Law School Case Brief
Omnicare, Inc. v. Laborers Dist. Council Constr. Indus. Pension Fund - 135 S. Ct. 1318 (2015)
For purposes of 15 U.S.C.S. § 77k(a), a reasonable investor may, depending on the circumstances, understand 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. And if the real facts are otherwise, but not provided, the opinion statement will mislead its audience. Consider an unadorned statement of opinion about legal compliance: “We believe our conduct is lawful.” If the issuer makes that statement without having consulted a lawyer, it could be misleadingly incomplete. In the context of the securities market, an investor, though recognizing that legal opinions can prove wrong in the end, still likely expects such an assertion to rest on some meaningful legal inquiry—rather than, say, on mere intuition, however sincere. Similarly, if the issuer made the statement in the face of its lawyers’ contrary advice, or with knowledge that the Federal Government was taking the opposite view, the investor again has cause to complain: He expects not just that the issuer believes the opinion (however irrationally), but that it fairly aligns with the information in the issuer’s possession at the time.
Omnicare, a pharmacy services company, filed a registration statement in connection with a public offering of common stock. In addition to the required disclosures, the registration statement contained two statements expressing the company's opinion that it was in compliance with federal and state laws. After the Federal Government filed suit against Omnicare for allegedly receiving kickbacks from pharmaceutical manufacturers, respondents pension funds that purchased Omnicare stock (hereinafter Funds), sued Omnicare under § 11 of the The Securities Act of 1933. The Securities Act of 1933 required that a company wishing to issue securities must first file a registration statement containing specified information about the issuing company and the securities offered. To protect investors and promote compliance with these disclosure requirements, §11 of the Act creates two ways to hold issuers liable for a registration statement's contents: A purchaser of securities may sue an issuer if the registration statement either “contains an untrue statement of a material fact” or “omits to state a material fact . . . necessary to make the statements therein not misleading.” Pension funds claimed that Omnicare's legal-compliance statements constituted “untrue statement[s] of . . . material fact” and that Omnicare “omitted to state [material] facts necessary” to make those statements not misleading. The district court granted Omnicare's motion to dismiss. Because the Funds had not alleged that Omnicare's officers knew they were violating the law, the district court found that the Funds had failed to state a §11 claim. On appeal, the United States Court of Appeals for the Sixth Circuit reversed. Acknowledging that the statements at issue expressed opinions, the court of appeals held that no showing of subjective disbelief was required. In the appellate court's view, the Funds' allegations that Omnicare's legal-compliance opinions were objectively false sufficed to support their claim.
Was the court of appeals correct in deciding that the Funds had stated a claim under § 11 of the Securities Act of 1933, 15 U.S.C.S. § 77k?
The Court ordered a remand because the lower courts did not consider the investors' omissions theory using the correct standard. It noted that a stock issuer's statements that it believed that its contracts were legal did not give rise to liability. Investors did not allege that the issuer's opinion was not honestly held, and a sincere statement of pure opinion was not an "untrue statement of material fact," regardless of whether the belief could be proved wrong. The Court also held that to state a claim under the omissions clause of § 77k(a) based on a statement of opinion, the investors were required to identify particular and material facts going to the basis for the issuer's opinion whose omission made the opinion statement misleading to a reasonable person reading the statement fairly and in context.
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