## Facts

- State Teachers Retirement Board, an Ohio public pension fund, sold 288,257 shares of Fluor Corporation stock between March 3 and March 6, 1975.
- Fluor had been informed in February 1975 that it would be awarded SASOL II, a major (about $1 billion) South African construction project.
- SASOL required Fluor to keep the award confidential and not publicly disclose it until March 10, 1975.
- In early March 1975, market rumors about Fluor’s involvement in SASOL II circulated, and Fluor’s trading volume increased; by March 6, price and volume had risen substantially.
- Analysts contacted Fluor between March 4 and March 6 about the rumors; Fluor did not confirm or deny the rumors and did not make material misrepresentations about them.
- On March 6, Fluor contacted the New York Stock Exchange and indicated the SASOL II contract might be driving unusual market activity; the NYSE halted trading on March 7 pending Fluor’s March 10 announcement.
- State Teachers brought a securities-fraud class action on behalf of sellers during the early March 1975 period, asserting claims under Exchange Act § 10(b) and Rule 10b-5 and claims tied to the NYSE Company Manual’s disclosure guidance.

## Issues

1. Whether an issuer with material nonpublic information, subject to a third-party confidentiality restriction, has a duty under § 10(b) and Rule 10b-5 to disclose or correct market rumors during unusual trading activity when the issuer has not made misleading statements.
2. Whether alleged violations of the NYSE Company Manual (including provisions advising prompt disclosure during unusual market activity) create an independent private federal cause of action.
3. Whether summary judgment was proper where disputes remained about the materiality of the information and whether Fluor’s conduct involved actionable misstatements, half-truths, or omissions.

## Decision

- The Second Circuit affirmed dismissal of any stand-alone federal claim premised solely on alleged violations of the NYSE Company Manual.
- The court affirmed in part and reversed in part the summary judgment on the § 10(b)/Rule 10b-5 claims.
- The court held that portions of the securities-fraud case presented genuine disputes of material fact and remanded those issues for trial.
- The remand contemplated further proceedings on liability-related facts (including Fluor’s communications and conduct during March 3–6) and on reliance, causation, and damages questions.

## Legal Principles

- Exchange rules and exchange guidance materials (including the NYSE Company Manual) do not, by themselves, create an implied private right of action under federal securities law.
- A Rule 10b-5 duty to disclose generally turns on whether the issuer made a material misstatement, half-truth, or omission in circumstances that created a duty to speak; the existence and scope of that duty are fact-dependent.
- Knowledge of market rumors and unusual trading activity does not automatically require immediate public disclosure of material nonpublic information when the issuer has not spoken misleadingly and faces a contractual confidentiality restriction.
- Exchange guidance may be relevant evidence of market practice or reasonableness in evaluating alleged deception or scienter, even though it is not an independent source of federal liability.
- Summary judgment is improper where material fact disputes remain regarding materiality, the character of statements or omissions, and transaction causation and reliance.

## Conclusion

The Second Circuit rejected an independent federal claim based on NYSE Company Manual provisions but held that parts of the § 10(b)/Rule 10b-5 case could not be resolved on summary judgment because fact disputes remained about Fluor’s disclosure-related conduct during the rumor-driven trading period and the elements of reliance and causation.


State Teachers Ret. Bd. v. Fluor Corp., 654 F.2d 843 (2d Cir. 1981)