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In re Oracle Corp. Derivative Litigation11/24/2004
as "sufficiently remote in time or causation," the information could be deemed immaterial as a matter of law. Second and relatedly, the court indicated its view that the plaintiffs' claims had vitality only insofar as they alleged that DEC had failed to disclose hard information (i.e., actual intraquarter results) rather than soft information (i.e., updated projections). It appears that there was no allegation that DEC possessed updated projections at the time of its public offering that contradicted any previous projection to the market.
In its later decision in Glassman v. Computervision Corp., the First Circuit applied both of these principles in upholding the denial of a motion to file a second amended complaint. The affirmance was based in part on the deficiency of the complaint's allegation that an offering prospectus was materially misleading because it failed to disclose that the company's early quarter results lagged behind its undisclosed internal projections. The court held that the "mere fact that intraquarterly results lagged behind internal projections does not, without more, require disclosure." Rather, the plaintiffs had to allege that as of its public offering the company possessed "hard mid-quarter results that would have predicted a material departure in the end-of-quarter results." By this formulation, the court meant that the plaintiff had to meet the exacting Shaw standard. Because the plaintiffs only pointed to seven weeks of intraquarter data in an industry where "mid-quarter results were not particularly predictive," the Court found that the proposed complaint failed to point to a material omission of fact.
With some appropriate tailoring, the Shaw standard articulates a sound framework for the determination of materiality by this court under Brophy. For starters, the Delaware courts, like federal policymakers and judges, have been chary about requiring the disclosure of information that does not provide any reliable insight into firm value. The more tentative and soft the information, the more reluctant our courts have been to deem it material. That is, the courts of this state premise their materiality determinations on a rational investor standard, which assumes that investors understand the normal fluctuation of markets and grasp the difference between representations of historical fact and estimates of future results. Furthermore, our courts have long recognized that it is possible to make reliable determinations of materiality on the basis of a paper record, when no rational fact finder could differ with the court's conclusion.As to one feature of Shaw and the gloss put on it in Computervision, however, I must differ slightly in order to be faithful to our law. As I understand Delaware law, the fact that information is "soft" (e.g., a prediction of future results) rather than "hard" (e.g., historical fact) is relevant to, but not entirely dispositive of, the materiality determination. To be concrete, assume that ABC Corporation had made a public estimate that it would earn $250 million in profits for the coming quarter. During the second month of that quarter, the company announced a special share buy-back program. By that time, its internal estimates were that the company would earn $425 million for the quarter. If the company made no disclosure of that new estimate, I assume that a substantial materiality question would arise under Delaware law. Federal courts other than the First Circuit have issued decisions that also suggest that a serious materiality question would be raised in those circumstances.
Thus, I conclude that there is, for Delaware law purposes, no bright line between soft and hard information in this context. As noted, however, the differ
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