U.S. Supreme Court To Decide Whether Companies And Directors Can Be Held Liable For False Opinions Or Beliefs In Registration Statements Without Knowledge Of Falsity

On March 3, 2014, the United States Supreme Court granted certiorari to review the Sixth Circuit's decision in Indiana State District Council of Laborers v. Omnicare, 719 F.3d 498 (6th Cir. 2013), to determine whether an issuer of securities, its directors, and signatories of a registration statement can be held liable under Section 11 of the Securities Act for a false or misleading statement of opinion or belief, irrespective of whether the defendants actually believed the statement was true at the time it was made.

Section 11 of the Securities Act provides a remedy for investors who purchased securities pursuant to a registration statement that contains an untrue statement of material fact or omits a material fact that renders the registration statement misleading. Section 11 imposes liability for false or misleading registration statements upon the issuer and signatories of the registration statements, as well as directors of the issuer.

The Supreme Court's decision will resolve a split between the circuit courts interpreting Section 11. Indeed, the Second Circuit, in Fait v. Regions Financial Corp., 655 F.3d 105, 110 (2d Cir. 2011), and the Ninth Circuit, in Rubke v. Capitol Bancorp Ltd., 551 F.3d 1156, 1162 (9th Cir. 2009), have recently held that a defendant may be liable under Section 11 only to the extent that the statement was both objectively false (i.e., untrue) and subjectively false (i.e., the defendant knew it was untrue) at the time it was expressed.

In Omnicare, however, the Sixth Circuit held that issuers, directors, and signatories of a registration statement may be liable for false opinions or beliefs expressed in registration statements regardless of whether the defendants knew that the statement was false at the time it was made. The Sixth Circuit reasoned that Section 11 imposes "strict liability" upon the issuers, signers, and directors when a registration statement contains an untrue statement of material...