself complained that the company's refusal to entertain his offer was contrary to its announcement that it will consider any legitimate proposal to acquire the company. In light of the announcement that the company would consider such proposals, no reasonable investor could have found that information as to the inconsequential and short-lived inquiries of The First Boston Corporation and Bass Group, or as to the first inquiring telephone call from Dillon on September 30, significantly altered the mix of information that was then available. 37 We conclude that the district court properly dismissed Glazers' Rule 10b-5 claim based on the September Releases themselves on the ground that, as a matter of law, they made no false statement or omission that was material. 38