U.S. Supreme Court, Macquarie Infrastructure Corp. v. Moab Partners, L.P., Docket No. 22-1165

Securities

 

Securities Fraud Claim

 

Duty to Disclose

 

Pure Omissions

 

Private Action Under Rule 10b–5(b)

 

Section 10(b) of the Securities Exchange Act of 1934

 

Circuit Split

 

 

 

 

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 303 of 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).

 

 

Section 10(b) of the Securities Exchange Act of 1934 makes it “unlawful for any person . . . to use or employ, in connection with the purchase or sale of any security . . ., any manipulative or deceptive device or contrivance in contravention of such rules and regulations as the SEC may prescribe.” 48 Stat. 891, 15 U. S. C. §78j(b). Rule 10b–5 implements this prohibition and makes it unlawful for issuers of registered securities to “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) (2022). This Court “has found a right of action implied in the words of §10(b) and its implementing regulation.” Stoneridge Investment Partners, 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 “Management’s Discussion and Analysis of Financial Conditions and Results of Operation” (MD&A), in which companies must “furnish 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 “describe any 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.” 17 CFR §229.303(b)(2)(ii) (2022).

 

 

(…) The courts of appeals disagree on whether a failure to make a disclosure required by Item 303 can support a private 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).

 

 

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) (“The ‘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’”).

 

 

Rule 10b–5(b) makes it unlawful “to 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 accomplishes two things. It prohibits “any untrue statement of a material fact”—i.e., false statements or lies. Ibid. It 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.

A pure omission occurs when a speaker says nothing, in circumstances that do not give any particular meaning to that silence.

 

 

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 (…). This Rule therefore 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 other facts are needed to make those statements “not misleading.”

 

 

(…) It once again “bears emphasis that §10(b) and Rule 10b–5(b) do not create an affirmative 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 misleading.’” Matrixx Initiatives, Inc. v. Siracusano, 563 U. S. 27, 44 (2011) (quoting Rule 10b–5(b)).

 

 

Statutory context confirms what the text plainly provides. Congress imposed liability for pure omissions in §11(a) of the Securities Act of 1933. Section 11(a) prohibits any registration statement that “contains an untrue statement of a material fact or omits 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 (“Section 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).

 

 

“Silence, absent a duty to disclose, is not misleading under Rule 10b–5.” Basic Inc. v. Levinson, 485 U. S. 224, 239, n. 17 (1988). Even a duty to disclose, however, does not automatically render silence misleading under Rule 10b–5(b). Today, this Court confirms that the failure to disclose information required by Item 303 can support a Rule 10b–5(b) claim only if the omission renders affirmative statements made misleading.

(Fn. 2: Moab and the United States spill much ink fighting the question presented, 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”); see also 2022 WL 17815767, *1 (Dec. 20, 2022) (distinguishing between these “two circumstances”). 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.) 

 

 

 

 

 

(U.S. Supreme Court, April 12, 2024, Macquarie Infrastructure Corp. v. Moab Partners, L.P., Docket No. 22-1165, J. Sotomayor, Unanimous)

U.S. Court of Appeals for the Second Circuit, Indemnity Insurance Company of North America v. Unitrans International Corporation, Docket No. 21-2132

 

Subrogated Claims for Damage to Cargo

 

Contracting Carrier under the Montreal Convention

 

Contracting Carrier and Actual Carrier

 

Freight Forwarder

 

Principal and Agent

 

Carriage by Air

 

Air Waybill and House Waybill

 

Insurance Law

 

Transportation Law

 

Export

 

 

 

Indemnity Insurance Company of North America (“Indemnity”) appeals from the district court’s grant of summary judgment in favor of Unitrans International Corporation (“Unitrans”) on Indemnity’s subrogated claims for damage to cargo that occurred while the cargo was being unloaded from a truck at an airport. The district court (Pollak, M.J.) granted Unitrans’s motion for summary judgment on the grounds that Unitrans – a logistics company – qualified as a contracting carrier under the Montreal Convention and that Indemnity’s action was therefore time-barred by the Convention’s statute of limitations. Although we agree that contracting carriers are subject to the Montreal Convention, we find that there is a genuine dispute of material fact as to whether Unitrans was a contracting carrier. Accordingly, we vacate the judgment and remand the case for further proceedings.

 

 

In July 2014, Amgen, Inc. (“Amgen”), subrogor of plaintiff-appellant Indemnity Insurance Company of North America (“Indemnity”), engaged defendant-appellee Unitrans International Corporation (“Unitrans”) to arrange for the transportation of three pallets of Enbrel, a pharmaceutical drug (the “Cargo”), by motor and air carriage from Amgen’s facility in Dublin, Ireland to Philadelphia. On July 28, 2014, while Unitrans’s agent was delivering the Cargo to the air carrier at the airport, one of the pallets fell and was damaged. As a consequence, the entire shipment was returned to Amgen’s facility in Dublin, and the damaged pallet was declared a total loss.

 

 

Indemnity, as Amgen’s insurer, paid Amgen’s claim for the loss of the pallet and, as subrogee to Amgen’s rights, sued Unitrans for breach of contract, negligence, and breach of bailment. Unitrans moved for summary judgment, arguing that the Montreal Convention – which preempts all state law claims within its scope – governed Amgen’s claim. See Convention for the Unification of Certain Rules for International Carriage by Air, May 28, 1999, T.I.A.S. 13038, 2242 U.N.T.S. 309 (entered into force Nov. 4, 2003) (“Montreal Convention”). The United States District Court for the Eastern District of New York (Pollak, M.J.) granted summary judgment in Unitrans’s favor, concluding that the Montreal Convention applied and that the action was therefore barred by its two-year limitations period. This appeal followed.

 

 

Though we hold that the Montreal Convention applies to contracting carriers, we find that there remains a genuine factual dispute as to whether Unitrans qualifies as a contracting carrier. Accordingly, we vacate the judgment of the district court and remand the case for further proceedings.

 

 

(…) At Dublin Airport, while the TLC driver was removing the Cargo from the truck to deliver it to US Airways’s ground handling agent, one pallet fell off the truck and was damaged. The Cargo was returned to Amgen’s facility, and the damaged pallet was declared a total loss of over $1.8 million. Indemnity paid Amgen’s claim for the total loss and became fully subrogated to Amgen’s rights.

 

 

(…) The principal legal issue presented is whether the Montreal Convention applies only to damage that occurs while cargo is in the charge of an actual carrier. Indemnity urges us to adopt this narrow construction of the Montreal Convention, which would place its claims outside of the Convention given that Unitrans merely arranged for the Cargo’s transportation through third-party carriers and was not itself an actual carrier. We reject Indemnity’s legal argument and hold that the Montreal Convention extends to “contracting carriers” when cargo is damaged in international carriage while in their charge. Nevertheless, because there remains a genuine factual dispute over whether Unitrans qualifies as a “contracting carrier,” we conclude that the district court should not have granted Unitrans’s motion for summary judgment.

 

 

(…) As relevant here, Article 18 of the Convention, which covers damage to cargo, provides that a carrier is liable for damage to cargo if “the event which caused the damage . . . took place during the carriage by air.” Montreal Convention art. 18(1). “Carriage by air . . . comprises the period during which the cargo is in the charge of the carrier.” Id. art. 18(3). Significantly, “carriage by air” can encompass periods when the cargo is not “actually aboard an airplane,” Underwriters at Lloyds Subscribing to Cover Note B0753PC1308275000 v. Expeditors Korea Ltd., 882 F.3d 1033, 1040 (11th Cir. 2018), but does not cover “carriage by land . . . performed outside an airport,” Montreal Convention art. 18(4); see also Underwriters at Lloyds, 882 F.3d at 1040.

 

 

(…) Taken together, these provisions make clear that a “contracting carrier” – that is, a company that arranges for the international transportation of cargo by engaging third-party carriers such as airlines and truckers to perform the actual carriage – is a “carrier” for purposes of the Montreal Convention if, as a principal, it enters into the contract of carriage with a consignor.

 

 

(…) Article 40 plainly provides that when an actual carrier performs the whole or part of carriage, both the contracting carrier and the actual carrier are subject to the Montreal Convention – the actual carrier solely for the carriage it performs and the contracting carrier for “the whole of the carriage contemplated in the contract.” Montreal Convention art. 40; see also id. art. 1(4). Thus, a contracting carrier, as defined by Article 39, is subject to the rules of the Montreal Convention, including Article 18. See A.S.A.P. Logistics, Ltd. v. UPS Supply Chain Sols., Inc., 629 F. Supp. 3d 42, 46 n.3 (E.D.N.Y. 2022).

 

 

(…) We likewise reject Unitrans’s contention that carriage by air is a “term of art” applying to all damage occurring within the premises of the airport and that, therefore, the Montreal Convention applies here because the Cargo was damaged while it was at the airport. Unitrans Br. at 12, 14. The text of the Montreal Convention does not support the contention that any damage that occurs at an airport occurs during carriage by air, regardless of whether the cargo is in the charge of the carrier. As the Eleventh Circuit has explained, the Montreal Convention provides that a carrier is liable only for damage sustained during “carriage by air,” which is “the period during which the cargo is in the charge of the carrier,” except when the cargo is transported on the ground outside an airport. See Underwriters at Lloyds, 882 F.3d at 1040–42 (quoting Montreal Convention arts. 18(1), (3)–(4)). None of our precedent, even under the Warsaw Convention, is to the contrary. See Victoria Sales Corp. v. Emery Air Freight, Inc., 917 F.2d 705, 706–08 (2d Cir. 1990) (holding that damage to cargo in the charge of a carrier that occurs outside of an airport does not occur during carriage by air, but not holding that all damage that occurs inside an airport occurs during carriage by air, regardless of whether the cargo is in the charge of the carrier); Com. Union Ins. Co., 347 F.3d at 464–68 (holding that, under Article 18(4), when the point of damage is unknown, carrier control over all portions of the journey is presumed, but not holding that, even if the point of damage is known, the cargo need not be in the charge of the carrier). Here, there is no question that the Cargo was damaged inside the airport, but there remains the issue of whether the Cargo was damaged while “in the charge of the carrier.”

 

 

There is no dispute that Unitrans was not the actual carrier because it did not perform and was not intending to perform any part of the carriage itself. Therefore, the Montreal Convention applies only if Unitrans was a contracting carrier under Articles 39 and 40. As discussed above and as relevant here, the Montreal Convention provides that a contracting carrier is a person that (1) as a principal (2) makes a contract of carriage governed by the Montreal Convention (3) with a consignor, and (4) an actual carrier performs the whole or part of the carriage by virtue of authority from the contracting carrier. See Montreal Convention art. 39. In general, a principal is “someone who authorizes another to act on his or her behalf as an agent” or “someone who has primary responsibility on an obligation.” Principal, Black’s Law Dictionary (11th ed. 2019).

 

 

Given the current factual record, we find that there remains a genuine dispute as to whether Unitrans was acting as a principal and, by extension, whether it qualifies as a contracting carrier. On the one hand, there is evidence indicating that Unitrans was acting as a principal because it took primary responsibility in making and executing the carriage contracts. Indeed, in Unitrans’s interrogatory responses, it stated that it “acted as a freight forwarder and an indirect air carrier with regard to the Cargo,” taking “responsibility for the care, custody, and control of the Cargo” “from the receipt of the Cargo at the Amgen facility.” J. App’x at 248; see also, e.g., id. at 81 (Unitrans employee stating that “air waybill 037-49058936 was issued for the door-to-door carriage of the Cargo on July 28, 2014”); id. at 225 (parties agreeing that Unitrans “entered into a contract with . . . Amgen . . . to transport the Cargo from Amgen’s facility in Dun Laoghaire, Dublin, Ireland to Philadelphia, Pennsylvania”); id. at 268 (Amgen listing Unitrans as a “carrier” in its internal invoices). A reasonable juror could take these statements to mean that Unitrans – acting as a principal with ultimate “responsibility” for the Cargo – made a contract with consignor Amgen to transport the Cargo internationally, and that Unitrans then subcontracted with US Airways. In this circumstance, Unitrans would have assumed the responsibility of a contracting carrier, while US Airways was set to perform the air carriage – as the “actual carrier” – by virtue of authority from Unitrans.

 

 

On the other hand, the record also contains evidence that paints Unitrans as an agent that merely set up an air-carriage contract between Amgen and US Airways. In this circumstance, Unitrans would not have been acting as a principal because it merely brokered the agreement while US Airways was obliged to perform the air carriage by virtue of its own authority. This view is supported by the fact that Unitrans presents itself as a “logistics company that arranges carriage of cargo on behalf of its customers,” which suggests that it acts as an “intermediary” that merely makes travel arrangements in the manner of a travel agent. Id. at 63, 70.

 

 

It remains unclear whether Unitrans (or MCL as its agent) ever issued a “house waybill” – which could further shed light on Unitrans’s role and responsibilities – and if so, what happened to it. See J. App’x at 80 (explaining that an “air waybill” is the waybill issued by the actual carrier while the “house waybill” is issued by the forwarder). (Fn. 9).

 

 

 

 

(U.S. Court of Appeals for the Second Circuit, April 4, 2024, Indemnity Insurance Company of North America v. Unitrans International Corporation, Docket No. 21-2132)