ELR Citation: ELR 20197
No(s). 86 Civ. 7453 (MGC) (S.D.N.Y. Jul 31, 1989)

The court holds that a company had no duty under securities law to disclose to its stockholders that its subsidiary was operating a facility in violation of environmental laws and thus subjecting itself to significant liability. Plaintiffs in this class action suit allege that the company violated §10(b) of the Securities and Exchange Act and Rule 10b-5 by failing to disclose that its wholly owned subsidiary was operating a Department of Energy (DOE) uranium processing facility in Fernald, Ohio, in violation of state and federal environmental laws. Section 10(b) and Rule 10b-5 require a showing that the omitted information was material and that there was a duty to disclose it. A duty to disclose arises when the undisclosed fact is necessary to make a statement not misleading or when a statute or regulation requires disclosure. The court holds that disclosure of the information that plaintiffs claim should have been revealed is not required under a provision of the Securities and Exchange Commission (SEC) regulations requiring disclosure of the material effects that compliance with environmental laws may have on the company's capital expenditures or earnings. Further, the company did not have to disclose any information under this section, since DOE was obligated to pay for all expenses that the subsidiary incurred in complying with environmental laws at the facility. The court holds that disclosure is also not required under a provision of the SEC regulations requiring disclosure of material pending litigation, and the company complied with this provision. The court holds that statements in the company's Form 10-K and its annual reports were not made misleading by the company's failure to disclose that its subsidiary was operating the Fernald facility in violation of the law. A reasonable investor could not have interpreted any of these statements to mean that the subsidiary was operating the facility in compliance with the law.

Counsel for Plaintiff
Howard B. Sirota, Rachell Sirota
Rabin & Sirota
747 Third Ave., New York NY 10017
(212) 759-5555

Gene Mesh
Gene Mesh & Associates
P.O. Box 29073, 3133 Burnet Ave., Cincinnati OH 45229
(513) 221-8800

Counsel for Defendant
Richard L. Bond, Stephen B. Camhi, Steward D. Aaron, Robert G. Manson
Dorsey & Whitney
350 Park Ave., New York NY 10022
(212) 415-9200