## Facts

- Dow decided to sell its subsidiary Destec and engaged Morgan Stanley to value Destec and market the sale.
- Morgan Stanley circulated a Confidential Offering Memorandum to potential buyers.
- AES, a sophisticated power-facilities operator, signed a Confidentiality Agreement to receive the materials.
- The Confidentiality Agreement stated that neither Destec nor Morgan Stanley made representations or warranties about the “accuracy or completeness” of the information and that AES was “not entitled to rely” on it, instead relying only on representations and warranties in a definitive agreement.
- AES purchased all stock of Destec Engineering, Inc. (DEI), whose sole asset was a contract to design and construct the Elsta power plant in the Netherlands.
- AES alleged Dow and Destec made material misstatements and omissions about the Elsta project (including costs, schedule, and risk allocation) to inflate the purchase price.
- AES sued Dow (and initially Destec) under Exchange Act §§ 10(b) and 20(a); AES later settled with Destec.
- Before discovery, Dow moved for summary judgment based on transaction documents; AES submitted a Rule 56(f) affidavit seeking discovery to oppose the motion.
- The district court granted summary judgment to Dow, holding the non-reliance and integration language made AES’s reliance on extra-contractual statements unreasonable as a matter of law.

## Issues

1. Whether contractual non-reliance and related clauses may categorically defeat a Rule 10b-5 claim by rendering reliance unreasonable as a matter of law, consistent with Exchange Act § 29(a)’s antiwaiver rule.
2. Whether summary judgment was improper without discovery where reliance is fact-dependent and the plaintiff sought discovery by Rule 56(f) affidavit.

## Decision

- The Third Circuit vacated the summary judgment for Dow and remanded.
- The court held that non-reliance and related clauses cannot be enforced as a conclusive bar to a federal securities-fraud claim because that approach conflicts with Exchange Act § 29(a).
- The court held that reasonable reliance must be assessed under the totality of the circumstances, with non-reliance language treated as relevant but not dispositive.
- The court held the district court erred in resolving reliance as a matter of law at summary judgment without permitting discovery in the face of AES’s Rule 56(f) request.

## Legal Principles

- Exchange Act § 29(a) voids contractual provisions that operate as anticipatory waivers of compliance with the Exchange Act and its rules.
- A contractual non-reliance clause may be considered in evaluating reasonable reliance under Rule 10b-5, but it cannot categorically negate reliance as a matter of law.
- Reasonable reliance in a Rule 10b-5 case is generally fact-intensive and depends on all circumstances, including sophistication, access to information, the nature of alleged misstatements or omissions, and the plaintiff’s ability to detect the alleged fraud.
- Summary judgment on reliance is generally inappropriate before factual development where the plaintiff identifies specific discovery needed to test representations, omissions, and the reasonableness of reliance.

## Conclusion

The Third Circuit held that non-reliance provisions cannot function as a blanket contractual bar to Exchange Act fraud claims under § 29(a); instead, they are only one consideration in a fact-specific reliance analysis, and the case was remanded for discovery and further proceedings.


AES Corp. v. Dow Chem. Co., 325 F.3d 174 (3d Cir. 2003)