Court Opinion

ID: 9959692
Source: CourtListenerOpinion
Date Created: 2024-04-12 15:01:13.396441+00
Date Added: 2024-06-11T08:18:44.808336
License: Public Domain

(Slip Opinion)              OCTOBER TERM, 2023                                       1

                                       Syllabus

         NOTE: Where it is feasible, a syllabus (headnote) will be released, as is
       being done in connection with this case, at the time the opinion is issued.
       The syllabus constitutes no part of the opinion of the Court but has been
       prepared by the Reporter of Decisions for the convenience of the reader.
       See United States v. Detroit Timber & Lumber Co., 200 U. S. 321, 337.

SUPREME COURT OF THE UNITED STATES

                                       Syllabus

    MACQUARIE INFRASTRUCTURE CORP. ET AL. v.
          MOAB PARTNERS, L. P., ET AL.

CERTIORARI TO THE UNITED STATES COURT OF APPEALS FOR
                 THE SECOND CIRCUIT

    No. 22–1165. Argued January 16, 2024—Decided April 12, 2024
Petitioner Macquarie Infrastructure Corporation owns a subsidiary that
  operates terminals to store bulk liquid commodities, including No. 6
  fuel oil, a byproduct of the refining process with a typical sulfur content
  close to 3%. In 2016, the United Nations’ International Maritime Or-
  ganization formally adopted IMO 2020, a regulation capping the sulfur
  content of fuel oil used in shipping at 0.5% by 2020. In the ensuing
  years, Macquarie did not discuss IMO 2020 in its public offering docu-
  ments. In February 2018, however, Macquarie announced a drop in
  the amount of storage contracted for use by its subsidiary due in part
  to the decline in the No. 6 fuel oil market. Macquarie’s stock price fell
  41%.
     In response, Moab Partners, L. P., sued Macquarie and various of-
  ficer defendants. Moab alleged, among other things, that Macquarie
  violated Securities and Exchange Commission Rule 10b–5(b)—which
  makes it unlawful to omit material facts in connection with buying or
  selling securities when that omission renders “statements made” mis-
  leading—because it had a duty to disclose the IMO 2020 information
  under Item 303 of SEC Regulation S–K. Item 303 requires companies
  to disclose “known trends or uncertainties that have had or that are
  reasonably likely to have a material favorable or unfavorable impact
  on net sales or revenues or income from continuing operations” in pe-
  riodic filings with the SEC. 17 CFR §229.303(b)(2)(ii). The District
  Court dismissed Moab’s complaint. The Second Circuit reversed, con-
  cluding in part that Moab’s allegations concerning the likely material
  effect of IMO 2020 gave rise to a duty to disclose under Item 303, and
  Macquarie’s Item 303 violation alone could sustain Moab’s §10(b) and
  Rule 10b–5 claim. See 2022 WL 17815767, *1–*2.
2            MACQUARIE INFRASTRUCTURE CORP. v.
                   MOAB PARTNERS, L. P.
                          Syllabus

Held: Pure omissions are not actionable under Rule 10b–5(b). Rule 10b–
 5(b) makes it unlawful “[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.” 17 CFR §240.10b–5(b). In addition to
 prohibiting “any untrue statement of a material fact”—i.e., false state-
 ments or lies—the Rule also prohibits omitting a material fact neces-
 sary “to make the statements made . . . not misleading.” Ibid. This
 case turns on whether this second prohibition bars only half-truths or
 instead extends to pure omissions.
    A pure omission occurs when a speaker says nothing, in circum-
 stances that do not give any special significance to that silence. Half-
 truths, on the other hand, are “representations that state the truth
 only so far as it goes, while omitting critical qualifying information.”
 Universal Health Services, Inc. v. United States ex rel. Escobar, 579
 U. S. 176, 188. Rule 10b–5(b) requires disclosure of information nec-
 essary to ensure that statements already made are clear and complete.
 Logically and by its plain text, Rule 10b–5(b) therefore covers half-
 truths, not pure omissions, because it requires identifying affirmative
 assertions (i.e., “statements made”) before determining if other facts
 are needed to make those statements “not misleading.”
    Statutory context confirms what the text plainly provides. Section
 11(a) of the Securities Act of 1933 prohibits any registration statement
 that “omit[s] to state a material fact required to be stated therein.” 15
 U. S. C. §77k(a). By its terms, §11(a) creates liability for failure to
 speak. Neither §10(b) nor Rule 10b–5(b) contains language similar to
 §11(a), and that omission is telling.
    “Silence, absent a duty to disclose, is not misleading under Rule
 10b–5.” Basic Inc. v. Levinson, 485 U. S. 224, 239, n. 17. A duty to
 disclose, however, does not automatically render silence misleading
 under Rule 10b–5(b). The failure to disclose information required by
 Item 303 can support a Rule 10b–5(b) claim only if the omission ren-
 ders affirmative statements made misleading. Moab and the United
 States suggest that a plaintiff does not need to plead any statements
 rendered misleading by a pure omission because reasonable investors
 know that the Exchange Act requires issuers to file periodic informa-
 tional statements in which companies must furnish the information
 required by Item 303. But that argument reads the words “statements
 made” out of Rule 10b–5(b) and shifts the focus of that Rule and §10(b)
 from fraud to disclosure. See Chiarella v. United States, 445 U. S. 222,
 234–235 (“Section 10(b) is aptly described as a catchall provision, but
 what it catches must be fraud”). Moab also contends that without pri-
 vate liability for pure omissions under Rule 10b–5(b), there will be
 “broad immunity any time an issuer fraudulently omits information
                    Cite as: 601 U. S. ____ (2024)                   3

                              Syllabus

 Congress and the SEC require it to disclose.” Brief for Respondent
 Moab Partners 1. But private parties remain free to bring claims
 based on Item 303 violations that create misleading half-truths, and
 the SEC retains authority to prosecute violations of its own rules and
 regulations, including Item 303. Pp. 4–8.
Vacated and remanded.

 SOTOMAYOR, J., delivered the opinion for a unanimous Court.
                        Cite as: 601 U. S. ____ (2024)                              1

                             Opinion of the Court

     NOTICE: This opinion is subject to formal revision before publication in the
     United States Reports. Readers are requested to notify the Reporter of
     Decisions, Supreme Court of the United States, Washington, D. C. 20543,
     pio@supremecourt.gov, of any typographical or other formal errors.

SUPREME COURT OF THE UNITED STATES
                                   _________________

                                   No. 22–1165
                                   _________________

MACQUARIE INFRASTRUCTURE CORPORATION, ET AL.,
  PETITIONERS v. MOAB PARTNERS, L. P., ET AL.
 ON WRIT OF CERTIORARI TO THE UNITED STATES COURT OF
           APPEALS FOR THE SECOND CIRCUIT
                                 [April 12, 2024]

   JUSTICE SOTOMAYOR delivered the opinion of the Court.
   Securities and Exchange Commission (SEC) Rule 10b–
5(b) makes it unlawful to omit material facts in connection
with buying or selling securities when that omission ren-
ders “statements made” misleading. Separately, Item 303
of SEC Regulation S–K requires companies to disclose cer-
tain information in periodic filings with the SEC. The ques-
tion in this case is whether the failure to disclose infor-
mation required by Item 303 can support a private action
under Rule 10b–5(b), even if the failure does not render any
“statements made” misleading. The Court holds that it can-
not. Pure omissions are not actionable under Rule 10b–
5(b).
                             I
                            A
  Section 10(b) of the Securities Exchange Act of 1934
makes it “unlawful for any person . . . [t]o use or employ, in
connection with the purchase or sale of any security . . . [,]
any manipulative or deceptive device or contrivance in con-
travention of such rules and regulations as the [SEC] may
prescribe.” 48 Stat. 891, 15 U. S. C. §78j(b). Rule 10b–5
2          MACQUARIE INFRASTRUCTURE CORP. v.
                 MOAB PARTNERS, L. P.
                   Opinion of the Court

implements this prohibition and makes it unlawful for is-
suers of registered securities to “make any untrue state-
ment 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.” 17 CFR §240.10b–5(b) (2022). This Court “has
found a right of action implied in the words of [§10(b)] and
its implementing regulation.” Stoneridge Investment Part-
ners, LLC v. Scientific-Atlanta, Inc., 552 U. S. 148, 157
(2008).
   Section 13(a) of the Exchange Act requires issuers to file
periodic informational statements.        See 15 U. S. C.
§§78m(a)(1), 78l(b)(1). These statements include the “Man-
agement’s Discussion and Analysis of Financial Conditions
and Results of Operation” (MD&A), in which companies
must “[f]urnish the information required by Item 303 of
Regulation S–K.” See SEC Form 10–K; SEC Form 10–Q.
Item 303, in turn, requires companies to “[d]escribe any
known trends or uncertainties that have had or that are
reasonably likely to have a material favorable or unfavora-
ble impact on net sales or revenues or income from contin-
uing operations.” 17 CFR §229.303(b)(2)(ii) (2022).
                              B
   Macquarie Infrastructure Corporation owns infrastruc-
ture-related businesses, including a subsidiary that oper-
ates large “bulk liquid storage terminals” within the United
States. These terminals handle and store liquid commodi-
ties, such as petroleum, biofuels, chemicals, and oil prod-
ucts. One liquid commodity stored in these terminals is No.
6 fuel oil, a high-sulfur fuel oil that is a byproduct of the
refining process. In 2016, the United Nations’ Interna-
tional Maritime Organization formally adopted IMO 2020,
a regulation that capped the sulfur content of fuel oil used
in shipping at 0.5% by the beginning of 2020. No. 6 fuel oil
typically has a sulfur content closer to 3%. In the ensuing
                  Cite as: 601 U. S. ____ (2024)             3

                      Opinion of the Court

years, Macquarie did not discuss IMO 2020 in its public of-
fering documents. In February 2018, however, Macquarie
announced that the amount of storage capacity contracted
for use by its subsidiary’s customers had dropped in part
because of the structural decline in the No. 6 fuel oil mar-
ket. Macquarie’s stock price fell around 41%.
   Moab Partners, L. P. sued Macquarie and various officer
defendants, alleging, among other things, a violation of
§10(b) and Rule 10b–5. The crux of Moab’s argument was
that Macquarie’s public statements “were false and mis-
leading” because it “concealed from investors that [its sub-
sidiary’s] single largest product . . . was No. 6 fuel oil,”
which “faced a near-cataclysmic ban on the bulk of its
worldwide use through IMO 2020.” City of Riviera Beach
Gen. Employees Retirement System v. Macquarie Infra-
structure Corp., 2021 WL 4084572, *6 (SDNY, Sept. 7, 2021)
(internal quotation marks omitted). In Moab’s view, Mac-
quarie had “ ‘a duty to disclose’ the extent to which [its sub-
sidiary’s] storage capacity was devoted to No. 6 fuel oil,”
ibid., but instead, Macquarie “violated disclosure obliga-
tions under Item 303,” id., at *10, and therefore violated
§10(b) and Rule 10b–5. The District Court dismissed
Moab’s complaint, concluding in relevant part that Moab
had not “actually plead[ed] an uncertainty that should have
been disclosed” or “in what SEC filing or filings Defendants
were supposed to disclose it.” Ibid.
   The Second Circuit reversed. The court reasoned that
there are “two circumstances which impose a duty on a cor-
poration to disclose omitted facts.” 2022 WL 17815767, *1
(Dec. 20, 2022). First, a duty arises when there is “ ‘a stat-
ute or regulation requiring disclosure,’ . . . such as Ite[m]
303.” Ibid. (quoting Stratte-McClure v. Morgan Stanley,
776 F. 3d 94, 101 (CA2 2015)). Second, “[e]ven when there
is no existing independent duty to disclose information,
once a company speaks on an issue or topic, there is a duty
to tell the whole truth.” 2022 WL 17815767, *1 (internal
4            MACQUARIE INFRASTRUCTURE CORP. v.
                   MOAB PARTNERS, L. P.
                     Opinion of the Court

quotation marks omitted). “Crediting [Moab’s] allegations
as true, IMO 2020’s significant restriction of No. 6 fuel oil
use was known to [Macquarie] and reasonably likely to
have material effects on [Macquarie’s] financial condition
or results of operation.” Id., at *3. Because Moab had “ad-
equately alleged a ‘known trend[ ] or uncertaint[y]’ that
gave rise to a duty to disclose under Item 303,” id., at *2
(alterations in original), the court applied its binding prec-
edent to conclude that Macquarie’s Item 303 violation alone
could sustain Moab’s §10(b) and Rule 10b–5 claim. See ibid.
(“The failure to make a material disclosure required by
Item 303 can serve as the basis . . . for a claim under Section
10(b)”).
   The courts of appeals disagree on whether a failure to
make a disclosure required by Item 303 can support a pri-
vate claim under §10(b) and Rule 10b–5(b) in the absence
of an otherwise-misleading statement.1 This Court granted
certiorari to resolve that disagreement. 600 U. S. ___
(2023).
                              II
   Rule 10b–5(b) makes it unlawful “[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.” 17 CFR §240.10b–5(b). This Rule accom-
plishes two things. It prohibits “any untrue statement of a
material fact”—i.e., false statements or lies. Ibid. It also
——————
  1 Compare Stratte-McClure v. Morgan Stanley, 776 F. 3d 94, 101 (CA2

2015) (“Item 303’s affirmative duty to disclose in Form 10–Qs can serve
as the basis for a securities fraud claim under Section 10(b)”), with In re
Nvidia, 768 F. 3d 1046, 1056 (CA9 2014) (“Item 303 does not create a
duty to disclose for purposes of Section 10(b) and Rule 10b–5”); see also
Oran v. Stafford, 226 F. 3d 275, 288 (CA3 2000) (“[T]he ‘demonstration
of a violation of the disclosure requirements of Item 303 does not lead
inevitably to the conclusion that such disclosure would be required under
Rule 10b–5. Such a duty to disclose must be separately shown’ ”).
                  Cite as: 601 U. S. ____ (2024)             5

                      Opinion of the Court

prohibits omitting a material fact necessary “to make the
statements made . . . not misleading.” Ibid. This case turns
on whether this second prohibition bars only half-truths or
instead extends to pure omissions.
   A pure omission occurs when a speaker says nothing, in
circumstances that do not give any particular meaning to
that silence. Take the simplest example. If a company fails
entirely to file an MD&A, then the omission of particular
information required in the MD&A has no special signifi-
cance because no information was disclosed. Half-truths,
on the other hand, are “representations that state the truth
only so far as it goes, while omitting critical qualifying in-
formation.” Universal Health Services, Inc. v. United States
ex rel. Escobar, 579 U. S. 176, 188 (2016); see also Om-
nicare, Inc. v. Laborers Dist. Council Constr. Industry Pen-
sion Fund, 575 U. S. 175, 192 (2015) (“[L]iteral accuracy is
not enough: An issuer must as well desist from misleading
investors by saying one thing and holding back another”).
“A classic example of an actionable half-truth in contract
law is the seller who reveals that there may be two new
roads near a property he is selling, but fails to disclose that
a third potential road might bisect the property.” Universal
Health Services, 579 U. S., at 188–189. In other words, the
difference between a pure omission and a half-truth is the
difference between a child not telling his parents he ate a
whole cake and telling them he had dessert.
   Rule 10b–5(b) does not proscribe pure omissions. The
Rule prohibits omitting material facts necessary to make
the “statements made . . . not misleading.” Put differently,
it requires disclosure of information necessary to ensure
that statements already made are clear and complete (i.e.,
that the dessert was, in fact, a whole cake). This Rule there-
fore covers half-truths, not pure omissions. Logically and
by its plain text, the Rule requires identifying affirmative
assertions (i.e., “statements made”) before determining if
6          MACQUARIE INFRASTRUCTURE CORP. v.
                 MOAB PARTNERS, L. P.
                   Opinion of the Court

other facts are needed to make those statements “not mis-
leading.” See, e.g., 6 Oxford English Dictionary 857 (1933)
(def. 3) (defining “statement” as a “written or oral commu-
nication setting forth facts, arguments, demands, or the
like”); Webster’s New International Dictionary 2461 (2d ed.
1942) (defining “statement” as the “[a]ct of stating, reciting,
or presenting, orally or on paper”). It once again “bears em-
phasis that §10(b) and Rule 10b–5(b) do not create an af-
firmative duty to disclose any and all material information.
Disclosure is required under these provisions only when
necessary ‘to make . . . statements made, in the light of the
circumstances under which they were made, not mislead-
ing.’ ” Matrixx Initiatives, Inc. v. Siracusano, 563 U. S. 27,
44 (2011) (quoting Rule 10b–5(b)).
   Statutory context confirms what the text plainly pro-
vides. Congress imposed liability for pure omissions in
§11(a) of the Securities Act of 1933. Section 11(a) prohibits
any registration statement that “contain[s] an untrue state-
ment of a material fact or omit[s] to state a material fact
required to be stated therein or necessary to make the
statements therein not misleading.” 15 U. S. C. §77k(a).
By its terms, in addition to proscribing lies and half-truths,
this section also creates liability for failure to speak on a
subject at all. See Omnicare, 575 U. S., at 186, n. 3 (“Sec-
tion 11’s omissions clause also applies when an issuer fails
to make mandated disclosures—those ‘required to be
stated’—in a registration statement”). There is no similar
language in §10(b) or Rule 10b–5(b). Cf. Ernst & Ernst v.
Hochfelder, 425 U. S. 185, 208 (1976) (“The express recog-
nition of a cause of action premised on negligent behavior
in §11 stands in sharp contrast to the language of §10(b)”).
Neither Congress in §10(b) nor the SEC in Rule 10b–5(b)
mirrored §11(a) to create liability for pure omissions. That
omission (unlike a pure omission) is telling. Cf. Blue Chip
Stamps v. Manor Drug Stores, 421 U. S. 723, 734 (1975)
                  Cite as: 601 U. S. ____ (2024)            7

                      Opinion of the Court

(“When Congress wished to provide a remedy . . . it had lit-
tle trouble in doing so expressly”).
   “Silence, absent a duty to disclose, is not misleading un-
der Rule 10b–5.” Basic Inc. v. Levinson, 485 U. S. 224, 239,
n. 17 (1988). Even a duty to disclose, however, does not au-
tomatically render silence misleading under Rule 10b–5(b).
Today, this Court confirms that the failure to disclose infor-
mation required by Item 303 can support a Rule 10b–5(b)
claim only if the omission renders affirmative statements
made misleading.
   Moab and the United States suggest that a plaintiff does
not need to plead any statements rendered misleading by a
pure omission because reasonable investors know that Item
303 requires an MD&A to disclose all known trends and un-
certainties. That argument fails, however, because it reads
the words “statements made” out of Rule 10b–5(b) and
shifts the focus of that Rule and §10(b) from fraud to disclo-
sure. See Chiarella v. United States, 445 U. S. 222, 234–
235 (1980) (“Section 10(b) is aptly described as a catchall
provision, but what it catches must be fraud”). It would also
render §11(a)’s pure omission clause superfluous by making
every omission of a fact “required to be stated” a misleading
half-truth.
   Moab also contends that without private liability for pure
omissions under Rule 10b–5(b), there will be “broad im-
munity any time an issuer fraudulently omits information
Congress and the SEC require it to disclose.” Brief for Re-
spondent Moab Partners, L. P. 1. That is not so. For one
thing, private parties remain free to bring claims based on
Item 303 violations that create misleading half-truths. For
another, the SEC retains authority to prosecute violations
of its own regulations. The Exchange Act requires that is-
suers file reports “in accordance with such rules and regu-
lations as the Commission may prescribe,” 15 U. S. C.
§78m(a), and the SEC can investigate “whether any person
has violated . . . any provision of [the Exchange Act], [or]
8            MACQUARIE INFRASTRUCTURE CORP. v.
                   MOAB PARTNERS, L. P.
                     Opinion of the Court

the rules and regulations thereunder,” §78u(a)(1), including
Item 303.2
                         *     *   *
   Pure omissions are not actionable under Rule 10b–5(b).
The judgment of the Court of Appeals for the Second Circuit
is vacated, and the case is remanded for further proceedings
consistent with this opinion.
                                             It is so ordered.

——————
  2 Moab and the United States spill much ink fighting the question pre-

sented, insisting that this case is about half-truths rather than pure
omissions. The Court granted certiorari to address the Second Circuit’s
pure omission analysis, not its half-truth analysis. See Pet. for Cert. i
(“Whether . . . a failure to make a disclosure required under Item 303 can
support a private claim under Section 10(b), even in the absence of an
otherwise-misleading statement” (emphasis added)); see also 2022 WL
17815767, *1 (Dec. 20, 2022) (distinguishing between these “two circum-
stances”). The Court does not opine on issues that are either tangential
to the question presented or were not passed upon below, including what
constitutes “statements made,” when a statement is misleading as a half-
truth, or whether Rules 10b–5(a) and 10b–5(c) support liability for pure
omissions.