Oral arguments for the case have yet to be scheduled, but sources expect the conservative leaning court to favor the defendants.
“It’s a pretty critical area of securities litigation and the 2nd Circuit is incredibly influential in this area, so if there’s any debate, especially to a conservative court, about expanding liability for corporations, I could see why they would want to weigh in,” Sherry said.
And while the Supreme Court’s conservative majority makes a positive ruling for Macquarie more likely, nothing is certain, Sherry added. “I do think that the court leaning a little conservative gives an edge to the defendants just because the court is going to be wary of expanding liability to this extent,” she said.
The Securities Industry and Financial Markets Association and U.S. Chamber of Commerce in July filed an amicus brief in support of Macquarie and urged the Supreme Court to take up the case.
“The 2nd Circuit’s erroneous rule means that public companies run a risk by omitting a disclosure in any remotely doubtful case — they must over-disclose,” the trade groups said in their brief. “Such over-disclosure is hardly benign. This court, the SEC, and scholars have all warned against bloated disclosures that bury actually useful information in a pile of verbal junk. The 2nd Circuit’s interpretation aggravates this problem, and amici have an interest in restoring the proper boundaries of Rule 10b-5.”
Sherry said the case is crucial because even though this matter only deals with Item 303, the Supreme Court’s decision could set precedent for “any duty to disclose under any statute or regulation, so it is potentially much more far reaching than even just this case.”
Added Dubow, “I think it’s more likely that the Supreme Court is going to reject the 2nd Circuit view but if for some reason the Supreme Court goes the other way and accepts the 2nd Circuit position, I think that opens up companies to a lot more risk of litigation surviving motions to dismiss.”