Moss v. Morgan Stanley Inc.

In 1976, Warner-Lambert Company (Warner) hired a Morgan Stanley Inc. (defendant) subsidiary to assess whether Warner should acquire Deseret Pharmaceutical Company’s stocks. After E. Jacques Courtois (defendant), who worked at Morgan Stanley, received notice of the potential acquisition, he informed Adrian Antoniu (defendant), who then informed their stockbroker, James M. Newman (defendant). Newman acquired 11,700 shares of Deseret stock at the price of $28 per share to distribute among the three individuals. Warner then announced a plan to acquire Deseret’s stock at $38 per share. Moss (plaintiff) filed an action on behalf of the former Deseret shareholders against Morgan Stanley, Courtois, Antoniu, and Newman. Moss alleged that they had violated the Securities Exchange Act of 1934 (SEA) and promulgated rule 10b-5, both of which prohibit corporate insiders with nonpublic knowledge from trading stock without disclosing this information. Moss also argued the Deseret’s shareholders were owed a duty of disclosure regarding Warner’s impending offer because (1) the duty owed to Morgan Stanley and Warner, as employers, could be extended to the entire public; (2) Morgan Stanley and Courtois were Deseret insiders and therefore owed Deseret’s shareholders a duty of disclosure; (3) Newman, as a stockbroker, owed a special duty of disclosure to the market; and (4) an individual who misappropriates information owes a duty of disclosure to the trading market. The defendants moved to dismiss or for summary judgment on the ground that no duty of disclosure existed. The district court granted the motions. Moss appealed.