Jaroslawicz v. M&T Bank Corp

PRECEDENTIAL

UNITED STATES COURT OF APPEALS
FOR THE THIRD CIRCUIT
______________

No. 17-3695
______________

DAVID JAROSLAWICZ

v.

M&T BANK CORPORATION; HUDSON CITY
BANCORP INC.; *THE ESTATE OF ROBERT G.
WILMERS, BY ITS PERSONAL REPRESENTATIVES
ELISABETH ROCHE WILMERS, PETER MILLIKEN,
AND HOLLY MCALLISTER SWETT; RENE F. JONES;
MARK J. CZARNECKI; BRENT D. BAIRD; ANGELA C.
BONTEMPO; ROBERT T. BRADY; T. JEFFERSON
CUNNINGHAM, III; GARY N. GEISEL; JOHN D.
HAWKE, JR.; PATRICK W.E. HODGSON; RICHARD G.
KING; JORGE G. PEREIRA; MELINDA R. RICH;
ROBERT E. SADLER, JR.; HERBERT L. WASHINGTON;
DENIS J. SALAMONE; MICHAEL W. AZZARA;
VICTORIA H. BRUNI; DONALD O. QUEST; JOSEPH G.
SPONHOLZ; CORNELIUS E. GOLDING; WILLIAM G.
BARDEL; SCOTT A. BELAIR

BELINA FAMILY; JEFF KRUBLIT,
Appellants
 (*Amended pursuant to Clerk’s Order dated 3/1/18)
______________

On Appeal from the United States District Court
for the District of Delaware
(D.C. No. 1-15-cv-00897)
District Judge: Honorable Richard G. Andrews
______________
Argued: July 17, 2018

Before: McKEE, MATEY, and SILER, JR., † Circuit Judges.

(Filed: June 18, 2020)

Deborah R. Gross [ARGUED]
Kaufman Coren & Ress
2001 Market Street
Two Commerce Square, Suite 3900
Philadelphia, Pennsylvania 19103

Francis J. Murphy
Jonathan L. Parshall
Murphy & Landon
1011 Centre Road
Suite 210
Wilmington, Delaware 19805

Laurence D. Paskowitz
Suite 380

†
Honorable Eugene E. Siler, Jr., Senior Judge for the
Sixth Circuit Court of Appeals, sitting by designation.

2
208 East 51st Street
New York, New York 10022

Counsel for Appellants Belina Family and Jeff Krublit

George T. Conway, III
Adam L. Goodman
Bradley R. Wilson [ARGUED]
Jordan L. Pietzsch
Wachtell Lipton Rosen & Katz
51 West 52nd Street
New York, New York 10019

John C. Cordrey
Brian M. Rostocki
Reed Smith
1201 Market Street
Suite 1500
Wilmington, Delaware 19801

Counsel for Appellees M&T Bank Corporation, The
Estate of Robert G. Wilmers, Rene F. Jones, Mark J.
Czarnecki, Brent D. Baird, Angela C. Bontempo,
Robert T. Brady, T. Jefferson Cunningham, III, Gary N.
Geisel, John D. Hawke, Jr., Patrick W. E. Hodgson,
Richard G. King, Jorge G. Pereira, Melinda R. Rich,
Robert E. Sadler, Jr., and Herbert L. Washington

Tracy R. High
Sullivan & Cromwell
125 Broad Street
New York, New York 10004

3
Kevin R. Shannon
Potter Anderson & Corroon
1313 North Market Street
Hercules Plaza, 6th Floor
P.O. Box 951
Wilmington, Delaware, 19801

Counsel for Appellees Denis J. Salamone, Victoria H.
Bruni, Donald O. Quest, Joseph G. Sponholz, Scott A.
Belair, Michael W. Azzara, William G. Bardel and
Cornelius E. Golding

______________

OPINION
______________

MATEY, Circuit Judge.

It is a familiar story in the life of a publicly held
business. A corporation identifies an opportunity and decides
to ask its shareholders for their approval to pursue. But the
business runs in a highly regulated space like finance. So the
company proceeds through a thick web of laws and regulations
that detail how to explain both the risks and the rewards of the
opportunity to the shareholders. With a bit of good fortune, all
the hard work pays off when the shareholders give their
blessing. And then, after the deal is done, only the class action
hurdle remains. That is because for more than five decades,
these transactions have been subject to a three-tier system of
enforcement: oversight by Congress, supervision by regulators
like the Securities and Exchange Commission, and “private

4
attorneys general” 1 pursuing “a private right of action.” Gen.
Elec. Co. v. Cathcart, 980 F.2d 927, 932 (3d Cir. 1992) (citing
J.I. Case Co. v. Borak, 377 U.S. 426, 430–31 (1964)).

We consider that final frontier of enforcement in this
appeal. Hudson City Bank (“Hudson”) and M&T Bank
Corporation (“M&T”) successfully merged in 2015. But their
union triggered a protest by a few Hudson shareholders, who
filed a putative class action (together, the “Shareholders”). The
complaint alleged the banks didn’t disclose material
information about M&T’s practice of adding fees to no-fee
“free” checking accounts or its failure to comply with federal
anti-money laundering regulations. And despite a healthy
return on their investment, the Shareholders argue these
omissions or misstatements caused all Hudson shareholders
financial harm. In a comprehensive opinion, the District Court
dismissed these claims. We now vacate and remand for further
proceedings based on prior decisions allowing suits alleging
inadequate transparency or deception. We reiterate the
longstanding limitations on securities fraud actions that
insulate issuers from second-guesses, hindsight clarity, and a
regime of total disclosure.

1
Most ascribe the colorful phrase to Judge Jerome
Frank. Associated Indus. N.Y. State, Inc. v. Ickes, 134 F.2d 694,
704 (2d Cir. 1943), vacated, 320 U.S. 707 (1943).

5
 I. BACKGROUND

A. The Proposal

Chartered in 1868, Hudson grew to become one of the
largest savings banks in New Jersey. Avoiding modern
products and trends in favor of steady deposits and safe
mortgages, Hudson enjoyed a strong reputation of stability.
But, following the 2008 recession, Hudson struggled to hold
its footing. It launched reforms, shedding debt, eying
diversification, and considering opportunities to merge.
Eventually, Hudson found a partner in M&T and the two banks
struck a deal. Investors appeared to welcome the
announcement with M&T’s stock price rising on the news.

B. The Joint Proxy

The merger agreement promised Hudson shareholders a
mixture of cash and M&T stock, and required approval by the
shareholders of both banks. To provide the required notice,
Hudson and M&T opted to issue a Joint Prospectus (“Joint
Proxy”) and filed a single Form S-4 in accordance with SEC
rules. 2 That form requires issuers to provide, among other
things, “the information required by Item 503 of Regulation S-

2
Firms may use Form S-4 to register securities issued
in a merger. (Docket Entry Dated July 13, 2018: Letter from
David R. Fredrickson, Chief Counsel/Associated Director,
Division of Corporate Finance, United States Securities and
Exchange Commission (July 12, 2018).) The form also allows
for the filing of a joint prospectus/proxy statement, as M&T
and Hudson elected to do here.

6
K.” Item 503, since recodified as Item 105, 3 asks for “the most
significant factors that make an investment in the registrant or
offering speculative or risky.” 17 C.F.R. § 229.105. Each “risk
factor” requires an individual topic heading supported by
information that is both “concise and organized logically.” Id.
Specificity is key, as the regulation cautions filers to omit
“risks that could apply generically to any registrant or any
offering.” Id. And Item 105 is where the Shareholders direct
their attack, alleging this portion of the Joint Proxy was
misleading and incomplete. We turn to those disclosures.

1. The “Risks Related to M&T”

As required, the Joint Proxy included a section titled
“Risks Related to M&T” (App. at 0237), with subsections on
“Risks Relating to Economic and Market Conditions,” “Risks
Relating to M&T’s Business,” and “Risks Relating to the
Regulatory Environment.” (App. at A0237–48.) Discussing
the regulatory environment, the Joint Proxy noted that “M&T
is subject to extensive government regulation and supervision”
because of “the Dodd-Frank Act and related regulations.”
(App. at A1010 (emphasis omitted).) It cautioned that “M&T
expects to face increased regulation of its industry as a result
of current and possible future initiatives.” (App. at A1010.)
That will lead to “more intense scrutiny in the examination
process and more aggressive enforcement of regulations on
both the federal and state levels,” which would “likely increase
M&T’s costs[,] reduce its revenue[,] and may limit its ability
to pursue certain desirable business opportunities.” (App. at

3
See FAST Act Modernization and Simplification of
Regulation S-K, 84 FR 12674, 12716–17 (April 2, 2019). We
will refer to the current regulation.

7
A1010.) The Joint Proxy also stated that “from time to time,
M&T is, or may become, the subject of governmental and self-
regulatory agency information-gathering requests, reviews,
investigations and proceedings and other forms of regulatory
inquiry, including by the SEC and law enforcement
authorities.” (App. at A0248.) That ongoing oversight, in turn,
might lead to “significant monetary damages or penalties,
adverse judgments, settlements, fines, injunctions, restrictions
on the way in which M&T conducts its business, or
reputational harm.” (App. at A0248.) And the Joint Proxy
noted operational risks “encompass[ing] reputational risk and
compliance and legal risk, which is the risk of loss from
violations of, or noncompliance with, laws, rules, regulations,
prescribed practices or ethical standards, as well as the risk of
noncompliance with contractual and other obligations.” (App.
at A0245.) That dense fog of possible problems, as we will see,
looms large.

2. Other Warnings

A few additional statements related to risk appeared
elsewhere in the Joint Proxy. A section titled, “Regulatory
Approvals Required for the Merger” advised that
“[c]ompletion of the merger . . . [is] subject to the receipt of all
approvals required to complete the transactions contemplated
by the merger agreement . . . from the Federal Reserve Board.”
(App. at A1017.) And the Federal Reserve Board, “[a]s part of
its evaluation . . . , reviews: . . . the effectiveness of the
companies in combatting money laundering.” (App. at A1018.)
While M&T “believe[d]” timely regulatory approval was
realistic, it was unsure. (App. at A1017; see also App. at
A1009.) Rather, M&T offered that:

8
 Although we currently believe we should be able
to obtain all required regulatory approvals in a
timely manner, we cannot be certain when or if
we will obtain them or, if obtained, whether they
will contain terms, conditions or restrictions not
currently contemplated that will be detrimental
to M&T after the completion of the merger or
will contain a burdensome condition.

(App. at A1017.)

3. The Annual Report

At M&T’s election, the Joint Proxy incorporated
M&T’s 2011 Annual Report on Form 10-K as permitted by
Form S-4. There, M&T warned that the Patriot Act requires
that “U.S. financial institutions . . . implement and maintain
appropriate policies, procedures and controls which are
reasonably designed to prevent, detect and report instances of
money laundering.” (App. at A1028.) But investors could take
comfort, the Joint Proxy explained, because M&T’s “approved
policies and procedures [are] believed to comply with the USA
Patriot Act.” (App. at A1028.)

C. New Disclosures, Governmental Intervention, and
Regulatory Delay

M&T filed the Joint Proxy with the SEC, which was
declared effective on February 22, 2013, mailed it to all
shareholders five days later, and scheduled a vote on the
proposal for April. Then, a few days before the ballots, M&T
and Hudson announced that “additional time will be required
to obtain a regulatory determination on the applications

9
necessary to complete their proposed merger.” (App. at
A1041.) In a supplemental proxy, M&T revealed that the
Federal Reserve Board identified “certain regulatory concerns”
about “procedures, systems and processes relating to M&T’s
Bank Secrecy Act and anti-money-laundering compliance
program.” 4 (App. at A1041.) M&T explained that to address
these concerns, “the timeframe for closing the transaction will
be extended substantially beyond the date previously
expected.” (App. at A1041.) As a result, M&T and Hudson
amended their merger agreement and moved the closure back

4
As the Joint Proxy notes, the merger required approval
by the Federal Reserve Board, among other regulators. As part
of its review, the Federal Reserve Board assesses the banks’
effectiveness in combatting money laundering, requiring a
risk-management program incorporating the Bank Secrecy Act
and anti-money-laundering (“BSA/AML”) compliance. See
Uniting and Strengthening America by Providing Appropriate
Tools Required to Intercept and Obstruct Terrorism (“USA
PATRIOT”) Act of 2001, Pub. L. No. 107-56, 115 Stat. 272
(codified at various sections of the U.S. Code). Title III of the
Act, captioned “International Money Laundering Abatement
and Anti-Terrorist Financing Act of 2001,” amended the Bank
Secrecy Act, 31 U.S.C. § 5311 et seq., and “imposed more
stringent requirements aimed at money laundering.” Mendez
Internet Mgmt. Servs., Inc. v. Banco Santander de P.R., 621
F.3d 10, 13 (1st Cir. 2010). To ensure compliance, banks must
collect, process, and update information necessary to make
money-laundering risk determinations for every customer and
account. Banks are also required to have in place acceptable
processes and policies to detect and report related suspicious
activity.

10
several months. 5 The shareholder vote, however, remained as
scheduled. And these revelations did not deter the
shareholders, who overwhelmingly approved the merger. But
it took nearly two and a half more years before regulators
allowed the deal to close.

While the banks awaited the conclusion of the Federal
Reserve review, M&T received more bad news. The Consumer
Financial Protection Bureau (“CFPB”) announced an
enforcement action against M&T for offering customers free
checking before switching them to fee-based accounts without
notice. A practice, the CFPB noted, that was in place when the
merger was first proposed, and that had impacted nearly 60,000
customers. M&T agreed to pay $2.045 million to settle the
allegations, the approximate amount of the customer injuries.

D. The Shareholder Suit

A few weeks before the merger closed, David
Jaroslawicz, a Hudson shareholder, filed a putative class action
against M&T, Hudson, and their directors and officers
(together, “M&T”). He claimed that the Joint Proxy omitted
material risks associated with the merger in violation of the
Securities Exchange Act, 15 U.S.C. § 78n(a)(1) and 17 C.F.R.

5
M&T provided more context a few days later during
an earnings conference call, explaining that the compliance
issues were significant enough to “impact [the] ability to close
the merger . . . in the near term.” (App. at A1048.) And M&T
noted it needed “to implement [a] plan for improvement . . . to
the satisfaction of . . . the regulators prior to obtaining
regulatory approvals for the merger.” (App. at A1048.)

11
§ 240.14a-9(a). He also brought a claim for breach of fiduciary
duty under Delaware law. 6

After the Shareholders filed an amended complaint,
M&T moved to dismiss for failure to plead an actionable claim.
The District Court granted that motion, but allowed the
Shareholders to amend. After the Shareholders amended, M&T
again moved to dismiss. The District Court granted M&T’s
motion. See Jaroslawicz v. M&T Bank Corp., 296 F. Supp. 3d
670 (D. Del. 2017).

In their Second Amended Complaint, the Shareholders
presented two theories of M&T’s liability for the Joint Proxy’s
deficiencies. First, because the Joint Proxy did not discuss
M&T’s non-compliant BSA/AML practices and deficient
consumer checking program, the Shareholders contend that
M&T failed to disclose material risk factors facing the merger,
as required by Item 105. Second, they assert that M&T’s
failure to discuss these allegedly non-compliant practices
rendered M&T’s opinion statements about its adherence to
regulatory requirements and the prospects for prompt approval
of the merger, misleading.

The District Court held that the Joint Proxy sufficiently
disclosed the regulatory risks associated with the merger. The
Court also held that M&T did not have to disclose the
consumer checking violations exposed after the merger
announcement. And, applying Omnicare, Inc. v. Laborers
District Council Construction Industry Pension Fund, 575

6
The District Court later appointed the Belina family to
serve as lead plaintiffs for the class action.

12
U.S. 175 (2015), the Court found no misleading opinions. The
Court again allowed the Shareholders to amend the pleadings,
but the Shareholders asked for a final order of dismissal with
prejudice to file this appeal. 7

II. JURISDICTION AND THE STANDARD OF REVIEW

The District Court had jurisdiction under 15 U.S.C.
§ 78aa, and 28 U.S.C. §§ 1331 and 1337. We have jurisdiction
under 28 U.S.C. § 1291. As the Shareholders bring their appeal
from the District Court’s final order granting a motion to
dismiss with prejudice, we exercise plenary review. See In re
NAHC, Inc. Sec. Litig., 306 F.3d 1314, 1322–23 (3d Cir. 2002).
But we are to accept the facts in the light most favorable to the
non-moving party. Jones v. ABN Amro Mortg. Grp., Inc., 606
F.3d 119, 123 (3d Cir. 2010). Dismissal is proper only where
the complaint fails to state a claim “that is plausible on its
face.” Ashcroft v. Iqbal, 556 U.S. 662, 678 (2009) (internal
quotation marks omitted). A claim is plausible “when the
plaintiff pleads factual content that allows the courts to draw

7
Following a panel decision of this Court, M&T
petitioned for en banc review or a panel rehearing, and we
granted the latter request. See Jaroslawicz v. M&T Bank Corp.,
925 F.3d 605 (3d Cir. 2019). In its petition for rehearing, M&T
waived the argument that the Shareholders’ Second Amended
Complaint failed to plausibly allege loss causation. (Appellees’
Reh’g Pet. at 6.)

13
the reasonable inference that the defendant is liable for the
misconduct alleged.” 8 Id.

III. THE SHAREHOLDERS’ TWIN THEORIES OF LIABILITY:
ACTIONABLE OMISSIONS AND MISLEADING OPINIONS

A. The Shareholders Plausibly Allege an Actionable
Omission or Misrepresentation

1. Actionable Omissions and Misrepresentations
Defined

We start by setting some boundaries. The Shareholders
have pleaded claims under Section 14(a) of the Securities
Exchange Act of 1934, as codified at 15 U.S.C. § 78n(a), and
the regulations promulgated by the Commission. But that
statute does not provide for a private right of action. And since
“Congress creates federal causes of action,” where “the text of
a statute does not provide a cause of action, there ordinarily is
no cause of action.” Johnson v. Interstate Mgmt. Co., 849 F.3d
1093, 1097 (D.C. Cir. 2017); see also Antonin Scalia & Bryan
A. Garner, Reading Law: The Interpretation of Legal Texts 313
(2012) (“A statute’s mere prohibition of a certain act does not
imply creation of a private right of action for its violation.”).

8
The District Court reviewed the allegations under the
general pleading standard of Federal Rule of Civil Procedure
8, but M&T argues that all § 14(a) claims are subject to the
heightened pleading requirements of the Private Securities
Litigation Reform Act, 15 U.S.C. § 78u-4(b)(1). Still, the
parties agree on the statements alleged to have been
misleading, do not dispute their specificity, and thus do not
argue that the pleading standard is determinative.

14
But during an “ancien regime,” courts followed a different
path, often finding “as a routine matter . . . impl[ied] causes of
action not explicit in the statutory text itself.” Ziglar v. Abbasi,
137 S. Ct. 1843, 1855 (2017). And while courts have since
“adopted a far more cautious course before finding implied
causes of action,” id., in securities fraud actions under § 14(a)
what was then is still now. Cathcart, 980 F.2d at 932 (citing
Borak, 377 U.S. at 430–31); see also Halliburton Co. v. Erica
P. John Fund, Inc., 573 U.S. 258, 284 (2014) (Thomas, J.,
concurring) (“[T]he implied 10b-5 private cause of action is ‘a
relic of the heady days in which this Court assumed common-
law powers to create causes of action[.]’”) (quoting Corr.
Servs. Corp. v. Malesko, 534 U.S. 61, 75 (2001) (Scalia, J.,
concurring)). So while courts have since “sworn off the habit
of venturing beyond Congress’s intent,” the Shareholders’ suit,
for now, still finds room in the half-empty “last drink” poured
in Borak. Alexander v. Sandoval, 532 U.S. 275, 287 (2001);
see also Wisniewski v. Rodale, Inc., 510 F.3d 294, 298 (3d Cir.
2007) (noting Borak arrived during an “older and less
restrictive approach to implied private rights of action”).
Reconsideration of that interpretation is beyond our role, Bosse
v. Oklahoma, 137 S. Ct. 1, 2 (2016), even if perhaps not beyond
the horizon. See Emulex Corp. v. Varjabedian, 139 S. Ct. 1407
(2019).

2. The Elements of an Omissions Claim

Section 14(a) makes it unlawful to solicit a proxy “in
contravention of such rules and regulations as the [SEC] may
prescribe as necessary or appropriate in the public interest or
for the protection of investors.” 15 U.S.C. § 78n(a)(1). It
“seeks to prevent management or others from obtaining
authorization for corporate actions by means of deceptive or

15
inadequate disclosures in proxy solicitations.” Seinfeld v.
Becherer, 461 F.3d 365, 369 (3d Cir. 2006) (internal quotations
marks omitted). In turn, Rule 14a-9, promulgated by the SEC
under the authority of Section 14(a), bars “false or misleading”
material statements and omissions in a proxy. 9 The
Shareholders allege that M&T violated Rule 14a-9, and thus
Section 14(a), by issuing a Joint Proxy lacking material
information.

We have outlined a three-step test for liability under
Section 14(a), requiring a showing that: “(1) a proxy statement
contained a material misrepresentation or omission which (2)
caused the plaintiff injury and (3) that the proxy solicitation
itself, rather than the particular defect in the solicitation
materials, was an essential link in the accomplishment of the
transaction.” Tracinda Corp. v. DaimlerChrysler AG, 502 F.3d
212, 228 (3d Cir. 2007) (internal quotation marks omitted).
And omissions in a proxy statement can violate Section 14(a)
and Rule 14a-9 in one of two ways: where “[(a)] the SEC
regulations specifically require disclosure of the omitted
information in a proxy statement, or [(b)] the omission makes
other statements in the proxy statement materially false or
misleading.” Seinfeld, 461 F.3d at 369 (internal quotation
marks omitted).

9
“No solicitation subject to this regulation shall be
made by means of any proxy statement . . . containing any
statement which, at the time and in the light of the
circumstances under which it is made, is false or misleading
with respect to any material fact, or which omits to state any
material fact necessary in order to make the statements therein
not false or misleading[.]” 17 C.F.R. § 240.14a-9(a).

16
 But not every omission or misrepresentation will
support a claim for damages. Tracinda Corp., 502 F.3d at 228.
Rather, stated or omitted information must be “material,” and
we have set forth a two-part definition. Id. First, we determine
whether “there is a substantial likelihood that a reasonable
shareholder would consider [the omission or
misrepresentation] important in deciding how to vote.” Id.
(quoting Shaev v. Saper, 320 F.3d 373, 379 (3d Cir. 2003)).
That involves an assessment of whether “the disclosure of the
omitted fact or misrepresentation would have been viewed by
the reasonable investor as having significantly altered the total
mix of information made available.” EP Medsystems, Inc., v.
EchoCath, Inc., 235 F.3d 865, 872 (3d Cir. 2000) (internal
quotation marks and brackets omitted).

Second, we assess the materiality of a statement “at the
time and in the light of the circumstances under which it is
made.” Seinfeld, 461 F.3d at 369 (quoting 17 C.F.R. § 240.14a-
9(a)). So “liability cannot be imposed on the basis of
subsequent events,” In re NAHC, 306 F.3d at 1330, and the
Monday morning quarterback remains on the bench.

3. The Second Amended Complaint Plausibly
Alleges Actionable Omissions

With the rules set, we turn to the words in the complaint
and in the governing regulations.

17
 i. SEC Regulations and Interpretive
Guidance

The Shareholders allege M&T violated Section 14(a)
because the Joint Proxy omitted material “risk factors” as
required by Item 105, such as the condition of M&T’s
regulatory compliance program, and its failure to disclose such
risks made other statements misleading. As with statutory
interpretation, our review of a regulation centers on the
ordinary meaning of the text “and the court must give it effect,
as the court would any law.” Kisor v. Wilkie, 139 S. Ct. 2400,
2415 (2019). That analysis uses all the “‘traditional tools’ of
construction.” Id. (quoting Chevron, U.S.A., Inc. v. Nat. Res.
Def. Council, Inc., 467 U.S. 837, 843 n.9 (1984)). The text of
Item 105 directs issuers to:

[w]here appropriate, provide under the caption
“Risk Factors” a discussion of the most
significant factors that make an investment in the
registrant or offering speculative or risky. This
discussion must be concise and organized
logically. Do not present risks that could apply
generically to any registrant or any offering.
Explain how the risk affects the registrant or the
securities being offered. Set forth each risk factor
under a subcaption that adequately describes the
risk. . . . The registrant must furnish this
information in plain English.

17 C.F.R. § 229.105. While “regulations can sometimes make
the eyes glaze over,” Kisor, 139 S. Ct. at 2415, readers easily
understand Item 105 to require issuers to disclose the most
significant factors known to make an investment speculative or

18
risky. And those factors should be (a) concise and organized;
(b) specific, not generic; and (c) include an explanation
connecting the risks to the offer. 10 17 C.F.R. § 229.105.

Language in guidance details these requirements. See
Kisor, 139 S. Ct. at 2415 (discussing the traditional “legal
toolkit” of “text, structure, history, and purpose of a
regulation”); see also Krieger v. Bank of Am., N.A., 890 F.3d
429, 438–39 (3d Cir. 2018) (discussing agency guidance to
inform ordinary meaning). A 1999 legal bulletin is particularly
helpful. See SEC Division of Corporation Finance: Updated
Staff Legal Bulletin No. 7, “Plain English Disclosure,” Release
No. SLB-7, 1999 WL 34984247 (June 7, 1999). Under the
section titled “Risk Factor Guidance,” the SEC explains that
“issuers should not present risks that could apply to any issuer
or any offering.” Id. at *1. The SEC also explains that Item 105
risk factors fall loosely into three broad categories:

Industry Risk — risks companies face by virtue
of the industry they’re in. For example, many
[real estate investment trusts] run the risk that,

10
The parties do not argue that Section 229.105 creates
an independent cause of action. Cf. Oran v. Stafford, 226 F.3d
275, 287–88 (3d Cir. 2000) (concluding that Item 303 does not
create an independent cause of action for private plaintiffs).
And we note that neither the language of Section 229.105, nor
the SEC’s interpretative guidance suggests that it does. Id. at
287. So our inquiry turns on whether the duty of disclosure
mandated by Item 105, if violated, constitutes a material
omission or misrepresentation under the standards of Section
14(a) and its regulations.

19
 despite due diligence, they will acquire
properties with significant environmental issues.

Company Risk — risks that are specific to the
company. For example, a [real estate investment
trust] owns four properties with significant
environmental issues and cleaning up these
properties will be a serious financial drain.

Investment Risk — risks that are specifically
tied to a security. For example, in a debt offering,
the debt being offered is the most junior
subordinated debt of the company.

When drafting risk factors, be sure to specifically
link each risk to your industry, company, or
investment, as applicable.

Id. at *5–6.

The bulletin includes a few illustrations contrasting a
generic discussion with a satisfactory disclosure. Id. at *1, *6–
7. Here’s one example:

Before:

Competition

The lawn care industry is highly competitive.
The Company competes for commercial and
retail customers with national lawn care service
providers, lawn care product manufacturers with
service components, and other local and regional

20
producers and operators. Many of these
competitors have substantially greater financial
and other resources than the Company.

After:

Because we are significantly smaller than the
majority of our national competitors, we may
lack the financial resources needed to capture
increased market share.

Based on total assets and annual revenues, we are
significantly smaller than the majority of our
national competitors: we are one-third the size of
our next largest national competitor. If we
compete with them for the same geographical
markets, their financial strength could prevent us
from capturing those markets.

For example, our largest competitor did the
following when it aggressively expanded five
years ago:

• launched extensive print and television
campaigns to advertise their entry into new
markets;

• discounted their services for extended periods
of time to attract new customers; and

• provided enhanced customer service during the
initial phases of these new relationships.

21
Our national competitors likely have the
financial resources to do the same, and we do not
have the financial resources needed to compete
on this level.

Because our local competitors are better
positioned to capitalize on the industry’s fastest
growing markets, we may emerge from this
period of growth with only a modest increase in
market share, at best.

Industry experts predict that the smaller,
secondary markets throughout the mid-west will
soon experience explosive growth. We have
forecasted that about 17% of our future long-
term growth will come from these markets.
However, because it is common practice for
lawn care companies in smaller markets to
acquire customers through personal
relationships, our competitors in nearly half of
these mid-west markets are better positioned to
capitalize on this anticipated explosive growth.
Unlike us, these local competitors live and work
in the same communities as their and our
potential customers.

For the foreseeable future, the majority of our
sales people who cover these markets will work
out of our two mid-west regional offices because
we lack the financial resources to open local
offices at this time. As a result, we may
substantially fail to realize our forecasted 17%
long-term growth from these markets.

22
 Id. at *6. In short, while Item 105 seeks a “concise”
discussion, free of generic and generally applicable risks, it
requires more than a short and cursory overview and instead
asks for a full discussion of the relevant factors. 11 17 C.F.R.
§ 229.105. That, as we will see, is where the Joint Proxy fell,
in a word, short.

ii. Interpretative Guidance from Other
Courts

Two cases considering the scope of adequate
disclosures under Item 105 are also instructive. In Silverstrand
Investments v. AMAG Pharmaceuticals, Inc., the First Circuit
identified plausible allegations that a pharmaceutical
company’s offering documents failed to adequately convey
risks associated with a clinical drug. 707 F.3d 95, 108 (1st Cir.
2013). In the offering, the company included details about the
FDA approval process and the results of clinical trials. Id. at
98–99. But the company did not disclose almost two dozen
“Serious Adverse Events” it had reported to the FDA. Id. at 99.
Instead, the offering noted only “ongoing FDA regulatory
requirements” that carry the risk of “restrictions on our ability
to market and sell” and other “sanctions.” Id. Reviewing both
the language of the regulation and the SEC’s interpretive

11
As the SEC explains, “[t]he goal of plain English is
clarity, not brevity. Writing disclosure in plain English can
sometimes increase the length of particular sections of your
prospectus. You will likely reduce the length of your plain
English prospectus by writing concisely and eliminating
redundancies — not by eliminating substance.” See SEC Legal
Bulletin No. 7, 1999 WL 34984247, at *5.

23
guidance, the First Circuit held that “a complaint alleging
omissions of Item [105] risks needs to allege sufficient facts to
infer that a registrant knew, as of the time of an offering, that .
. . a risk factor existed.” Id. at 103. And given the many adverse
reports the company submitted to the FDA, the court
concluded the allegations “more than suffice” to plead a
plausible claim of undisclosed risk. Id. at 104.

Compare those facts to City of Pontiac Policemen’s and
Firemen’s Retirement System v. UBS AG, 752 F.3d 173, 183–
84 (2d Cir. 2014), alleging that UBS engaged in a tax evasion
scheme. Following the indictment of UBS employees, the
company disclosed “multiple legal proceedings and
government investigations” showing exposure “to substantial
monetary damages and legal defense costs,” along with
“criminal and civil penalties, and the potential for regulatory
restrictions.” Id. at 184 (internal brackets omitted). Not
enough, argued plaintiffs, claiming UBS was also required to
disclose that the fraudulent activity was, in fact, still ongoing.
Id. The Second Circuit sharply disagreed because “disclosure
is not a rite of confession, and companies do not have a duty to
disclose uncharged, unadjudicated wrongdoing.” Id. (internal
quotation marks and footnote omitted). To the contrary, by
disclosing the litany of possible problems that could flow from
these investigations, UBS complied with the directive of Item
105. Id.

Both decisions rest soundly on the text of Item 105.
First, a cause of action for failing to disclose a material risk
naturally requires an allegation that a known risk factor existed
at the time of the offering. Silverstrand, 707 F.3d at 103.
Second, in keeping with Item 105’s call for a concise, not all-
inclusive disclosure, registrants need not list speculative facts

24
or unproven allegations, even if they fit within one of the
identified factors. City of Pontiac, 752 F.3d at 184. And the
two standards reflect the outcomes. The registrant in
Silverstrand allegedly knew that the FDA would scrutinize the
reported effects of its product, a gaze that carried specific risks
to their business. So allegations of failing to disclose that factor
was enough to state a claim. Compare that to the filer in City
of Pontiac who packed the proxy with a host of risks focused
on the company, its practices, the problems, and the possible
penalties. Asking for more, as the Second Circuit noted, would
create a new obligation grounded in guesswork.

iii. M&T’s Disclosure in the Joint Proxy
Lacks Description and Context of Its
Compliance Risks

With these parameters, the shortcomings in M&T’s
proxy become clear. M&T omitted company-specific detail
about its compliance program. Yet M&T knew that the state of
its compliance program would be subject to extensive review
from federal regulators. And it understood that failure to pass
regulatory scrutiny could sink the merger. Taken together,
M&T had a duty to disclose more than generic information
about the regulatory scrutiny that lay ahead. Instead, and
contrary to the ordinary language of Item 105, it offered
breadth where depth is required.

Start with the allegations about the BSA/AML
compliance program. The Joint Proxy stated that “[c]ompletion
of the merger . . . [is] subject to the receipt of all [regulatory]
approvals,” a process that includes review of “the effectiveness
of the companies in combatting money laundering.” (App. at
A1017–18.) It noted that “we cannot be certain when or if we

25
will obtain [the regulatory approvals] or, if obtained, whether
they will contain terms, conditions, or restrictions not currently
contemplated.” (App. at A1017). And, “[l]ike all businesses,
M&T is subject to operational risk, which represents the risk
of loss resulting from human error, inadequate or failed
internal processes and systems, and external events.” (App. at
A0245.) Such “[o]perational risk,” the Joint Proxy noted, “also
encompasses reputational risk and compliance and legal risk,
which is the risk of loss from violations of, or noncompliance
with, laws, rules, regulations, prescribed practices or ethical
standards, as well as the risk of noncompliance with
contractual and other obligations.” (App. at A0245.) And
“[a]lthough M&T seeks to mitigate operational risk through a
system of internal controls . . . , no system of controls . . . is
infallible.” (App. at A0246). Any “[c]ontrol weaknesses or
failures or other operational risks could result in charges,
increased operational costs, harm to M&T’s reputation or
foregone business opportunities.” (App. at A0246.)

So M&T identified that the merger hinged on obtaining
regulatory approval. And it singled out that determining the
effectiveness of its BSA/AML program would be crucial to
obtaining that approval. In fact, in “every case under the Bank
Merger Act” the “[Federal Reserve] Board must take into
consideration . . . records of compliance with anti-money-
laundering laws.” 12 (App. at 1083 (emphasis added).) As M&T

12
Other sources similarly support this conclusion. In its
2010 BSA/AML Examination Manual, the Federal Financial
Institutions Examination Council (“FFIEC”) called Title III of
the USA PATRIOT Act “arguably the single most significant
AML law that Congress enacted since the BSA itself.” FFIEC,

26
even noted, the Board is responsible for evaluating BSA/AML
compliance under the authority of two separate statutes:
Section 4 of the Bank Holding Company Act of 1956 and
Section 18(c) of the Federal Deposit Insurance Act. (App. at
A1018.) And so we have no difficulty concluding that the
regulatory review process posed a significant risk to the merger
that would make it speculative or risky. Put another way, M&T
mentioned that regulatory hoops stood between the proposed
merger and a final deal.

But M&T failed to discuss just how treacherous
jumping through those hoops would be. Instead, M&T offered

Bank Secrecy Act/ Anti-Money Laundering Examination
Manual 8 (2010), https://www.occ.treas.gov/static/ots/exam-
handbook/ots-exam-handbook-1400.pdf.

In both the 2010 Manual and the updated 2014 Manual,
the FFIEC warned that bank management “must be vigilant”
in BSA/AML compliance and stated: “Banks should take
reasonable and prudent steps to combat money laundering and
terrorist financing and to minimize their vulnerability to the
risk associated with such activities. Some banking
organizations have damaged their reputations and have been
required to pay civil money penalties for failing to implement
adequate controls within their organization resulting in
noncompliance with the BSA.” See FFIEC, Bank Secrecy Act/
Anti-Money Laundering Examination Manual 10 (2010),
https://www.occ.treas.gov/static/ots/exam-handbook/ots-
exam-handbook-1400.pdf, and FFIEC, Bank Secrecy Act/
Anti-Money Laundering Examination Manual 6 (2015) (V2),
https://bsaaml.ffiec.gov/manual.

27
information generally applicable to nearly any entity operating
in a regulated environment. In fact, M&T said that: “[l]ike all
businesses,” it was subject to regulatory risk. (App. at A0245.)
Contrary to Item 105’s directive, M&T’s explanation of the
regulatory review process offered no details and no more than
“[g]eneric or boilerplate discussions [that] do not [explain] . . .
the risks.” Silverstrand, 707 F.3d at 103.

Indeed, M&T’s generic statement about money
laundering compliance is not far from the risk statement
offered in SEC guidance as inadequate. As recommended by
the SEC’s guidance, M&T should have “specifically link[ed]”
its general statements to “each risk to [its] industry, company,
or investment” using details that connected the pending merger
review to its existing and anticipated business lines. 13 SEC
Legal Bulletin No. 7, 1999 WL 34984247, at *6. But such
concise and plain discussions of the significance of regulatory
review, framed in the context of M&T’s particular business
and industry, are absent from the Joint Proxy. As a result, the
Shareholders have plausibly alleged that had M&T disclosed
the state of its BSA/AML program in the context of regulatory
scrutiny that program would face, “there is a substantial
likelihood that a reasonable shareholder would [have]
consider[ed] it important in deciding how to vote.” 14 Seinfeld,

13
The only specificity on the subject appears in M&T’s
incorporated 2011 Annual Report stating, in sharp contrast,
that it had in place “approved policies and procedures believed
to comply with the USA Patriot Act.” (App. at A1028.)
14
M&T insists that even if the Proxy Statement
warnings could insufficiently state the BSA/AML deficiencies,

28
461 F.3d at 369.

M&T’s discussions about the problems surrounding its
consumer checking practice are likewise deficient. Here, the
Shareholders claim that M&T was, in fact, aware of the
malpractice. The Second Amended Complaint alleges that
M&T’s faulty practice—first offering free checking, then
switching customers to accounts carrying fees—pre-dated the
merger agreement. The Joint Proxy did not mention the non-
compliant practice or the company’s steps to remediate the
action. And unlike the BSA/AML deficiencies, M&T did not
later attempt to cure its omission—even as it became aware that
the merger faced indefinite delays upon learning of the
regulatory investigation into the BSA/AML deficiencies. The
Shareholders ask that we infer that the consumer checking
practices cast doubt on M&T’s controls and compliance
systems, and posed an independent regulatory risk to the
merger material enough that a reasonable shareholder would
consider it important in deciding how to vote. On these facts,
that inference is reasonable.

at least the “supplemental disclosures” ensured that “no
reasonable shareholder would have been misled about the
regulatory hurdles the merger faced.” (Response Br. at 35.) But
the supplemental disclosures plausibly failed to cure the defect
that had already occurred given the omitted risks—both on the
lateness of its release and the sufficiency of the information
conveyed. Least to say, the effect of the supplemental
disclosures raises an issue of fact, which precludes dismissal
for now.

29
 iv. Concision is Not Clairvoyance

M&T contends that this appeal “presents the question
whether filers of stock-based merger proxies are obligated, . . .
to predict regulatory action before it occurs.” (Appellees’
Supp. Br. at 1.) Indeed, Item 105 does not. Another regulation,
Item 103, does require disclosure of potential or present
litigation or regulatory enforcement. 17 CFR § 229.103. So the
“risk factors” requiring disclosure under Item 105 are separate
from legal risks under Item 103. But M&T’s contention
assumes that only risks that are, or later blossom into,
regulatory enforcement actions require disclosure. Item 105 is
not so narrowly drawn, and we cannot read a line into the law
where one does not exist. See Rotkiske v. Klemm, 140 S. Ct.
355, 360–61 (2019) (“It is a fundamental principle of statutory
interpretation that ‘absent provision[s] cannot be supplied by
the courts.’”) (quoting Scalia & Garner, supra, at 94).

To be clear, we do not hold that the regulatory
enforcement actions by themselves required M&T to disclose
these issues. 15 Later litigation or regulatory enforcement does

15
Our decision in General Electric Co. v. Cathcart does
not aid M&T. In Cathcart, we held that “speculative disclosure
[of potential legal claims] is not required under Section 14(a).”
980 F.2d at 935. But Cathcart arose from the alleged failure to
disclose hypothetical future legal claims, particularly claims
against individual directors and officers—not against the
company itself. Id. at 935–36. We concluded that the
defendants had no duty to disclose potential liability without
pending or threatened litigation. Id. at 931. In doing so, we
found that a reasonable shareholder would not find the

30
not create a retroactive duty to disclose. But like the defendants
in Silverstrand, M&T knew the regulators would be looking
into its compliance program, and specifically its BSA/AML
effectiveness. They said so themselves. And they knew the
failure to obtain regulatory approval would be significant,
possibly fatal, to the merger. Yet, unlike the defendants in City
of Pontiac, M&T offered little more than generic statements
about the process of regulatory review. The Shareholders also
allege that M&T knew that its consumer checking program
skirted regulatory standards, as they claim M&T curtailed its
misconduct shortly after signing the merger agreement. Like
BSA/AML compliance, we can infer this practice posed a
separate and significant regulatory risk to the merger, as
personal checking is a principal business component of any

possibility of future claims against directors and officers to be
material—as opposed to litigation against the company—
unless it ripened into pending or threatened litigation. Id. at
936–37 (concluding that otherwise requiring General Electric
to disclose potential litigation against all of its 280,000
employees would “bury the shareholders in [an] avalanche of
trivial information”). And Cathcart distinguished its
determination of materiality in the context of liability of
directors and officers from materiality in the context of
mergers, “in which the shareholders would understandably
focus on the operation of the company as a whole.” Id. at 937.
Here, it was not the future threat of regulatory action that
triggered the need for disclosure under Item 105. Rather, it was
the failure to disclose the risks associated with the compliance
program. It is thus plausible to conclude that a reasonable
shareholder would consider the failure of M&T’s internal
compliance program on these issues to be a material element
about the company’s operations.

31
consumer bank. And so regulatory review of a bank’s
consumer checking practices as part of a merger would not be
unexpected. But whether M&T had actual knowledge of the
shortcomings in its BSA/AML compliance or its consumer
checking practices is of no moment; it is the risk to the merger
posed by the regulatory inspection itself that triggered the need
for disclosures under Item 105. And the Shareholders have
stated allegations that support a reasonable inference that the
omission of information related to these risks was material, as
evidenced by the threat to the merger caused by the
pervasiveness of these deficiencies. This theory may not
survive discovery, but it is enough for plaintiffs to meet their
pleading burden.

As a result, the Second Amended Complaint plausibly
alleges that the BSA/AML deficiencies and consumer
checking practices posed significant risks to the merger before
M&T issued the Joint Proxy. And based on these allegations,
it’s also plausible that disclosing the weaknesses present in
M&T’s BSA/AML and consumer compliance programs
“would have been viewed by the reasonable investor as having
significantly altered the total mix of information made
available.” EP Medsystems, Inc., 235 F.3d at 872 (internal
quotation marks omitted). Thus, the Shareholders have met
their pleading burden.

B. The Shareholders Allege No Misleading Opinions

We agree with the District Court that the Shareholders
failed to allege an actionably misleading opinion statement.
The Supreme Court’s decision in Omnicare provides the
relevant framework, holding that an opinion statement is
misleading if it “omits material facts” about the “inquiry into

32
or knowledge concerning a statement of opinion.” 575 U.S. at
189. But liability attaches only “if those facts conflict with
what a reasonable investor would take from the statement
itself.” Id. Alleging an actionable claim under this theory “is
no small task,” id. at 194, because a reasonable investor
“understand[s] that opinions sometimes rest on a weighing of
competing facts; indeed, the presence of such facts is one
reason why an issuer may frame a statement as an opinion.” 16
Id. at 189–90.

The Shareholders’ allegations do not meet this rigorous
benchmark. First, they point to M&T’s opinion on when it
believed the merger might close and the state of its BSA/AML
compliance program in its 2011 Annual Report. 17 The

16
We have not considered whether Omnicare applies to
claims brought under the Exchange Act and under
Section 14(a). But it is unnecessary to resolve that question
here. Even assuming Omnicare’s holding applies, the
Shareholders have failed to allege an actionably misleading
opinion.
17
The Joint Proxy states that “[a]lthough we currently
believe we should be able to obtain all required regulatory
approvals in a timely manner, we cannot be certain when or if
we will obtain them or, if obtained, whether they will contain
terms, conditions or restrictions not currently contemplated
that will be detrimental to or have a material adverse effect on
M&T or its subsidiaries after the completion of the merger.”
(App. at A1009 (emphasis added); see also App. at A1017).) It
adds “[t]he Registrant and its impacted subsidiaries have
approved policies and procedures that are believed to be

33
Shareholders argue both are misleading because the opinions
turned out to be wrong. But Omnicare rejected that premise,
holding “a[] [plaintiff] cannot state a claim by alleging only
that an opinion was wrong . . . .” 575 U.S. at 194. As there is
no allegation that M&T offered an insincere opinion, it “is not
an untrue statement of material fact, regardless [of] whether an
investor can ultimately prove the belief wrong.” Id. at 186
(internal quotation marks omitted).

Second, the Shareholders allege the Joint Proxy omitted
facts about the process M&T followed to form its opinions.
They allege, again in conclusory fashion, that M&T and
Hudson acted negligently in reviewing M&T’s compliance
program. The Second Amended Complaint alleges that while
“M&T conducted intensive due diligence” of Hudson “from
June 2012 through August 27, 2012,” by contrast, Hudson did
not begin its “reverse due diligence” until August 20, 2012,
which lasted “at most five business days.” (App. at A0935.)
These efforts, the Shareholders allege, were not enough, and
show that the opinion statements were insufficient. But the
Shareholders omit particular facts about the banks’ conduct.

To begin, the Joint Proxy disclosed the duration of the
due diligence efforts. “[T]o avoid exposure for omissions,” a
speaker “need only divulge an opinion’s basis, or else make
clear the real tentativeness of its belief.” Omnicare, 575 U.S.
at 195. Thus, even if a reasonable investor would have
expected the banks to conduct diligence over a longer period,
the Joint Proxy provided enough information to understand
what the banks did, information enough to decide how to vote.

compliant with the USA Patriot Act.” (App. at A1028
(emphasis added).)

34
And, in any event, general allegations of negligence do not
suffice. See id. at 195–96. In all, the opinions flowed from the
Joint Proxy’s description of the increased scrutiny across the
industry. Cautionary language surrounds the opinions, warning
of the uncertainty of projections about regulatory approval.
Under Omnicare, these opinions inform, rather than mislead, a
reasonable investor. And so we will affirm the District Court’s
dismissal of the Shareholders’ misleading opinion claims.

IV. CONCLUSION

We conclude with caveats, cautions, and qualms. First,
that the Shareholders have adequately pleaded facts that, if
true, might warrant remedy naturally says nothing at this stage
of the litigation about their ultimate truth. Second, that M&T
might have pursued different choices managing its business is
not the focus of our decision. Rather, it is that M&T had an
obligation to speak concisely about the risks surrounding their
plans.

Finally, our application of now well-established
principles of securities fraud class actions does not alleviate
our worry over the many well-argued doubts about these kinds
of aggregate claims. See, e.g., John C. Coffee, Jr., Reforming
the Securities Class Action: An Essay on Deterrence and Its
Implementation, 106 Colum. L. Rev. 1534, 1536 (2006)
(explaining “class actions produce wealth transfers among
shareholders that neither compensate nor deter”). Despite
reams of academic study, steady questions from the courts, and
periodic Congressional attention, the number of securities class

35
actions continues to rise each year. 18 Whether that tide
represents an efficient current or “muddled logic and armchair
economics,” Halliburton, 573 U.S. at 297 (Thomas, J.,
concurring), is the sort of question that deserves a more
searching inquiry. In the meantime, we will affirm the District
Court’s dismissal of the Shareholders’ claims that M&T made
misleading opinion statements, and vacate the dismissal of the
claims about M&T’s risk disclosure obligations.

18
“Since 2012, securities-fraud suits have steadily
increased each year; most recently, there was a 7.5% year-
over-year increase in 2016 and an additional 15.1% jump in
2017.” Congress, the Supreme Court, and the Rise of
Securities-Fraud Class Actions, 132 Harv. L. Rev. 1067, 1070
(2019) (citing Cornerstone Research, Securities Class Action
Filings: 2017 Year in Review 39 (2018)).

36