A unanimous U.S. Supreme Court on Friday ruled that a corporation's failure to disclose certain information about its future business risks, absent any affirmative statement that would make such silence misleading, cannot itself be the basis of a private securities fraud claim.The court vacated and remanded a Second Circuit decision in favor of Macquarie Infrastructure Corp. shareholder Moab Partners LP. Moab accused Macquarie of misleading investors by remaining silent about the impact that a soon-to-be-implemented global ban on high-sulfur fuels would have on its oil storage business. The investor said the company committed fraud under U.S. Securities and Exchange Commission Rule 10b–5(b) by remaining silent on the issue. But a "duty to disclose ... does not automatically render silence misleading under Rule 10b–5(b)," the high court reasoned in an opinion authored by Justice Sonia Sotomayor. Instead, management's failure to disclose trends or uncertainties that could harm their business can support a claim "only if the omission renders affirmative statements made misleading," the court said.Salvatore Graziano of Bernstein Litowitz Berger & Grossmann LLP, one of the lawyers representing Moab Partners, told Law360 on Friday that the Supreme Court's decision was not the end of the road for his client. "There is going to be no impact on our case, because the Supreme Court has given us a road map to plead a half-truth, which we have," Graziano said, pointing to statements made in 2015 and 2016 that he said made it appear as if demand for the stored products was not decreasing. He also said the proposed class of investors will continue to push securities fraud claims under separate provisions of Rule 10b–5(b) that the high court did not rule on, as well as under the Sarbanes-Oxley Act of 2002. Linda Coberly of Winston & Strawn LLP, one of the attorneys representing Macquarie, said she was thrilled with the justices' decision. "It provides critical guidance to companies, litigants and judges, for our case and beyond," she said. "Our case will now move forward with this important clarification in the law." The lawsuit was filed in 2018 and accuses Macquarie of failing to warn investors that the company's most profitable segment stood to lose a significant amount of fuel storage business once an international fuel standard known as IMO 2020 went into effect. The regulation was adopted in 2016, four years before going into effect, but shareholders allege that Macquarie waited two years before publicly announcing a drop-off in customers due to the decline in fuel sales. The announcement led the stock price to drop 41%, according to Friday's Supreme Court opinion. Macquarie won dismissal of the case at the district court, which ruled that Moab Partners had not alleged that the company made any actionable half-truths about its reliance on the regulated fuel oil. The Second Circuit revived the case, saying that corporations have a duty not to omit material information. The company argued that a split still lingered between the Second Circuit and other circuit courts over the applicable standard of disclosure under Item 303, which requires management to discuss trends or uncertainties facing the company. The high court initially planned to address the split in 2017 through a case brought by Leidos Inc., but that case settled before the court could hear oral arguments or issue an opinion. Any broader impact on securities litigation from Friday's ruling will be limited, Graziano said, since companies can still be sued by the SEC for outright omitting necessary information from Item 303 statements. The SEC weighed in on the Supreme Court case in favor of Moab Partners, telling the court that investors rely on a company's MD&A disclosures to understand a company's financial risks and that allowing companies to omit those risks "would allow unscrupulous parties to exploit the very trust that disclosure requirements are designed to foster." The agency didn't immediately respond to a request for comment. Macquarie is represented by John E. Schreiber, Kerry C. Donovan, Lauren Gailey and Linda Coberly of Winston & Strawn LLP, as well as by Richard W. Reinthaler. Moab Partners is represented by Salvatore J. Graziano, Lauren Amy Ormsbee, Jesse L. Jensen and William E. Freeland of Bernstein Litowitz Berger & Grossmann LLP, David C. Frederick, Joshua D. Branson and Dustin G. Graber of Kellogg Hansen Todd Figel & Frederick PLLC, and Lori Marks-Esterman and John G. Moon of Olshan Frome Wolosky LLP. The government is represented by Megan Barbero, Michael A. Conley, Jeffrey A. Berger and Rachel M. McKenzie of the U.S. Securities and Exchange Commission and Elizabeth B. Prelogar, Malcolm L. Stewart and Ephraim A. McDowell of the U.S. Department of Justice. The case is Macquarie Infrastructure Corp. et al. v. Moab Partners LP et al., case number 22-1165, in the Supreme Court of the United States.
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Hawaii's attorney general on Wednesday released findings from the first report of a three-part investigation into how state and county governments responded to the wildfires that ignited on the island of Maui last year, decimating the historic town of Lahaina and leaving more than 100 people dead. The first report, prepared by the fire safety arm of UL Research Institutes, provides a minute-by-minute timeline of how the fire spread between 2:55 p.m. HST on Aug. 8 to 8:30 a.m. HST on Aug. 9, and will be used to analyze how various fire protection systems worked and provide recommendations for how to prevent another such disaster, Attorney General Anne Lopez said. "Responsible governance requires we look at what happened, and using an objective, science-based approach, identify how state and county governments responded," Lopez said in a statement Wednesday. "We will review what worked and what did not work, and make improvements to prevent future disasters of this magnitude." As part of its investigation, UL's Fire Safety Research Institute collected radio communication logs and transmissions from Maui County 911 calls, the Maui Fire Department, the Maui Police Department and MPD Dispatch, as well as Hawaiian Electric dispatch communications, according to the report. Investigators also made site visits from late August through January, including surveying the area by helicopter and capturing aerial imagery of all burned and adjacent unburned areas, the report states. The report includes a map showing the fire's progression on its path of destruction through Lahaina, on the northwest coast of the island. Steve Kerber, vice president and executive director of FSRI, said in a statement Wednesday that the report and timeline focused on several factors, including preparedness efforts, the weather and its impact on infrastructure, and other fires occurring on Maui during that same time period. "The Lahaina wildfire tragedy serves as a sobering reminder that the threat of grassland fires, wildfires and wildfire-initiated urban conflagrations, fueled by climate change and urban encroachment into wildland areas, is a reality that must be addressed with the utmost urgency and diligence — not just in Hawai'i," Kerber said. But he cautioned that conclusions should not be drawn solely from this initial report and timeline, noting that this data will be used to dig deeper into how fire protection systems functioned and what can be done to improve safety in the future. Lopez added, "This is not a report about the 'cause' of any fire — the causation investigation is being performed by the U.S. Bureau of Alcohol, Tobacco and Firearms and the Maui Fire and Public Safety Department." Hawaiian Electric Co., which is under scrutiny for its alleged role in sparking the devastating Lahaina wildfire, is embarking on its own investigation to determine the cause of the blaze, but said in September that it could take up to 18 months to have an answer. Litigation has also been launched in the wake of the fire, including a derivative suit filed last week by a Hawaiian Electric Industries Inc. shareholder alleging the company's executives and directors knew that it was not prepared for the wildfire, which the suit says caused reputational and financial damage to the company. That suit followed an earlier shareholder class action in August blaming the company for the massive downturn in its stock price following the fire after it allegedly spent years ignoring warnings that it lacked the safety protocols to address wildfires. Pomerantz LLP was selected in December to serve as lead counsel in the suit. Just after the fire, Maui County filed suit seeking to hold Hawaiian Electric accountable for the billions of dollars in damages to public property caused by the Lahaina fire and the Kula fire, which ignited around 11:30 a.m. HST on Aug. 8, alleging that the company's downed power lines sparked the blazes. The first report, prepared by the fire safety arm of UL Research Institutes, provides a minute-by-minute timeline of how the fire spread between 2:55 p.m. HST on Aug. 8 to 8:30 a.m. HST on Aug. 9, and will be used to analyze how various fire protection systems worked and provide recommendations for how to prevent another such disaster, Attorney General Anne Lopez said. "Responsible governance requires we look at what happened, and using an objective, science-based approach, identify how state and county governments responded," Lopez said in a statement Wednesday. "We will review what worked and what did not work, and make improvements to prevent future disasters of this magnitude." As part of its investigation, UL's Fire Safety Research Institute collected radio communication logs and transmissions from Maui County 911 calls, the Maui Fire Department, the Maui Police Department and MPD Dispatch, as well as Hawaiian Electric dispatch communications, according to the report. Investigators also made site visits from late August through January, including surveying the area by helicopter and capturing aerial imagery of all burned and adjacent unburned areas, the report states. The report includes a map showing the fire's progression on its path of destruction through Lahaina, on the northwest coast of the island. Steve Kerber, vice president and executive director of FSRI, said in a statement Wednesday that the report and timeline focused on several factors, including preparedness efforts, the weather and its impact on infrastructure, and other fires occurring on Maui during that same time period. "The Lahaina wildfire tragedy serves as a sobering reminder that the threat of grassland fires, wildfires and wildfire-initiated urban conflagrations, fueled by climate change and urban encroachment into wildland areas, is a reality that must be addressed with the utmost urgency and diligence — not just in Hawai'i," Kerber said. But he cautioned that conclusions should not be drawn solely from this initial report and timeline, noting that this data will be used to dig deeper into how fire protection systems functioned and what can be done to improve safety in the future. Lopez added, "This is not a report about the 'cause' of any fire — the causation investigation is being performed by the U.S. Bureau of Alcohol, Tobacco and Firearms and the Maui Fire and Public Safety Department." Hawaiian Electric Co., which is under scrutiny for its alleged role in sparking the devastating Lahaina wildfire, is embarking on its own investigation to determine the cause of the blaze, but said in September that it could take up to 18 months to have an answer. Litigation has also been launched in the wake of the fire, including a derivative suit filed last week by a Hawaiian Electric Industries Inc. shareholder alleging the company's executives and directors knew that it was not prepared for the wildfire, which the suit says caused reputational and financial damage to the company. That suit followed an earlier shareholder class action in August blaming the company for the massive downturn in its stock price following the fire after it allegedly spent years ignoring warnings that it lacked the safety protocols to address wildfires. Pomerantz LLP was selected in December to serve as lead counsel in the suit. Just after the fire, Maui County filed suit seeking to hold Hawaiian Electric accountable for the billions of dollars in damages to public property caused by the Lahaina fire and the Kula fire, which ignited around 11:30 a.m. HST on Aug. 8, alleging that the company's downed power lines sparked the blazes. U.S. Sen. Jon Ossoff released scathing findings from a federal probe into Georgia’s child welfare system on Tuesday, which concluded that systemic failures and mismanagement within the agency contributed to the deaths of children. The Senate Judiciary Committee’s subcommittee on Human Rights and the Law, chaired by Ossoff, conducted the inquiry. It was announced more than a year ago and prompted by an investigation in late 2022 by The Atlanta Journal-Constitution. The report describes how the Division of Family & Children Services (DFCS) has identified “significant shortcomings” like staffing shortages, and insufficient training, that contribute to death and serious injuries among children it is responsible for. The subcommittee reviewed years of audits and found an internal audit from the child welfare agency showing the state failed to properly assess risks and safety concerns in 84% of cases that were reviewed. “Those audits reveal that DFCS consistently fails to adequately assess and address the safety risk and safety concerns relating to children,” the report said. The 64-page report detailed several cases of child deaths in which they said DFCS mismanaged their care. A spokesperson for the Department of Human Services, which oversees DFCS, sent an 11-page response to Ossoff’s report, taking issue with many of the findings. The spokesperson said the subcommittee’s report omits DFCS’s improvements, like addressing the issue of housing children in hotels, and strengthening safeguards for children in its care. “The subcommittee’s report omits key context, ignores relevant data that undermine the report’s primary assertions, and takes great lengths to misrepresent DFCS actions, facts about various cases, and outcomes for many children in the state’s care,” a DHS spokesperson said in a statement issued minutes before Ossoff’s report became public. “Our staff and leadership take our responsibility to Georgia’s at-risk youth with the utmost seriousness and will continue to identify and implement solutions that better serve those in our care. We encourage Sen. Ossoff to focus his efforts on putting the welfare of children above political gamesmanship.” The Senate subcommittee said it reviewed thousands of pages of non-public documents from the Department of Human Services, which oversees the child welfare system in Georgia, and from the state’s child welfare watchdog, known as the Office of the Child Advocate. It also interviewed more than 100 witnesses, including top officials like DHS Commissioner Candice Broce, and convened four public hearings. Among child deaths cited in the report, it says DFCS received a police report in May 2023 describing a mother wandering outside with her year-old baby, in “an obvious state of delusion and distress.” A DFCS worker tried and failed to contact the family prior to the child’s death two days later. The state’s ombudsman told the subcommittee that “they did not believe DFCS responded with appropriate urgency in light of the seriousness of the allegations.” In its response, DHS said Ossoff’s report falsely claims that DFCS failed to keep children safe from physical and sexual abuse, and that those failures contributed to the deaths of children. “These allegations are unfounded and irresponsible,” DHS said in a response. “The report relies on various reviews and audits conducted by DFCS itself. Those reviews, however, do not support the report’s conclusions.” DHS also noted that the report was written by majority staff while Ossoff’s initial letter was bipartisan. In 2022, the Atlanta Journal Coonstitution conducted a months-long review of DFCS, obtaining hundreds of pages of public documents and speaking with experts who described a child welfare system in turmoil. Caseworkers at DFCS were leaving their jobs in droves, fueled by low pay, frustration with leadership, and exhaustion from increased workloads, according to state human resources reports. Also in 2022, the office of the state’s ombudsman for child welfare alleged breakdowns within DFCS, identifying 15 systemic issues. The ombudsman’s office said workers were no longer adequately responding to child abuse cases, and that the murder of a 4-year-old boy was a consequence of systemic failures. State officials vehemently disagreed with the assessment, saying the ombudsman failed to provide any evidence backing up its claim of systemic failures within DFCS that leave children in danger. According to an internal review of the 4-year-old’s death conducted by the state, there was “disturbing” mismanagement in the case, but state officials found his death was an isolated tragedy. The report released by Ossoff found the subcommittee’s investigation validated the ombudsman’s earlier report of DFCS’ “systemic” failures to keep children safe from physical and sexual abuse. The report also says that DHS’ Office of the Inspector General conducted an “inadequate, limited-scope review,” which it alleges was “potentially jeopardized” by interference from DHS Commissioner Broce. The subcommittee says it found a number of issues within the DHS review, including that the inspector general failed to conduct critical interviews, never reviewed key evidence submitted to DHS, and never reviewed audits and reports that would have corroborated the ombudsman’s findings. DHS, in its response, said the Senate subcommittee’s report “confuses and misuses statistics” DFCS has reported to the federal government, and “wrongly denigrates” the work of the DHS Office of the Inspector General and other personnel. DHS also said that “at no time did the Commissioner direct the investigation or ask for a particular outcome.” Additionally, the subcommittee says it obtained documentation from the state’s ombudsman, describing examples in which DFCS failed to protect children from sexual abuse. For example, an earlier audit of the Glynn County DFCS Office found a child was raped by an adult resident of their group home, after DFCS declined to open an investigation. The state’s ombudsman reported that the child was raped again after that. The report also said that DHS is “weakening independent oversight” of Georgia’s child welfare system by taking over the selection of members oversight bodies, or “Citizen Review Panels,” that are tasked with reviewing DFCS’ performance. These panels have been appointed by an independent entity for the last 16 years, according to the report, and during that time have been “sharply critical” of DFCS’ performance. DHS announced that it will now appoint members of these panels, according to the report. Previously, lawyers for the DFCS sent a letter to Ossoff, calling the Senate investigation a “political” endeavor. Broce, the DHS commissioner, is a close ally of Georgia Gov. Brian Kemp, who could challenge Ossoff when he runs for re-election in 2026. Office of the Child Advocate Director Jerry Bruce, who serves as the ombudsman, did not respond to a request for comment. DHS, in its response, said the Senate subcommittee’s report “confuses and misuses statistics” DFCS has reported to the federal government, and “wrongly denigrates” the work of the DHS Office of the Inspector General and other personnel. DHS also said that “at no time did the Commissioner direct the investigation or ask for a particular outcome.” Additionally, the subcommittee says it obtained documentation from the state’s ombudsman, describing examples in which DFCS failed to protect children from sexual abuse. For example, an earlier audit of the Glynn County DFCS Office found a child was raped by an adult resident of their group home, after DFCS declined to open an investigation. The state’s ombudsman reported that the child was raped again after that. The report also said that DHS is “weakening independent oversight” of Georgia’s child welfare system by taking over the selection of members oversight bodies, or “Citizen Review Panels,” that are tasked with reviewing DFCS’ performance. These panels have been appointed by an independent entity for the last 16 years, according to the report, and during that time have been “sharply critical” of DFCS’ performance. DHS announced that it will now appoint members of these panels, according to the report. Previously, lawyers for the DFCS sent a letter to Ossoff, calling the Senate investigation a “political” endeavor. Broce, the DHS commissioner, is a close ally of Georgia Gov. Brian Kemp, who could challenge Ossoff when he runs for re-election in 2026. Office of the Child Advocate Director Jerry Bruce, who serves as the ombudsman, did not respond to a request for comment. US District Courts applying Doe and Hubbell have reached different conclusions on biometric unlocking. The 9th Circuit decided that the compelled use of Payne's thumb "required no cognitive exertion" because it "merely provided CHP with access to a source of potential information, much like the consent directive in Doe. The considerations regarding existence, control, and authentication that were present in Hubbell are absent or, at a minimum, significantly less compelling in this case. Accordingly, under the current binding Supreme Court framework, the use of Payne's thumb to unlock his phone was not a testimonial act and the Fifth Amendment does not apply."
The 9th Circuit panel said its "opinion should not be read to extend to all instances where a biometric is used to unlock an electronic device," as "Fifth Amendment questions like this one are highly fact dependent and the line between what is testimonial and what is not is particularly fine." "Indeed, the outcome on the testimonial prong may have been different had Officer Coddington required Payne to independently select the finger that he placed on the phone," the ruling said. "And if that were the case, we may have had to grapple with the so-called foregone conclusion doctrine. We mention these possibilities not to opine on the right result in those future cases, but only to demonstrate the complex nature of the inquiry." Foregone conclusion doctrine The foregone conclusion doctrine noted above generally "applies if the government can show it knows the location, existence, and authenticity of the purported evidence with reasonable particularity," according to the National Association of Criminal Defense Lawyers. "Even if the act of decryption is potentially testimonial, it may not violate the Fifth Amendment if the implicit facts conveyed by doing so would be a 'foregone conclusion' that 'adds little or nothing to the sum total of the government's information,'" the lawyers' group explains in a primer on compelled decryption. Yesterday's ruling from the 9th Circuit also rejected Payne's argument that California Highway Patrol violated his Fourth Amendment rights. The Fourth Amendment dispute involved a special search condition in Payne's parole "requiring him to surrender any electronic device and provide a pass key or code, but not requiring him to provide a biometric identifier to unlock the device," the ruling said. Despite that parole condition, "the search was authorized under a general search condition, mandated by California law, allowing the suspicionless search of any property under Payne's control," the ruling said. "Moreover, we hold that any ambiguity created by the inclusion of the special condition, when factored into the totality of the circumstances, did not increase Payne's expectation of privacy in his cell phone to render the search unreasonable under the Fourth Amendment," the panel wrote. The U.S. Army, the country’s largest military branch, will no longer allow military commanders to decide on their own whether soldiers accused of certain serious crimes can leave the service rather than go on trial.
The decision comes one year after ProPublica, The Texas Tribune and Military Times published an investigation exposing how hundreds of soldiers charged with violent crimes were administratively discharged instead of facing a court martial. Under the new rule, which goes into effect Saturday, military commanders will no longer have the sole authority to grant a soldier’s request for what is known as a discharge in lieu of court martial, or Chapter 10, in certain cases. Instead, the newly created Office of Special Trial Counsel, a group of military attorneys who specialize in handling cases involving violent crimes, must also approve the decision. Without the attorneys’ approval, charges against a soldier can’t be dismissed. The Office of Special Trial Counsel will have the final say, the Army told the news organizations. The new rule will apply only to cases that fall under the purview of the Office of Special Trial Counsel, including sexual assault, domestic violence, child abuse, kidnapping and murder. In 2021, Congress authorized creation of the new legal office — one for each military branch except the U.S. Coast Guard — in response to yearslong pressure to change how the military responds to violent crimes, specifically sexual assault, and reduce commanders’ control over that process. As of December, attorneys with this special office, and not commanders, now decide whether to prosecute cases related to those serious offenses. Army officials told the news organizations that the change in discharge authority was made in response to the creation of the Office of Special Trial Counsel. As far back as 1978, a federal watchdog agency called for the U.S. Department of Defense to end its policy of allowing service members accused of crimes to leave the military to avoid going to court. Armed forces leaders continued the practice anyway. Last year, ProPublica, the Tribune and Military Times found that more than half of the 900 soldiers who were allowed to leave the Army in the previous decade rather than go to trial had been accused of violent crimes, including sexual assault and domestic violence, according to an analysis of roughly 8,000 Army courts-martial cases that reached arraignment. These soldiers had to acknowledge that they committed an offense that could be punishable under military law but did not have to admit guilt to a specific crime or face any other consequences that can come with a conviction, like registering as a sex offender. The Army did not dispute the news organizations’ findings that the discharges in lieu of trial, also known as separations, were increasingly being used for violent crimes. An Army official said separations are a good alternative if commanders believe wrongdoing occurred but don’t have the evidence for a conviction, or if a victim prefers not to pursue a case. Military law experts contacted by the news organizations called the Army’s change a step in the right direction. “It’s good to see the Army has closed the loophole,” said former Air Force chief prosecutor Col. Don Christensen, who is now in private practice. However, the Office of Special Trial Counsel’s decisions are not absolute. If the attorneys want to drop a charge, the commander still has the option to impose a range of other administrative punishments, Army officials said.Christensen said he believes commanders should be removed from the judicial process entirely, a shift he said that the military has continued to fight. Commanders often have little to no legal experience. The military has long maintained that commanders are an important part of its justice system.Christensen said he believes commanders should be removed from the judicial process entirely, a shift he said that the military has continued to fight. Commanders often have little to no legal experience. The military has long maintained that commanders are an important part of its justice system. “They just can’t break away from commanders making these decisions,” said Christensen, who’s been a vocal critic of commanders’ outsize role in the military justice system. “They’re too wedded to that process.” The Army told the newsrooms that additional changes to DOD and Army policy would be required to remove commanders entirely and instead give the Office of Special Trial Counsel full authority over separations in lieu of trial. The news organizations reached out to several military branches to determine how the creation of the Office of Special Trial Counsel will affect their discharge processes. The U.S. Navy has taken steps similar to the Army’s. In the U.S. Air Force, the Office of Special Trial Counsel now makes recommendations in cases involving officers, and the branch is in the process of changing the rules for enlisted members. The U.S. Marines confirmed to the news organizations that it has not yet changed its discharge system. “They just can’t break away from commanders making these decisions,” said Christensen, who’s been a vocal critic of commanders’ outsize role in the military justice system. “They’re too wedded to that process.” The Army told the newsrooms that additional changes to DOD and Army policy would be required to remove commanders entirely and instead give the Office of Special Trial Counsel full authority over separations in lieu of trial. The news organizations reached out to several military branches to determine how the creation of the Office of Special Trial Counsel will affect their discharge processes. The U.S. Navy has taken steps similar to the Army’s. In the U.S. Air Force, the Office of Special Trial Counsel now makes recommendations in cases involving officers, and the branch is in the process of changing the rules for enlisted members. The U.S. Marines confirmed to the news organizations that it has not yet changed its discharge system. |
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