Supreme Court Holds That Issuers Can Be Liable For Omitting Material Facts From Statements Of Opinion In Omnicare Case

In its opinion in Omnicare, Inc. v. Laborers District Council Construction Industry Pension Fund, released yesterday, the U.S. Supreme Court held that a securities issuer's statement of opinion in a registration statement, even though sincerely believed, may still give rise to liability under Section 11 of the Securities Act of 1933 if it omits material conflicting facts about the issuer's basis for the opinion that render it misleading: "if a registration statement omits material facts about the issuer's inquiry into or knowledge concerning a statement of opinion, and if those facts conflict with what a reasonable investor would take from the statement itself, then §11's omissions clause creates liability." The decision marks a significant departure from previous decisions by the U.S. Courts of Appeals for the Second and Ninth Circuits, which held that to maintain a Section 11 claim concerning a statement of opinion, a plaintiff must plead and prove that the issuer did not believe the statement of opinion at the time it was made. But it does not go so far as the Sixth Circuit's underlying Omnicare opinion in the same case, which held that under Section 11 a plaintiff need only allege that a statement of opinion ultimately proved to be incorrect, regardless of the issuer's knowledge at the time it was made. In the wake of the Supreme Court's Omnicare decision, issuers and their counsel will have to pay close attention to statements of opinion in registration statements and carefully consider whether they have provided sufficient factual disclosure relating to any such statements.

Section 11 of the Securities Act of 1933, 15 U.S.C. § 77k, creates a remedy for purchasers of securities in a public offering where the registration statement "contained an untrue statement of a material fact or omitted to state a material fact required to be stated therein or necessary to make the statements therein not misleading." In the underlying case, plaintiff shareholders sued Omnicare, the nation's largest pharmacy service provider for nursing home residents, for alleged false statements and misleading omissions in the registration statement for its 2005 public offering. The registration statement included two statements in which the company opined that its contracts were legally valid and in compliance with applicable laws:

"We believe our contract arrangements with other healthcare providers, our pharmaceutical suppliers and our pharmacy practices are in...