The U.S. Court of Appeals for the Sixth Circuit affirmed a dismissal of investors’ securities claims in the wake of a bank liquidation, but left the door open to a possible “silent fraud” claim under Michigan law. See Dailey v. Medlock, http://www.bloomberglas.com/public/document/Thomas_Dailey_et_al_v_Lisa_Medlock_et_al_2014_BL_9430_6th_Cir_Jan.
A claim for silent fraud under Michigan law requires a plaintiff to establish that the defendant intentionally suppressed material facts to create a false impression. The case arose from a private placement, where the plaintiff signed subscription agreements to purchase the stock. The company subsequently experienced financial and regulatory difficulties, and, in April 2011, failed resulting in a receivership. The court said that the plaintiff may show that some type of false or misleading representation was made, and that there was a legal or equitable duty of disclosure. A silent fraud cause of action requires more than mere silence, and a plaintiff must show that the defendant intentionally suppressed a material fact so as to create a false impression. The court said that the case law “does not suggest that the silent fraud analysis under Michigan law mirrors that of a” Securities Exchange Act of 1934 Rule 10b-5 claim. However, the two causes of action share common elements.
Where there is a duty to disclose, an issue may not remain silent.