Supreme Court's 'Omnicare' Decision Follows Middle Path Advocated By Lane Powell And WLF

In the opinion issued on March 24 in Omnicare, Inc. v. Laborers District Council Construction Industry Pension Fund ("Omnicare"), the Supreme Court rejected the two extremes advocated by the parties regarding how the truth or falsity of statements of opinion should be considered under the securities laws. Instead, it adopted the middle path advocated in the amicus brief filed by Lane Powell on behalf of Washington Legal Foundation ("WLF").

In doing so, the Court also laid out a blueprint for examining claims of falsity under the securities laws, which we believe will do for falsity analysis what Tellabs, Inc. v. Makor Issues & Rights, Ltd., 551 U.S. 308 (2007), did for scienter analysis. Hence, Omnicare will help defense counsel defeat claims that opinions were false or misleading in § 11 cases, as well as in cases brought under § 10(b) of the Securities Exchange Act.

From the tenor of oral argument, it seemed inevitable that the Court would reject the Sixth Circuit's erroneous position—that a genuinely believed opinion may nonetheless be considered "false" under § 11 of the Securities Act if it is later determined that the opinion was incorrect. But the Court also expressed discomfort with the potential loopholes that could be created by Omnicare's position at the other extreme—that if a statement is phrased as an opinion, it can never be found to be either false or misleading under the securities laws, as long as the opinion was honestly held by the speaker.

The Court could have taken many wrong turns in rejecting these two opposing viewpoints, running the risk of further confusing the law not only regarding the truth or falsity of opinions, but also muddling the law of scienter and materiality. However, the Court successfully navigated these potential pitfalls, and it adopted an analytically sound approach that is consistent with its previous securities rulings, holding that: 1) a statement of opinion is only "false" under the securities laws if it is not genuinely believed by the speaker; and 2) like any other kind of statement, a statement of opinion may be "misleading" if, when considered in context, it creates a false impression in the mind of a reasonable investor.

Notably, the Court did notcontrary to some media reportsseize upon the so-called "reasonable basis" approach advocated by the Solicitor General, namely, that a statement of opinion would be false or misleading, even if it is genuinely believed, as long as plaintiffs can...