Amicus Curiae Brief — Facebook, Inc., et al., Petitioners v. Amalgamated Bank, et al.

No. 23-980

In the Supreme Court of the United States

FACEBOOK, INC., ET AL., PETITIONERS,

v.

AMALGAMATED BANK, ET AL.

ON WRIT OF CERTIORARI

TO THE UNITED STATES COURT OF APPEALS

FOR THE NINTH CIRCUIT

BRIEF FOR AMICI CURIAE LAW PROFESSORS

AND FORMER OFFICIALS OF THE SECURITIES

AND EXCHANGE COMMISSION SUPPORTING

PETITIONERS

WILLIAM T. SHARON

ARNOLD & PORTER

KAYE SCHOLER LLP

250 West 55th Street

New York, NY 10019

(212) 836-8000

ARTHUR LUK

ANTHONY J. FRANZE

Counsel of Record

KOLYA D. GLICK

ADRIEN K. ANDERSON

ARNOLD & PORTER

KAYE SCHOLER LLP

601 Massachusetts Ave., NW

Washington, DC 20001

(202) 942-5000

anthony.franze@arnoldporter.com

TABLE OF CONTENTS

Page

INTERESTS OF AMICI CURIAE ..................................1

SUMMARY OF ARGUMENT ...........................................2

ARGUMENT .........................................................................3

I.

THE

NINTH

CIRCUIT’S

RULE

WOULD UNDERMINE THE SEC’S

RISK-DISCLOSURE REGIME AND

HURT INVESTORS ................................................3

A. The SEC’s Risk-Disclosure Regime.................3

B. The Decision Below Undermines the

SEC’S “Materiality” Requirement ...................5

C. The Decision Below Will Harm

Investors Through Overwarning and

Information Overload .........................................7

CONCLUSION ...................................................................11

(i)

TABLE OF AUTHORITIES

Cases

Page(s)

Air & Liquid Sys. Corp. v. DeVries,

586 U.S. 446 (2019) ............................................................. 9

Basic Inc. v. Levinson,

485 U.S. 224 (1988) ......................................................... 5, 7

Cerveny v. Aventis, Inc.,

855 F.3d 1091 (10th Cir. 2017) .......................................... 9

CTIA–The Wireless Assoc. v. City of Berkeley,

487 F. Supp. 3d 821 (N.D. Cal. 2020) ............................... 9

In re Facebook Inc. Sec. Litig.,

87 F.4th 934 (9th Cir. 2023) ............................................... 6

Ford Motor Credit Co. v. Milhollin,

444 U.S. 555 (1980) ....................................................... 9, 10

Merck Sharp & Dohme Corp. v. Albrecht,

587 U.S. 299 (2019) ............................................................. 9

O’Neil v. Crane Co.,

266 P.3d 987 (Cal. 2012) ..................................................... 9

Provenz v. Miller,

102 F.3d 1478 (9th Cir. 1996) ............................................ 7

Robinson v. McNeil Consumer Healthcare,

615 F.3d 861 (7th Cir. 2010) .............................................. 9

TSC Industries v. Northway, Inc.,

426 U.S. 438 (1976) ......................................................... 5, 7

U.S. Aviation Underwriters, Inc. v. United States,

562 F.3d 1297 (11th Cir. 2009) .......................................... 9

Universal Health Servs., Inc. v. United States,

579 U.S. 176 (2016) ............................................................. 6

In re Zofran (Ondansetron) Prods. Liab. Litig.,

57 F.4th 327 (1st Cir. 2023) ............................................... 9

(ii)

iii

Statutes and Regulations

Page(s)

15 U.S.C. § 78j(b) ................................................................... 5

47 Fed. Reg. 11,380 (Mar. 16, 1982) .................................... 5

81 Fed. Reg. 23,916 (Apr. 22, 2016) ........................... 4, 5, 10

84 Fed. Reg. 44,358 (Aug. 23, 2019) .................................... 6

85 Fed. Reg. 63,726 (Oct. 8, 2020) ................................... 4, 7

17 C.F.R. § 229.105 ................................................................ 3

17 C.F.R. § 240.10b-5 ........................................................ 5, 6

17 C.F.R. § 240.12b-2 ............................................................ 6

Other Authorities

26 R. Lord, Williston on Contracts § 69:12

(4th ed. 2003) ..................................................................... 6

Anne Beatty et al., Are Risk Factor Disclosures Still

Relevant? Evidence from Market Reactions to Risk

Factor Disclosures Before and After the Financial

Crisis, 36 Contemp. Acct. Res. 805 (2019) ...................... 4

Donald C. Langevoort, Toward More Effective Risk

Disclosure for Technology-Enhanced Investing,

75 Wash. U. L. Q. 753 (1997) ............................................. 8

Susanna Kim Ripken, The Dangers and Drawbacks of

the Disclosure Antidote: Toward a More Substantive

Approach to Securities Regulation,

58 Baylor L. Rev. 139 (2006) ....................................... 8, 10

Troy A. Paredes, Blinded by the Light: Information

Overload and its Consequences for Securities

Regulation, 81 Wash. U. L. Q. 417 (2003) ....................... 8

INTERESTS OF AMICI CURIAE1

Amici curiae are law professors and former officials

of the Securities and Exchange Commission (“SEC”).

They have spent years studying and advising on the

federal securities laws, the SEC’s enforcement practices,

and securities class action litigation. They have an

interest in the appropriate construction and operation of

the laws in those areas. Amici are:2

Amanda M. Rose: Cornelius Vanderbilt Chair in Law

at Vanderbilt University Law School, and Professor of

Management at Vanderbilt University Owen Graduate

School of Management.

Matthew Turk: Associate Professor of Business Law

& Ethics at Indiana University Kelley School of Business.

Andrew N. Vollmer: Distinguished Senior Fellow,

Mercatus Center at George Mason University; former

Professor of Law, General Faculty, University of Virginia

School of Law; former Deputy General Counsel of the

SEC; former partner in the securities enforcement group

of Wilmer Cutler Pickering Hale and Dorr LLP.

Robert Stebbins: Former General Counsel of the

SEC; partner in the Corporate & Financial Services

Department and co-chair of the Corporate Governance

Practice of Willkie Farr & Gallagher LLP.

No counsel for a party authored this brief in whole or in part.

Pursuant to Rule 37.6, amici confirm that no party, counsel for a

party, or person “other than the amicus curiae, its members, or its

counsel,” made a monetary contribution to its preparation or

submission.

2

The views in this brief are those of the amici curiae only and not

necessarily of any of the institutions with which they are or have been

affiliated. The names of the institutions are included for identification

only.

1

(1)

2

Elizabeth Cosenza: Associate Professor of Law and

Ethics at Fordham University’s Gabelli School of

Business.

Richard Booth:

Martin G. McGuinn Chair in

Business Law, Villanova University Charles Widger

School of Law.

Todd Henderson: Michael J. Marks Professor of

Law at the University of Chicago Law School.

Karen Woody: Associate Professor, Washington &

Lee University School of Law.

SUMMARY OF ARGUMENT

This should not be a hard case. The SEC has directed

that companies strive to simplify their risk factor

disclosures—to get rid of boilerplate, repetitive, and

bloated disclosures—and to make them more streamlined

and informative for investors. The Ninth Circuit’s

disclosure standard is the antithesis of that.

The courts of appeals have held that the “risk factors”

section of a company’s Form 10-Ks, Form 10-Qs, and

other public filings need disclose only forward-looking

risks or, at most, past events companies know will harm

the business. The Ninth Circuit rejected that approach,

holding that risk disclosures must include past instances

when the risks came to fruition even where companies had

no basis to believe that those past events harmed or would

harm the business.

Among other deficiencies, the Ninth Circuit’s outlier

standard fosters the very ‘throw in the kitchen sink’

approach to risk disclosures that the SEC has sought to

reform. If allowed to stand, the Ninth Circuit’s standard

would also allow inventive plaintiffs to circumvent the

SEC’s “materiality” requirement, which guides the types

of risks that should be disclosed. And it would encourage

companies to report speculative and immaterial risks—if

only to avoid lawyer-driven securities actions—reverting

3

to a system of information overload and “overwarning”

that would undermine rather than facilitate informed

decision-making.

The Court should thus not only reverse the decision

below, it should make clear, as it has in multiple other

contexts, that meaningful disclosure does not mean more

disclosure.

ARGUMENT

I. THE

NINTH

CIRCUIT’S

RULE

WOULD

UNDERMINE THE SEC’S RISK-DISCLOSURE

REGIME AND HURT INVESTORS

The Ninth Circuit rejected the prevailing standards

for what information companies must include in the

required “risk factors” section of their Form 10-Ks, Form

10-Qs, and other public filings to comply with Item 105 of

Regulation S-K, 17 C.F.R. § 229.105. One circuit has held

that risk disclosures need not discuss past instances when

a risk came to fruition, and six other circuits have

concluded that companies must disclose past events only

if the companies knew the events had harmed or would

inevitably harm the business. Petition for Writ of

Certiorari at 18-21. By contrast, the Ninth Circuit held

that risk disclosures must include past instances when the

risks came to fruition even where the companies had no

basis to believe that those events would harm the

business. That outlier approach is contrary to common

sense and will undermine the SEC’s risk-disclosure

regime and hurt investors.

A.

The SEC’s Risk-Disclosure Regime

SEC rules require risk disclosures from certain

market participants. Since 2005, subject companies have

been required to describe the material risks of an

investment in the company’s securities in both annual and

periodic reports filed with the SEC pursuant to

Regulation S-K (“Reg S-K”).

4

Over time, concerns emerged that disclosures were

becoming longer and more detailed yet less effective. In

2016, the SEC investigated its disclosure regime under

Reg S-K and issued a concept release that emphasized

numerous concerns it had received about the growing

length of risk factor disclosures. See Business and

Financial Disclosure Required by Regulation S-K, 81

Fed. Reg. 23,916, 23,955 (Apr. 22, 2016). In 2019, a

prominent “study found that registrants increased the

length of risk factor disclosures from 2006 to 2014 by more

than 50 percent in terms of word count * * * and that this

increase in risk factor word count may not be associated

with better disclosure.” Modernization of Regulation S-K

Items 101, 103, and 105, 85 Fed. Reg. 63,726, 63,743 n.198

(Oct. 8, 2020) (citing Anne Beatty et al., Are Risk Factor

Disclosures Still Relevant? Evidence from Market

Reactions to Risk Factor Disclosures Before and After

the Financial Crisis, 36 Contemp. Acct. Res., 805 (2019)).

In 2020, the SEC amended the disclosure

requirements “to address the lengthy and generic nature

of the risk factor disclosure presented by many

registrants.” Id. at 63,742. The SEC cited comment

letters and the 2019 study, which attributed the growing

length of risk factor disclosure to the fear of litigation for

failing to disclose risks that later materialized. See id. at

63,742, 63,743. Recognizing that repetitive and generic

risk disclosure can “obscure relevant information or

render it difficult to evaluate the importance of the

information,” 2016 Concept Release at 23,995, the SEC

amended Item 105 of Reg S-K, requiring that if a

company’s risk factor disclosure section exceeds 15 pages,

the company must provide a summary risk factor

disclosure that is no longer than two pages. The

amendment further changed the standard for disclosure

from the “most significant” risks to “material” risks, with

the aim that it would “result in risk factor disclosure that

5

is more tailored to the particular facts and circumstances

of each registrant, which should reduce the disclosure of

generic risk factors and potentially shorten the length of

the risk factor discussion, to the benefit of both investors

and registrants.” 2020 Amendments Release at 63,744.

As discussed next, the Ninth Circuit’s approach

contravenes the SEC’s goal of risk factors that are “more

tailored” to the “material risks.” And by requiring a

historical catalogue of known, past events that have no

implications for forward-looking risk assessment, the

Ninth Circuit adopted a standard that is antithetical to the

purpose of risk-factor disclosures.

B.

The Decision Below Undermines the SEC’S

“Materiality” Requirement

The Ninth Circuit’s approach waters down Reg S-K

Item 105’s “materiality” limitation by requiring

companies to make overly cautious risk disclosures for

past events even when the company has no reason to

suspect those events will harm the business in the future.

Materiality is a guiding principle under federal

securities laws the SEC has used since 1937. See 2016

Concept Release at 23,925. In 1982, the SEC formally

adopted this Court’s materiality standard articulated in

TSC Industries v. Northway, Inc., 426 U.S. 438 (1976).

See Adoption of Integrated Disclosure System, 47 Fed.

Reg. 11,380, 11,393-94 (Mar. 16, 1982). And in 1988, this

Court applied the materiality standard from TSC

Industries to Section 10(b) of the Securities and

Exchange Act of 1934, 15 U.S.C. § 78j(b), and Rule 10b-5,

17 C.F.R. § 240.10b-5. See Basic Inc. v. Levinson, 485

U.S. 224, 232 (1988).

Information is material if there is a substantial

likelihood that a reasonable investor would consider it

important or significant in deciding whether to buy or sell

a security or how to vote as a shareholder. When a

6

relevant event is contingent or speculative, materiality

will depend on a balancing of the probability that the

event will occur and the anticipated magnitude of the

event to the company. In adopting the materiality

standard for risk disclosures under Item 105, the SEC

likewise advised that “the term material, when used to

qualify a requirement for the furnishing of information as

to any subject, limits the information required to those

matters to which there is a substantial likelihood that a

reasonable investor would attach importance in

determining whether to purchase the security.”

Modernization of Regulation S–K Items 101, 103, and 105,

84 Fed. Reg. 44,358, 44,376 (Aug. 23, 2019) (quoting 17

C.F.R. § 240.12b-2 (emphasis added)); see Universal

Health Servs., Inc. v. United States, 579 U.S. 176, 193

(2016) (“Under any understanding of the concept,

materiality ‘look[s] to the effect on the likely or actual

behavior

of

the

recipient

of

the

alleged

misrepresentation.’” (quoting 26 R. Lord, Williston on

Contracts § 69:12, p. 549 (4th ed. 2003)); see also Rule 10b5(b), 17 C.F.R. § 240.10b-5(b) (outlawing untrue

statements of material fact or omissions of material fact).

The Ninth Circuit’s decision treats past events as

material even if there is no reason to believe they will

harm the business, undermining the purpose of the

materiality requirement. After all, when there is no

reason to believe a past event poses a current risk of

harm, the event is not a matter “to which there is a

substantial likelihood that a reasonable investor would

attach importance in determining whether to purchase

the security.” Ibid. Put differently, no reasonable

investor would change their investing behavior based on

past events that did not harm the company.

The decision below is all the more troublesome

because the court deemed the omitted information

material even though news reports made it widely known

7

to the public in 2015, over a year before Facebook filed the

forward-looking risk factor statements at issue. The

Ninth Circuit drew this conclusion despite recognizing

that “if the market has already ‘become aware of the

allegedly concealed information,’ the allegedly false

information or material omission ‘would already be

reflected in the stock’s price’ and the market ‘will not be

misled.’” In re Facebook Inc. Sec. Litig., 87 F.4th 934, 948

(9th Cir. 2023) (quoting Provenz v. Miller, 102 F.3d 1478,

1492 (9th Cir. 1996)).

The Ninth Circuit also incongruously concluded that

a non-disclosure of a past event may be material even

where the company includes a forward-looking risk factor

about the same type of risk. A simple example illustrates

the fallacy: in baseball, a team may advise that if it rains,

a game may be delayed. It would be absurd to assert that

warning of possible rain delays is misleading unless the

team also posts a list of every game that has been

postponed because of rain in the past. Yet the Ninth

Circuit’s rule would the Ninth Circuit’s rule would render

the team’s warning inadequate unless it also included all

past rain delays, with no temporal limit.

C.

The Decision Below Will Harm Investors Through

Overwarning and Information Overload

The Ninth Circuit’s decision undermines the SEC’s

requirements aimed at “risk factor disclosure that is more

tailored to the particular facts and circumstances of each

registrant [to] reduce the disclosure of generic risk

factors and potentially shorten the length of the risk

factor discussion, to the benefit of both investors and

registrants.” 2020 Amendments Release at 63,744. If left

standing, the Ninth Circuit’s standard would encourage,

if not require, companies to disclose the cumulative

history of their business, no matter how immaterial to the

risk of future business harm.

8

By “bring[ing] an overabundance of information

within its reach,” the Ninth Circuit’s rule would require

companies to “bury the shareholders in an avalanche of

trivial information—a result that is hardly conducive to

informed decision making.” Basic, Inc., 485 U.S. at 231

(quoting TSC Industries, 426 U.S. at 488) (cleaned up).

Regulators, courts, and scholars repeatedly have

recognized the risks of “information overload” or

“overwarning” in the securities and numerous other

contexts. The principle is always the same: “more

disclosure can mean less effective disclosure.” Troy A.

Paredes, Blinded by the Light: Information Overload

and its Consequences for Securities Regulation, 81 Wash.

U. L. Q. 417, 446 (2003).

“Studies show that at some point, people become

overloaded with information and make worse decisions

than if less information were made available to them.” Id.

at 419. “In particular, studies show that when faced with

complicated tasks that involve vast quantities of

information, people tend to adopt simplifying decision

strategies that require less cognitive effort, but that are

less accurate than more complex decision strategies.” Id.

“The net result of having access to more information,

combined with using a less accurate decision strategy as

the information load increases, is often an inferior

decision.” Id. (discussing studies). “Borrowing Brandeis’

terminology, in addition to being a disinfectant, sunlight

can also be blinding.” Id.

Information overload can result in investors

becoming “overwhelmed and confused.” Id. at 441.

“Making matters worse, studies show that people do not

always focus on the most relevant information but might

become distracted by less relevant information.” Id. at

442. “[T]he more information there is, the more each bit

of it is diluted. The immediate and salient crowds out the

less attention-grabbing.” Donald C. Langevoort, Toward

9

More Effective Risk Disclosure for TechnologyEnhanced Investing, 75 Wash. U. L. Q. 753, 759 (1997)

(footnote omitted). As a result, “[w]hen the average

investor is presented with disclosure that is too long and

complex to be processed efficiently, the overload can

hinder informed decision-making and thereby defeat the

very purpose of disclosure requirements.” Susanna Kim

Ripken, The Dangers and Drawbacks of the Disclosure

Antidote: Toward a More Substantive Approach to

Securities Regulation, 58 Baylor L. Rev. 139, 162 (2006).

The problem of information overload or

“overwarning” is well recognized across subject-matter

areas, and in an array of different contexts. For instance,

this Court has recognized that consumer protection

disclosures must avoid “information overload,” because

“[m]eaningful disclosure does not mean more

disclosure.” Ford Motor Credit Co. v. Milhollin, 444 U.S.

555, 568, (1980) (discussing liability for a failure to disclose

under the Truth in Lending Act). Drug labels that include

too many warnings risk “overshadow[ing]” more

important information. Merck Sharp & Dohme Corp. v.

Albrecht, 587 U.S. 299, 304 (2019). And “[r]equiring a

product manufacturer to imagine and warn” of risks

based on “how its product might be used with other

products or parts[,] []would impose a difficult and costly

burden on manufacturers, while simultaneously

overwarning users.” Air & Liquid Sys. Corp. v. DeVries,

586 U.S. 446, 454 (2019). Other courts and agencies have

recognized the risks of overwarning; as one court put it:

“To warn of all potential dangers would warn of nothing.”

O’Neil v. Crane Co., 266 P.3d 987, 1006 (Cal. 2012)

(quotation marks omitted).3

See, e.g., In re Zofran (Ondansetron) Prods. Liab. Litig., 57 F.4th

327, 330 (1st Cir. 2023) (“[O]ne of [the FDA’s] objectives is to prevent

(footnote continued on next page)

3

10

The SEC and its officials have recognized that

information overload can hinder informed decisionmaking.

E.g., Business and Financial Disclosure

Required by Regulation S-K, 81 Fed. Reg. 23,916, 23,919

(Apr. 22, 2016) (“There is also a possibility that high levels

of immaterial disclosure can obscure important

information or reduce incentives for certain market

participants to trade or create markets for securities.”);

Ripken, supra, at 162 (“Even former SEC Chairman

Arthur Levitt noted that ‘[t]oo much information can be

as much a problem as too little’ and ‘[m]ore disclosure

does not always mean better disclosure.’”).

Nevertheless, the decision below demands that

companies saturate their disclosures with overwhelming

information about past events despite no reasonable belief

that these events present risks of harm to the business. If

allowed to persist, this requirement would result in

material information being overlooked or diluted and lead

to worse, not better, decisions.

The Court should not only reverse the Ninth Circuit,

it should make clear, as it has in other contexts, that

“[m]eaningful disclosure does not mean more disclosure.”

Ford, 444 U.S. at 568.

overwarning, which may deter appropriate use of medical products,

or overshadow more important warnings.” (quotation marks

omitted)); Cerveny v. Aventis, Inc., 855 F.3d 1091, 1102 (10th Cir.

2017) (same); Robinson v. McNeil Consumer Healthcare, 615 F.3d

861, 869 (7th Cir. 2010) (same); U.S. Aviation Underwriters, Inc. v.

United States, 562 F.3d 1297, 1300 (11th Cir. 2009) (noting “the

dangers of over warning” in forecasting turbulence to aircraft pilots);

CTIA – The Wireless Assoc. v. City of Berkeley, 487 F. Supp. 3d 821,

834 (N.D. Cal. 2020) (agreeing with FCC that city ordinance on risks

of cell phone usage presented risk of overwarning).

11

CONCLUSION

The Court should reverse the decision below.

Respectfully submitted.

WILLIAM T. SHARON

ARNOLD & PORTER

KAYE SCHOLER LLP

250 West 55th Street

New York, NY 10019

(212) 836-8000

ARTHUR LUK

ANTHONY J. FRANZE

Counsel of Record

KOLYA D. GLICK

ADRIEN K. ANDERSON

ARNOLD & PORTER

KAYE SCHOLER LLP

601 Massachusetts Ave., NW

Washington, DC 20001

(202) 942-5000

anthony.franze@arnoldporter.com