Supreme Court DIGs Facebook

The first argued case to be decided is dismissed.

Yesterday we got the Supreme Court's first decision in an argued case for this term -- well, kinda. The Supreme Court dismissed the writ of certiorari in Facebook v. Amalgamated Bank as improvidently granted. This is what is referred to as a DIG.

For those interested, here is the (lengthy) question presented statement from the petition for certiorari.

This petition presents two important questions that have divided the federal courts of appeals.

First, the circuits have split three ways concerning what public companies must disclose in the "risk factors" section of their 10-K filings. The Sixth Circuit holds that companies need not disclose past instances when a risk has materialized. The First, Second, Third, Fifth, Tenth, and D.C. Circuits hold that companies must disclose that a risk materialized in the past if the company knows that event will harm the business. The Ninth Circuit here adopted a third, outlier position requiring companies to disclose that a risk materialized in the past even if there is no known threat of business harm.

Second, the circuits disagree on the proper pleading standard for the loss causation element of a private securities-fraud claim. The Fourth Circuit holds that loss causation allegations must satisfy Federal Rule 9(b)'s heightened pleading standard for fraud, while the Fifth and Sixth Circuits apply the ordinary Rule 8 standard. The Ninth Circuit here initially applied Rule 8, then substituted citations of Rule 9(b) without changing its analysis.

The questions presented are:

1. Are risk disclosures false or misleading when they do not disclose that a risk has materialized in the past, even if that past event presents no known risk of ongoing or future business harm?

2. Does Federal Rule 8 or Rule 9(b) supply the proper pleading standard for loss causation in a private securities-fraud action?

Comments

[Martinned2]

This case would have been more fun if it had been about Mark Zuckerberg's martial arts hobby. (Which Meta also discloses nowadays as a material business risk.)

[Life of Brian]

That's a DIG 'em smack!

[David Nieporent]

After reading the transcript back when the case was argued, I kinda suspected this might be the outcome. The actual case seemed to be much smaller and fact-dependent than it had been portrayed to be.

[bernard11]

Are risk disclosures false or misleading when they do not disclose that a risk has materialized in the past, even if that past event presents no known risk of ongoing or future business harm?

I don't quite follow this. Is it talking about a risk that materialized in the past and that might do so again, but would cause no harm if it did? How is that even a risk?

Or are they talking about the potential harm from a risk that has already materialized but won't have any further effect?

The Sixth Circuit holds that companies need not disclose past instances when a risk has materialized.

Why not? Assuming it's a live risk I think they should disclose past occurrences. The idea, after all, is to make investors aware of the risks to their investment. ISTM they should be given information that is material as to the probability of the event recurring.

[SRG2]

The phrase "risk materialized" is bad English. A risk materialises only if it had not been previously recognised that a risk existed. If the feared event happens, the risk has not materialised, the event itself has.