The Recent Omnicare Decision Evaluates When an Opinion Stated in a Registration Statement Gives Rise to Liability Under Section 11

On March 24, 2015, the Supreme Court issued the decision Omnicare, Inc. v. Laborers District Counsel Construction Industry Pension Fund. The seminal opinion evaluates how the truth or falsity of statements of opinion should be considered under the securities laws.

The case arises out of a registration statement Omnicare filed in connection with its 2005 public offerings of common stock. Two of the sentences in the registration statement expressed Omnicare’s view that the company was in compliance with legal requirements. In 2006, the Respondents (pension funds that purchased the Omnicare stock) brought a lawsuit alleging that Omnicare’s statements concerning legal compliance gave rise to liability under the Securities Act of 1933, 15 U.S.C. § 77k (“Section 11”). Respondents alleged Omnicare received payments from drug manufactures violating anti-kickback laws and thus Omnicare made materially false representations about legal compliance. Respondents claimed that none of Omnicare’s officers and directors possessed reasonable grounds for thinking the opinions offered in the public offering documents were truthful and complete.

The District Court granted Omnicare’s motion to dismiss, holding that Respondents failed to show how Omnicare officers and directors knew that Omnicare was violating the law. The Sixth Circuit reversed, holding that Section 11 provides for strict liability and reasoned that “a statement of opinion that ultimately found incorrect – even if believed at the time made – may count as untrue statement of material fact.” Omicare, Inc. v. Laborers Dist. Council Constr. Indus. Pension Fund, No. 13-435, slip op. at 6 (U.S. Mar. 24, 2014). The Supreme Court granted cert. to consider how Section 11 pertains to statements of opinion.

In an opinion delivered by Justice Kagan, the Supreme Court held that issuers including opinions in a registration statement may be liable under Section 11 for making an untrue statement of fact only when the issuer does not subjectively believe the stated opinion. First, the court analyzed whether a statement of opinion, found incorrect, may count as an “untrue statement of material fact” under Section 11. Id. at 6. The court opined that an opinion is actionable as a misstatement of fact under Section 11, only if one does not actually believe their statement. See id. at 6-8. For example, the court used the hypothetical: “I believe our TVs have the highest resolution available on the market” to depict an untrue statement of fact if “the CEO knew her company’s TVs only placed second.” Id. at 8.

Second, the court considered whether the omission of a fact makes a statement of opinion misleading to a reasonable investor. Id. at 10. The court held that that an opinion may be rendered misleading if omission of fact (within the opinion statement) implies factual information that if untrue, would render the statement of opinion misleading. See id. at 10-12. Accordingly, the court held that “if a registration statement omits material facts about the issuer’s inquiry into or knowledge concerning a statement of opinion, and if those facts conflict with what a reasonable investor would take from the statement itself, then §11’s omissions clause creates liability.” Id. at 12.

In light of the corrected legal standards, the Supreme Court remanded the case to the lower court.