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First Equity Corp. v. Standard & Poor's Corp.

decided: March 2, 1989.


Appeal from a final judgment of dismissal entered by the United States District Court for the Southern District of New York (Gerard L. Goettel, Judge; Michael B. Mukasey, Judge), dismissing appellants' claim for damages based on an allegedly inaccurate summary of the terms of the indenture of certain trust notes by a financial information service.

Kearse, Cardamone and Winter, Circuit Judges.

Author: Winter

WINTER, Circuit Judge.

This case involves the scope of liability for negligent misstatements in the specialized sub-industry that publishes newsletters and provides information services for the use of investors and investment professionals. In particular, it concerns an allegedly misleading summary of the terms of certain convertible securities reported in Corporation Records, a guide published by Standard & Poor's, Inc. ("S&P"). Appellants, two Florida investors and a Florida investment advisory firm, claim to have incurred losses exceeding $200,000 as a result of their reliance on the allegedly misleading summary. Following caselaw and applying First Amendment analysis, the district court held that publishers of investment information services like Corporation Records would not be liable under Florida or New York law for negligent misstatements. We affirm without reaching the First Amendment issue.


Corporation Records is a securities information publication, although somewhat different from many of the publications that have given rise to litigation in the past. It is neither a general-interest newspaper aimed at the investing public, cf. Gutter v. Dow Jones, Inc., 22 Ohio St. 3d 286, 490 N.E.2d 898 (1986) (Wall Street Journal not liable for inaccurate description of certain corporate bonds), nor an advisory bulletin making specific investment recommendations. Contrast Gale v. Value Line, Inc., 640 F. Supp. 967 (D.R.I. 1986) (publisher of investment advisory newsletter not liable for failure to report critical provision of corporate warrant where newsletter recommended against purchase of such warrant). Rather, Corporation Records provides loose-leaf summaries of the business operations and finances of a large number of corporations, without making any investment recommendations or offering any general news reports. With these summaries, Corporation Records publishes one clear disclaimer, and one statement that could be read as a disclaimer. The clear disclaimer reads:

Information has been obtained from sources believed to be reliable, but its accuracy and completeness, and the opinions based thereon, are not guaranteed.

The possible implied disclaimer reads:

As every effort is made to provide accurate information in this publication, we would appreciate it if subscribers would call our attention to any errors that may occur by communicating with [Standard & Poor's].

There are more than 7500 subscribers, including investment advisers and libraries, to S&P's Corporation Records.

Among those subscribers in 1985 was First Equity Corporation of Florida ("First Equity"), an investment banking firm which paid approximately $1300 (a broker's rate) for a one-year subscription. As such, First Equity received the June 1985 issue of Corporation Records, which included the following description of certain fifteen percent convertible secured trust notes, issued by Pan American World Airways, Inc. ("Pan Am") and due March 1, 1998 ("the securities"):

CONVERTIBLE thru maturity or the 15th day preceding earlier/redemption date into Co.'s Com. stock at $5.50 a share, with no adjustment for interest (unless called for redemption after record date and before interest date) or cash dividends.

This description arguably misstated the terms of the indenture relating to the securities in question ("the Indenture"). The securities were both convertible and interest-bearing--that is to say, holders of the securities had the option of either exchanging them for common stock in the issuing company or holding them and receiving interest payments. On thirty days' notice, the securities could be called for redemption by the issuer, which would thereafter pay the outstanding obligation to their holders. After the issuer had called them for redemption, holders retained their conversion rights during the thirty-day notice period. The question leading to the dispute in the instant matter was what the company was obliged to pay to securities-holders who chose to convert during that thirty-day period.

The quoted description in Corporation Records could be read to imply that, in the event that the issuer called the securities for redemption after the record date but before the interest date--after the date on which the list of securities-holders became final for purposes of the issuance of an interest check but before the interest payment was actually payable--the issuer would be obliged to exchange the securities of securities-holders who wished to convert into common stock worth the outstanding principal plus the accrued interest on the securities, not merely into common stock worth the outstanding principal alone. Such was not, ...

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