The Second Circuit reaffirmed the basic principle that in a Section 10(b) fraud case predicated on omissions there must be a duty before the person has an obligations to disclose the facts. Vladimir v. Bioenvision, Inc., Case No. 09-3487–cv (2nd Cir. Apr. 7, 2010). The class action complaint in this case alleged that several statements made by the defendants were materially false and misleading because the defendant Bioenvision, Inc. was engaged in merger negotiations with Genzyme Corporation which were not disclosed. The district court dismissed the complaint on two grounds. First the court held there was no duty to discuss merger negotiations. Second, the complaint failed to comply with the particularity requirements of the PSLRA.

The Second Circuit in a summary order affirmed based on the first point. Here, the court noted, the fraud claims in the complaint are based on omissions. For an omission to be actionable, there must be a duty to disclose the information. Since the defendants are not alleged to have traded, that duty can only come from either a statute or regulation or as a result of an ongoing duty to avoid rendering existing statements misleading by failing to disclose material facts.

The complaint in this case is based on claimed omissions relating to merger negotiations. There is no express duty to disclose merger negotiations as opposed to a definitive merger agreement. Citing Basic Inc. v. Levinson, 485 U.S. 224, 239 n. 17 (1988), the court held that silence is not actionable absent a duty to disclose. In this case, there was no such duty. Accordingly, the complaint fails to allege a cause of action for fraud.