Ahson Azmat (Kirkland & Ellis; Fordham University, School of Law) has posted Doing Things With Half-Truths on SSRN. Here is the abstract:
The first rule of disclosure in contract and tort is that there is no freestanding duty to disclose. But there is a catch. The law assures us that we can withhold sensitive information while insisting on a conditional duty to reveal if the information we elect to share is misleading absent further elaboration. The half-truth doctrine helps navigate this tension. At common law, the doctrine is a warning against misrepresentation and a bulwark against fraud, broadly construed and flexibly conceived. Unfortunately, the federal securities disclosure regime diverges from this approach. It clings to a formalistic notion of disclosure's anatomy, adopting a mechanistic method for identifying half-truths that fails to cohere with the way language works. This is especially troublesome in the shadow of fraud, a protean concept that can take many forms and mislead under many guises.
But the Supreme Court has doubled down. It has declared that whether a corporate issuer's disclosures are actionable turns on the degree to which its statements involve "pure" or "impure" omissions, or on what the issuer "literally" says relative to what it implies. These distinctions are red herrings. At best they are analytically idle; at worst they are distracting and distorting. In practice, the Court's approach-what I call Half-Truth Textualism-exposes investors to gamesmanship via wordplay, leaving enforcement gaps in the softer regions of the disclosure regime (where narrative explanations can be disproportionately affected by strategic omission) and artificially narrowing the scope of Rule 10b-5. And it imposes needless costs on issuers, incentivizing opportunism without lowering the quantity of line-item disclosures. Markets become more vulnerable to bad inferences and deadweight loss as they bear the uncertainties of a vague and uneven doctrine. There are no winners here-just burdensome regulations and bad metaphysics to boot.
The Article proposes a reframing-Half-Truth Functionalism-that conceive half truths as speech-acts rather than strings of words. Disclosure statements are dynamic, purposive actions; accordingly, the half-truth doctrine should look to whether issuers intentionally conceal material facts when they file reports or update regulators. Half-Truth Functionalism incorporates insights from linguistics, but it is also returns us to the common-law contours of actionable misrepresentation. At the same time, it helps mitigate the excessive costs of disclosure requirements by raising the bar on actionable half-truths and disciplining frivolous litigation. The result is a more flexible, practice-oriented emphasis on how issuers do things with half-truths, and how we can do things to prevent them.
Highly recommended.