Also known as: material misrepresentation · material misrepresentations · material misrep
Written by attorneys · grounded in primary & secondary sources — see below
A quality of a misrepresentation that renders reliance on it justifiable. The matter misrepresented is material if a reasonable person would attach importance to its existence or nonexistence in deciding on a course of action or if the maker knows or has reason to know that the recipient regards or is likely to regard the matter as important.
Griffin’s firm ran an online ad stating it was the only firm in the city certified to handle complex software patent disputes. Creek Logic and two other firms in the city held comparable credentials from different bodies that clients would treat as equivalent markers of expertise. A grievance was filed alleging the exclusivity claim misled prospective clients about available options.
NimbusFlow’s sales engineer disabled a logging widget during a live demo requested by Orion Industries to show real-time system health. The dashboard appeared stable even though the platform had frequent recent outages that Orion had specifically asked about. Orion signed a three-year subscription relying on the clean display and later sought to void the contract after repeated outages occurred.
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Basic Inc. made public statements about ongoing merger talks with Combustion Engineering while internal discussions continued. Investors who bought Basic stock after the statements later sold at a loss when the talks ended without a deal and the price dropped. The investors alleged the statements were materially misleading about the status of negotiations.
Dura Pharmaceuticals released statements about expected FDA approval of its new asthma drug while internal reports showed adverse reaction data that had been downplayed. Investors purchased shares at prices reflecting the positive outlook and suffered losses after the FDA rejected the application and the stock fell. The investors claimed the statements omitted facts that would have altered their purchase decisions.
Arthur Young issued an audit report on a client’s financial statements that omitted known accounting irregularities. Investors and lenders relied on the report when extending credit and later incurred losses when the client collapsed. The third parties sued the auditor alleging the report contained material misrepresentations about the client’s financial condition.
Materiality requires that the misrepresented fact would influence a reasonable person’s decision or that the maker knows the recipient regards it as important. A false statement alone does not suffice if it would not affect the recipient’s choice.
Yes. When a party actively hides facts that a reasonable person would consider important, such as disabling a display during a requested demo, the conduct is treated as an assertion that the hidden facts do not exist and can support voidability of the resulting contract.
No. A recipient’s lack of further investigation does not relieve the maker of liability when the misrepresentation concerns a fact a reasonable person would regard as important and the maker knew or had reason to know of that importance.
Materiality is an element that must be shown for reliance to be presumed under the fraud-on-the-market theory, but plaintiffs need not prove loss causation at the class-certification stage to establish that common issues predominate.
…in accepting the "fraud-on-the-market theory" to create a rebuttable presumption that respondents relied on petitioners' material misrepresentations, noting that without the presumption it would be impractical to certify a class under Federal Rule of Civil Procedure 23(b)(3). See 786 F. 2d, at 750-751. We granted certiorari, 479 U. S.…