## Facts

- After a merger, Time Warner carried more than $10 billion in debt and publicly described a plan to reduce it by raising capital through “strategic partners.”
- Time Warner issued optimistic public communications describing negotiations and prospects for strategic alliances as its method for debt reduction.
- Only two strategic alliances were completed, leaving major financing needs unmet.
- While continuing to speak positively about strategic partners, Time Warner allegedly was actively and seriously considering a large equity rights offering that would dilute existing shareholders.
- After regulatory developments and public disclosure of the rights offering proposals, Time Warner’s stock price fell significantly.
- Purchasers of Time Warner stock sued Time Warner and senior officers under § 10(b) and Rule 10b-5, alleging misleading statements and omissions about debt-reduction plans and the status of alliances.
- Plaintiffs also relied on statements appearing in newspapers and analyst reports attributed only to unnamed Time Warner personnel.
- The district court dismissed the complaint with prejudice under Rules 9(b) and 12(b)(6) for inadequate pleading of material misrepresentation/omission and scienter.

## Issues

1. Whether a corporation must update optimistic statements about achieving a business plan when the plan appears less likely to succeed.
2. Whether a corporation that publicly emphasizes a particular plan must disclose a specific alternative under active consideration when silence could make prior statements materially misleading.
3. Whether a corporation may be held responsible under Rule 10b-5 for media and analyst statements attributed only to unnamed corporate personnel.
4. Whether the complaint pleaded scienter with sufficient particularity under Rule 9(b) for the surviving theories.

## Decision

- The Second Circuit affirmed in part and reversed in part the dismissal and remanded for further proceedings.
- The court held that allegations based on Time Warner’s failure to disclose an actively considered, dilutive rights offering could state an actionable omission theory where the company had publicly stressed strategic alliances as its approach to debt reduction.
- The court rejected claims resting solely on optimistic corporate statements that did not amount to actionable misrepresentations.
- The court held unattributed media and analyst statements, attributed only to unnamed personnel, were not pleaded with enough specificity to support liability.
- The court concluded scienter was adequately alleged for the omission-based rights-offering theory, including allegations of motive and opportunity tied to financing pressures and desire to maintain stock price.

## Legal Principles

- Under § 10(b) and Rule 10b-5, an omission is actionable only when there is a duty to disclose; that duty arises when undisclosed information would make prior public statements materially misleading.
- Prior statements can become materially misleading due to omitted information even if the omitted information does not directly and completely contradict what was said.
- A corporation that publicly identifies a particular approach to achieving a stated business objective may have a duty to disclose an alternative approach under active and serious consideration when omitting it would render the prior approach-focused statements misleading in context.
- Generalized optimism and non-guaranteeing forecasts are typically not actionable absent additional allegations showing that, in context, the statements were materially misleading.
- Rule 9(b) requires particularized pleading tying alleged misstatements to identifiable speakers or to a concrete basis for corporate adoption; attribution to unnamed insiders in media/analyst reports is generally insufficient.
- In the Second Circuit, motive-and-opportunity allegations may support a strong inference of scienter at the pleading stage for adequately identified misleading statements or omissions.

## Conclusion

The Second Circuit permitted securities-fraud claims to proceed where Time Warner’s alleged omission of an actively considered, dilutive rights offering could have made its prior, alliance-focused disclosures materially misleading, but it required greater specificity for claims based on vague optimism and unattributed media or analyst statements.


In re Time Warner Inc. Securities Litigation, 9 F.3d 259 (2d Cir. 1993)