In late January in Newtyn Partners, LP v. Alliance Data Sys. Corp., (6th Cir.; 1/26), the Sixth Circuit clarified when omitted facts may cause public statements to constitute “half-truths” and affirmed the dismissal of a putative securities class action against a financial services company. The Court held that a statement cannot be a misleading half-truth when the disclosure and the omitted information operate on different “levels of generality.”

“Half-truths,” as this Katten blog explains, were defined by SCOTUS in Macquarie as “representations that state the truth only so far as it goes, while omitting critical qualifying information.” One of the issues debated but not addressed by SCOTUS in Macquarie was whether a statement could be misleading for failure to disclose a fact on the “same subject” (broadly defined) or if the omitted fact must be “like in kind in both subject matter and specificity.” The Katten blog asserts that no court had actually addressed this specific question about half-truths until Newtyn Partners. 

This A&O Shearman alert describes the facts at issue in Newtyn Partners. 

Plaintiff alleged that Defendants made misleading statements during the spinoff regarding the Loyalty Program’s client base despite the risk of allegedly significant client departures.  The crux of Plaintiff’s claim was that Defendants’ statements about the Loyalty Program’s “stable client base” and “deep, long-standing relationships” were “half-truths” because they omitted key context about clients who were considering terminating partnerships.

The Court did not agree that Defendants’ statements were misleading half-truths, noting that a statement cannot be a misleading half-truth when “the words spoken and the facts omitted operate on different levels of generality” and “that the omitted facts must have a reasonably close fit to what defendants disclosed.”  Here, Defendants made generic statements about a stable client base which the Court described as loosely optimistic, high-level remarks that would not have created inferences regarding specific contractual relationships for reasonable investors.  These general optimistic statements did not require Defendants to disclose the specific contractual terms with clients who were at risk of terminating their partnerships and, therefore, the upbeat statements were not misleading half-truths.

– Meredith Ervine