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Macquarie Infrastructure Corp. v. Moab Partners, L.P.

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Supreme Court of the United States
Macquarie Infrastructure Corp. v. Moab Partners, L.P.
Term: 2023
Important Dates
Argued: January 16, 2024
Decided: April 12, 2024
Outcome
Vacated and remanded
Vote
9-0
Majority
Sonia Sotomayor • Chief Justice John Roberts • Clarence Thomas • Samuel Alito • Elena Kagan • Neil Gorsuch • Brett Kavanaugh • Amy Coney Barrett • Ketanji Brown Jackson

Macquarie Infrastructure Corp. v. Moab Partners, L.P. is a case that was decided by the Supreme Court of the United States on April 12, 2024, during the court's October 2023-2024 term. The case was argued before the Court on January 16, 2024.

In a unanimous ruling, the Court vacated the United States Court of Appeals for the Second Circuit judgment and remanded the case for further proceedings, holding that "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 statements or lies—the Rule also 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."[1] Justice Sonia Sotomayor delivered the majority opinion of the Court. Click here for more information about the ruling.


HIGHLIGHTS
  • The issue: The case concerned Securities and Exchange Commission (SEC) disclosure liability rules. Click here to learn more about the case's background.
  • The question presented: "Whether the Second Circuit erred in holding—in conflict with the Third, Ninth, and Eleventh Circuits—that 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."[2]
  • The outcome: The U.S. Supreme Court vacated the United States Court of Appeals for the Second Circuit judgment and remanded the case for further proceedings.


    • The case came on a writ of certiorari to the United States Court of Appeals for the 2nd Circuit. To review the lower court's opinion, click here.

    Timeline

    The following timeline details key events in this case:


    Background

    In 2018, investor Moab Partners, L.P. ("Moab") filed a class action lawsuit against Macquarie Infrastructure Corp. ("MIC"), in the United States District Court for the Southern District of New York. The suit alleged that MIC made false statements and omissions to investors regarding the possible ramifications of new international regulatory laws on its fuel storage business—namely, that one of the fuels it stored (fuel oil No. 6) would be banned and the regulations would have a long-term negative consequences on its business. After the new law came into effect, MIC's stock price declined.[3][4][5][6][7]

    Moab et al. alleged that MIC violated Section 10(b) of the Exchange Act and Rule, Item 303. The law requires a company to disclose a “trend, demand, commitment, event or uncertainty is both presently known to management and reasonably likely to have material effects on the registrant’s financial conditions or results of operations," in SEC filings.[8][9] The Southern District of New York dismissed Moab's claims, holding that they had not proven material misrepresentation and omissions or scienter.[3][6][7]

    On appeal from the United States District Court for the Southern District of New York, the Second Circuit unanimously held that Moab sufficiently demonstrated that from MIC's material omissions and facts presented, the court could rationally conclude MIC's scienter. The court vacated the Southern District of New York's judgment and remanded the case for further proceedings.[3][6]

    On May 30, 2023, MIC filed a petition for a writ of certiorari with the U.S. Supreme Court to review the case. MIC asked the court to consider the following legal issue in its question presented:[7]

    “ Section 10(b) of the Securities Exchange Act of 1934 prohibits deception in connection with the purchase or sale of securities. To that end, SEC Rule 10b-5 declares it unlawful to make an untrue statement or omit a material fact “necessary” to make an affirmative statement “not misleading.” 17 C.F.R. § 240.10b-5(b). A violation of this requirement can give rise to a private claim—a judicially implied private right of action that this Court has construed narrowly.


    Item 303 of SEC Regulation S-K calls for additional disclosures under a different standard. Item 303 is an administrative rule that requires a company to disclose known trends or uncertainties that are likely to have a material impact on its financial position, regardless of whether the company had made any statements that would otherwise be misleading.[10]

    		”

    On September 29, 2023, SCOTUS accepted the case to its merits docket.

    SEC authority and responsibilities

    See also: Securities and Exchange Commission

    The SEC has authority to regulate the securities industry. This includes the authority to draft regulations for the industry. SEC regulations include requiring brokers to disclose financial information about the securities they offer to the public. In addition, the SEC has the power to enforce federal securities laws. The Enforcement Division of the SEC is tasked with investigating allegations of violations and bringing action against violators. The SEC can only bring civil action in a district court against violators. The SEC may refer violators to state and federal prosecutors to bring criminal charges.[11][12]

    Question presented

    The petitioner presented the following question to the court:[2]

    Questions presented:
    “ Whether the Second Circuit erred in holding—in conflict with the Third, Ninth, and Eleventh Circuits—that 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.[10] ”

    Oral argument

    Audio

    Audio of oral argument:[13]




    Transcript

    Transcript of oral argument:[14]

    Outcome

    In a unanimous ruling, the Court vacated the United States Court of Appeals for the Second Circuit judgment and remanded the case for further proceedings, holding that "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 statements or lies—the Rule also 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."[1] Justice Sonia Sotomayor delivered the majority opinion of the Court.

    Opinion

    In the Court's majority opinion, Justice Sonia Sotomayor wrote:[1]

    “ 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 renders “statements made” misleading. Separately, Item 303of SEC Regulation S–K requires companies to disclose certain information in periodic filings with the SEC. The question in this case is whether the failure to disclose information 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 cannot. Pure omissions are not actionable under Rule 10b–5(b).[10] ”
    —Justice Sonia Sotomayor


    Text of the opinion

    Read the full opinion here.


    October term 2023-2024

    See also: Supreme Court cases, October term 2023-2024

    The Supreme Court began hearing cases for the term on October 2, 2023. The court's yearly term begins on the first Monday in October and lasts until the first Monday in October the following year. The court generally releases the majority of its decisions in mid-June.[15]


    See also

    External links

    Footnotes

    1. ↑ 1.0 1.1 1.2 U.S. Supreme Court, Macquarie Infrastructure Corp. v. Moab Partners, L.P., decided April 12, 2024
    2. ↑ 2.0 2.1 U.S. Supreme Court, "Macquarie Infrastructure Corporation, et al., Petitioners v. Moab Partners, L.P., et al. On Petition for Writ of Certiorari to the U.S. Court of Appeals for the Second Circuit," filed May 30, 2023
    3. ↑ 3.0 3.1 3.2 Lexology, "Supreme Court Grants Certiorari to Resolve Circuit Split on Whether SEC Disclosure Rule Triggers Section 10(b) Liability," October 9, 2023
    4. ↑ Kramer Levin, "Supreme Court Grants Certiorari to Resolve Circuit Split on Whether SEC Disclosure Rule Triggers Section 10(b) Liability," October 9, 2023
    5. ↑ Southern District of New York, City of Riviera Beach Gen. Emps. Ret. Sys. v. Macquarie Infrastructure Corp., decided September 7, 2021
    6. ↑ 6.0 6.1 6.2 U.S. Court of Appeals for the 2nd Circuit, Moab Partners v. Macquarie Infrastructure Corp., decided Moab Partners v. Macquarie Infrastructure Corp.
    7. ↑ 7.0 7.1 7.2 U.S. Supreme Court, "Macquarie Infrastructure Corp. v. Moab Partners, L.P. ON PETITION FOR A WRIT OF CERTIORARI," filed May 30, 2023
    8. ↑ U.S. Court of Appeals for the Second Circuit, Indiana Public Retirement System v. SAIC, Inc., decided March 29, 2016
    9. ↑ U.S. Court of Appeals for the Second Circuit, Stratte-Mcclure v. Morgan Stanley, Corp. decided January 12, 2015
    10. ↑ 10.0 10.1 10.2 Note: This text is quoted verbatim from the original source. Any inconsistencies are attributable to the original source.
    11. ↑ Securities and Exchange Commission, "Mission," accessed October 13, 2023
    12. ↑ Securities and Exchange Commission, "The Laws That Govern the Securities Industry," accessed October 13, 2023
    13. ↑ Supreme Court of the United States, "Oral Argument - Audio," argued January 16, 2024
    14. ↑ Supreme Court of the United States, "Oral Argument - Transcript," argued January 16, 2024
    15. ↑ SupremeCourt.gov, "The Supreme Court at Work: The Term and Caseload," accessed January 24, 2022
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