Issues Relevant to Investors
Investors often rely on company management to identify trends and uncertainties that are likely to materially impact the company’s financial condition. Such disclosures are required by Item 303 of Regulation S-K. Under Item 303, management must provide subjective predictions about what is reasonably likely to happen in the future with the goal of allowing investors to view the company through management’s perspective. But does standard securities fraud liability under Section 10b attach to these disclosures? Or is management free to fail to disclose required items under Item 303 free of private liability to investors who are harmed by the failure?
That is the question raised in the petition in Macquarie Infrastructure Corp. v. Moab Partners L.P. The petitioners in Macquarie assert that there is now circuit split between the Second Circuit on one hand – finding Item 303 nondisclosures actionable and other circuits, who have found Item 303 non-disclosures non-actionable, at least in the absence of an otherwise false or misleading statement not within the Item 303 disclosures.
Impact: Should the Supreme Court address this issue, it will impact the rights and remedies of investors and effect how robust and complete Item 303 disclosures need to be going forward.
“Nonmutual offensive collateral estoppel” may sound like a chess opening or a military maneuver, but it is actually a legal concept that can be critical in cases involving many plaintiffs, many possible trials, with some common and some disparate facts and issues. The petition in E.I. du Pont de Nemours & Co. v. Abbott raises the issue of whether and when nonmutual (meaning only innuring to the benefit or harm of one party), offensive (meaning used offensively by a party to bind another party), collateral (meaning a decision not from the case specifically at issue) estoppel (meaning preventing re-litigation of an issue or fact) applies – in this instance, the principle comes up from a multi-district litigation where thousands of plaintiffs claimed injuries due to chemical releases from petitioner E.I. du Pont de Nemours & Co.(“DuPont”)’s plant. Plaintiffs lived varying distances from the plant, and these different distances and consequent varying damages resulted in a multi-district litigation (“MDL”) instead of a class action. Some cases were chosen for non-binding “bellwether trials”, three of which resulted in plaintiff verdicts – with findings on issues of duty, breach, and foreseeability. Would those findings bind DuPont in the other trials?
While the issue in the petition may seem limited to an MDL context, nonmutual offensive collateral estoppel can matter to investors – especially those who seek to maximize their recovery in securities cases. Opt out cases proceeding in groups, or proceeding after a class action can involve issues of nonmutual offensive collateral estoppel – perhaps most famously, the Vivendi case involves such an issue.
Impact: If the Supreme Court takes up the issue, it will have the chance to discuss the interaction between due process, efficiency, and preclusion in cases that share common threads. Whether the Court limits itself to multi-district litigation, or paints with a broader brush, the decision may well effect investor rights in mass actions.
A company goes bankrupt. A plan is put into place to restructure the company. But the plan involves non-bankrupt creditors releasing claims against non-bankrupt entities without consideration. Is that allowed?
At core, this is the question raised in the petition in NextPoint Advisors, L.P. v. Highland Capital Management, L.P.. The issue of third party exculpation in bankruptcy has been at issue for quite some time. Prior to 1978, third party exculpation was not allowed pursuant to the Bankruptcy Code. After changes to the code, today there is a circuit split on whether third party exculpation is permissible. The policy implications and arguments here are significant. Bankruptcy courts often wield broad powers precisely because they need such powers to effectuate a restructuring of a debtor who has sought bankruptcy protection. Limiting their toolbox may have ramifications for restructuring and the ability of bankruptcy law to serve its purpose. On the other hand, those powers surely have limits. Why can a non-bankrupt third party gain exculpation for its acts via a bankruptcy court when it has not sought bankruptcy protection? And where are the limits to this ability? Of relevance, both petitioner and respondent agree that the case should be reviewed and the Supreme Court has asked whether the United States government would like to take a position.
Impact: If the Supreme Court hears this case it will be a significant one for any investor that touches upon bankruptcy issues – which is nearly all. Resolving a circuit split would restore uniformity to the bankruptcy code, but the Court’s opinion will also provide extensive guidance on interpreting the powers of bankruptcy courts and the reach of exculpation provisions in confirmation plans more generally.