Supreme Court Applies 'Reasonable' Basis Standard In Clarifying Liability For Statements Of Opinion

On March 24, 2015 the Supreme Court released its much-anticipated opinion in Omnicare, Inc. v. Laborers District Council Construction Industry Pension Fund,1 holding that statements of opinion in issuers' registration statements filed with the Securities and Exchange Commission (SEC) can form the basis for liability under Section 11 of the Securities Act of 1933, only if the speaker lacked any reasonable basis in fact for the opinion. The Court's decision resolves a split of authority between the circuit courts of appeal, and provides guidance on an issue that increasingly is an aspect of securities litigation. Beyond providing an answer to the circuit split, the Court's discussion of what does not constitute a "reasonable basis" is useful as that concept frequently arises in securities litigation but seldom has been addressed by the Court. Thus, analysis of the Court's Omnicare decision is useful for the guidance it offers companies and their executives when making statements of opinion in securities filings.

Background of the Case

Based in Cincinnati, Ohio, Omnicare is the top U.S. provider of pharmacy services to long-term care facilities in the U.S. and Canada. In December 2005, the company issued public stock totaling $765 million, which required it to file a registration statement with the SEC. The case stems from that registration statement, and the issue on appeal to the Supreme Court was whether the company could be liable for two opinion statements in that registration statement that turned out later to be incorrect:

"We believe our contract arrangements with other healthcare providers, our pharmaceutical suppliers and our pharmacy practices are in compliance with applicable federal and state laws;" and "We believe that our contracts with pharmaceutical manufacturers are legally and economically valid arrangements that bring value to the healthcare system and the patients that we serve."2 Those statements were accompanied by additional disclosures: On the same page as the first statement above, Omnicare disclosed that several states had initiated "enforcement actions against pharmaceutical manufacturers" for offering payments to pharmacies that dispensed their products, and that the laws related to those payments might "be interpreted in the future in a manner inconsistent with our interpretation and application."3 Next to the second statement above, Omnicare disclosed that the U.S. government had expressed "significant concerns" about some manufacturers' rebates to pharmacies and that business might be adversely impacted "if these price concessions were no longer provided."4

Omnicare later was sued in two qui tam (whistleblower) actions over alleged violations of federal anti-kickback laws, and reached a $124 million settlement of those claims with the U.S. Department of Justice.5 Following the settlement, the plaintiffs filed suit, asserting, among other claims, that Omnicare's two statements opining about its legal compliance were actionable under Section 11 of the Securities Act of 1933, which imposes near strict liability for all issuers, directors, officers, underwriters, and experts for material misstatements or omissions in a registration statement.6 The plaintiffs alleged that Omnicare's officers and directors lacked "reasonable grounds" for believing that the opinions offered were truthful and complete, and that one of Omnicare's in-house lawyers had warned that a particular contract "carrie[d] a heightened risk" of violating federal anti-kickback laws.7

The federal district court dismissed the plaintiffs' claims, holding that the statements at issue were opinions, or...