Sixth Circuit Splits With Second And Ninth Circuits Regarding Need To Allege Defendants' State Of Mind For Claims Challenging Soft Information Under Section 11 Of The Securities Act Of 1933

In Indiana State District Council of Laborers & Hod Carriers Pension & Welfare Fund v. Omnicare, Inc., 2013 WL 2248970 (6th Cir. May 23, 2013), the United States Court of Appeals for the Sixth Circuit held that a claim alleging a false statement of opinion or belief in a registration statement may proceed under Section 11 of the Securities Act of 1933, 15 U.S.C. § 77k, despite the absence of allegations suggesting that the defendants did not actually hold the opinion or believe the statement. In reaching this decision, the Sixth Circuit declined to follow decisions by the Second Circuit (see Fait v. Regions Financial Corp., 655 F.3d 105 (2d Cir. 2011) [blog article here]) and Ninth Circuit (see Rubke v. Capital Bancorp Ltd., 551 F.3d 1156 (9th Cir. 2009) [blog article here]) holding that a Section 11 complaint which fails to allege that the defendant did not actually believe the false statement or hold the opinion at issue would be dismissed. This clear Circuit split on an important issue of federal securities law will require resolution by the United States Supreme Court.

Omnicare, Inc. ("Omnicare") is the nation's largest provider of pharmaceutical care services for the elderly and other residents of long-term care facilities in the United States and Canada. In December 2005, Omnicare made a public offering of 12.8 million shares of common stock. In its registration statement, Ominicare represented, among other things, "that [its] therapeutic interchanges were meant to provide [patients with] . . . more efficacious and/or safer drugs than those presently being prescribed" and that its contracts with drug companies were "legally and economically valid arrangements that [brought] value to the healthcare system and patients that [Omnicare] serves."

Plaintiffs (a class of investors who purchased in the offering) alleged that these representations in Omnicare's registration statement were material, untrue and misleading because they effectively concealed that Omnicare had been engaging in a variety of illegal activities, including kickback arrangements with pharmaceutical manufacturers and the submission of false claims to Medicare and Medicaid. Plaintiffs asserted a claim under Section 11, which provides a remedy for investors who have acquired securities under a registration statement that was materially misleading or omitted material information. Section 11 imposes strict liability on issuers of registration statements containing untrue...