In a highly anticipated decision issued this morning, the U.S. Supreme Court upheld the dismissal of a shareholder lawsuit where the plaintiffs failed to establish reliance on any statements made by the defendants. Stoneridge Investment Partners, LLC v. Scientific-Atlanta, Inc., No. 06-43 (U.S.).
The case involved an action brought by shareholders of Charter Communications, Inc. against two of Charter's suppliers, Motorola, Inc. and Scientific-Atlanta,Inc., under Section 10(b) of the 1934 Securities Exchange Act and SEC Rule 10b-5. The shareholders alleged that Motorola and Scientific-Atlanta agreed to arrangements that allowed Charter to subsequently issue a misleading financial statement. There was no showing, however, that Motorola and Scientific-Atlanta themselves made any misstatements relied on by the investing public.
Writing for a 5-3 majority, Justice Kennedy held that, at most, Motorola and Scientific-Atlanta aided and abetted Charter in issuing a misleading financial statement, but that no action for aiding and abetting exists under Section 10(b) and Rule 10b-5. Since Charter's shareholders could not establish reliance on any actual statements made by Motorola or Scientific-Atlanta, their claim was dismissed.