Securities Regulation Daily Wrap Up, PUBLIC COMPANY REPORTING AND DISCLOSURE—U.S.: Materiality of disclosure omissions at issue in Supreme Court cert petition, (Jul 30, 2026)

By Rebecca E. Hoffman, J.D.

The petitioners challenge the lower courts’ determination that materiality can be determined purely as a question of law.

A petition for certiorari seeks a ruling that the issue of materiality, in a class action alleging that a company failed to disclose information that would have played a significant role in investment decisions, should not have been determined by the court as a matter of law (Safron Capital Corp. v. Elanco Animal Health Inc., No. 26-127 (U.S. July 29, 2026)).

“A case brought under Sections 11 and 12(a)(2) of the Securities Act generally rises and falls on the issue of materiality,” the petitioners said, as a lead-in to the question at issue in their filing: “can the issue of materiality in an action alleging violations of the federal securities laws be determined by a court as a matter of law without findings of fact by the trier of fact?”

Sections 11 and 12(a)(2). The petitioners noted that pursuant to these provisions, those offering securities must refrain from including materially false statements or omitting material information in registration statements and prospectuses, but the question of whether the offeror is liable turns on a determination of what qualifies as material.

Petitioner Elanco Animal Health Inc. is a producer and manufacturer of products geared toward the health of animals. Its stock offering, which closed January 27, 2020, was purportedly needed to complete the purchase of another business. Elanco sold approximately 25 million shares of common stock and 11 million equity units, netting $1.3 billion, the petition said. However, before this, Elanco altered its sales, distribution, and delivery methods without making those changes public. The offering documents discussed the changes, stating that they could negatively affect the business, but did not disclose that they had already begun.

Stock declines. Elanco disclosed the changes and their impacts on May 7, 2020, as well as the results of the first quarter of the year, including a $60 million reduction in earnings of one of its two segments. After this, Elanco’s stock price dropped. “‘Elanco’s Q1 results were heavily impacted by the strategic decision to reduce inventory within distribution channels,’” one analyst commented.

Despite this and other similar reactions, the Indiana trial court, in dismissing the petitioners’ complaint alleging violations of the securities laws, found that materiality could be decided as a matter of law, and that omitting the information about the distribution changes from the registration statement did not render it materially misleading.

The Indiana Court of Appeals agreed, finding that a reasonable investor would not find this information important in an investment decision. The SEC had stated in a cease-and-desist order that Elanco’s statements regarding annual revenue guidance for 2020 were misleading in light of Elanco’s plans to reduce channel inventory prior to the Covid-19 pandemic, but the appeals court “specifically declined to consider the Cease-and-Desist Order,” the petitioners pointed out.

CITGO. The petition noted that Justice Thomas, in his dissenting opinion in CITGO Asphalt Ref. Co. v. Frescati Shipping Co., Ltd., 589 U.S. 348, 372 (2020), wrote that he was “‘not aware of a case in which this Court has treated the materiality inquiry as a pure question of law without relying on any factual findings whatsoever.’” Justice Sotomayor’s majority opinion does not completely disagree, saying that in some scenarios, factual determinations must be made.

The petitioners insisted that “determination by a court of the question of materiality in the context of the federal securities laws and corporate misstatements is inappropriate in connection with motions for dismissal on the pleadings or for summary judgment,” and that “[t]hese determinations by their very nature require[,] at a minimum, a developed factual record and jury input.”

The case is No. 26-127.

Attorneys: Mitchell M.Z. Twersky (Abraham, Fruchter & Twersky LLP) for Safron Capital Corp.

Companies: Safron Capital Corp.; Elanco Animal Health Inc.

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