Omnicare Inc. v. Laborers District Council Construction Industries Pension Fund: Qualifying §11 Liability for Opinion Statements

Omnicare Inc. v. Laborers District Council Construction Industries Pension Fund, 135 S.Ct. 1318 (2015) involved alleged liability under §11 of the Securities Act of 1933 (“§11”) on the part of Omnicare Inc. (“Omnicare”).  Professors Brown and Taylor, both regular contributors to this Blog, contributed to an amicus brief on behalf of law and business faculty in this case.  A copy of the Brief can be found here:   

Pension funds that purchased Omnicare stock in a public offering (the “Respondents”) filed suit claiming that the Company’s registration statement contained, among other things, false statements of opinion. Specifically, Respondents asserted that a statement of belief about the Company’s compliance with the law was a “materially false.”   Defendants, in contrast, argued that an opinion could only be false for purposes of Section 11 liability where the speaker did not actually believe that the opinion.  

The Court of Appeals for the Sixth Circuit held Respondents were only required to allege that the opinion statement was objectively false. With a division in the circuits over the appropriate standard for the falsity of an opinion under the federal securities laws, the Supreme Court granted certiorari. 

The Court held that an expression of opinion could be false when the speaker did not honestly hold the stated belief.  In addition, opinions could also include “embedded statements of fact” that could be false.   Id. (“Accordingly, liability under §11’s false-statement provision would follow (once again, assuming materiality) not only if the speaker did not hold the belief she professed but also if the supporting fact she supplied were untrue.”). Thus, because Respondents did not contest Omnicare’s opinion was honestly held, it could not avail itself to sue under the false-statement provision.

An opinion could, however, also be misleading as a result of omissions.  Some opinion statements could lead investors to conclude the issuer relied on facts about the speaker’s basis for holding that view.  Id. (“a reasonable investor may, depending on the circumstances, under- stand an opinion statement to convey facts about how the speaker has formed the opinion—or, otherwise put, about the speaker’s basis for holding that view.”).  To the extent that the speaker did not have the requisite basis (and failed to disclose this lack of basis), the statement of opinion could still mislead.  See Id. (where issuer makes statement about legal compliance “without having consulted a lawyer, it could be misleadingly incomplete”).  Likewise an opinion might be false where the speaker possessed information  “incompatible with [the] opinion.” 

The Court found that meeting the pleading standards was “no small task for an investor.”  As the Opinion reasoned: 

• the investor cannot just say that the issuer failed to reveal its basis. Section 11’s omissions clause, after all, is not a general disclosure requirement; it affords a cause of action only when an issuer’s failure to include a material fact has rendered a published statement misleading. To press such a claim, an investor must allege that kind of omission—and not merely by means of conclusory assertions. To be specific: The investor must identify particular (and material) facts going to the basis for the issuer’s opinion—facts about the inquiry the issuer did or did not conduct or the knowledge it did or did not have—whose omission makes the opinion statement at issue misleading to a reasonable person reading the statement fairly and in context. (Citations omitted) 

The Court vacated the court of appeals’ decision and remanded the case because the lower courts did not consider Respondent’s omissions theory under the correct standard.

The primary material for this case can be found on the DU Corporate Governance website.