ELR Citation: ELR 20556
No(s). 89-7949 (2d Cir. Feb 15, 1991)

The court holds that a contractual indemnification provision relieved a corporation of its duty under §10 of the Securities Exchange Act (SEA) and under Securities and Exchange Commission Rule 10b-5 to disclose publicly that its subsidiary failed to comply with state and federal environmental laws and that a statute of limitations did not bar the plaintiff shareholders' class action suit. The subsidiary operated a Department of Energy (DOE) uranium processing facility without disclosing its violations of environmental regulations, and shareholders brought a class action suit arguing that the corporation should have disclosed that it was subjecting itself to significant liability. The court first holds that the shareholders' claims are not barred by the one-year statute of limitations. The court holds that its decision in a 1988 case, which held that claims alleging SEA §10 violations are barred if brought more than one year after the plaintiff discovered the facts constituting the violation or more than three years after the violation occurred, does not apply. On the merits, the court holds that although the cost of failing to comply with environmental regulations ordinarily must be disclosed, the defendant's failure to disclose environmental law violations is immaterial, because DOE agreed to indemnify the defendant and its subsidiary for any liability arising from such violations. Accordingly, it was implausible that the defendant's shareholders could suffer financially from the consequences of the alleged environmental violations.

[The district court's decision is published at 20 ELR 20197.]

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

Counsel for Appellee
Stewart D. Aaron
Dorsey & Whitney
350 Park Ave., New York NY 10017
(212) 415-9200

Before Lumbard and Feinberg, JJ.