Yesterday marked the Supreme Court’s first decision in an argued case for this term—sort of. The Supreme Court dismissed the writ of certiorari in Facebook v. Amalgamated Bank as improvidently granted. This is what is known as a DIG.
For those who are interested, here is the (lengthy) question presented statement from the petition for certiorari.
This petition raises two vital questions that have caused a split among the federal courts of appeals.
First, the circuits are divided on what public companies must disclose in the “risk factors” section of their 10-K filings. The Sixth Circuit believes that companies are not required to disclose past instances where a risk has materialized. The First, Second, Third, Fifth, Tenth, and D.C. Circuits argue that companies must disclose if a risk has materialized in the past and will harm the business. The Ninth Circuit has taken a different stance, mandating companies to disclose past materialized risks even without any known threat of business harm.
Secondly, the circuits are in disagreement regarding the appropriate pleading standard for the loss causation element of a private securities-fraud claim. The Fourth Circuit states that loss causation allegations must meet the heightened pleading standard of Federal Rule 9(b) for fraud, while the Fifth and Sixth Circuits follow the standard Rule 8. The Ninth Circuit initially applied Rule 8 but later referenced Rule 9(b) without altering its analysis.
The questions at hand are:
1. Are risk disclosures considered false or misleading if they fail to disclose past materialized risks, even if there is no known risk of ongoing or future business harm?
2. Should the proper pleading standard for loss causation in a private securities-fraud action be governed by Federal Rule 8 or Rule 9(b)?
