On 24 March 2015, in Omnicare, Inc. v. Laborers District Council Construction Industry Pension Fund, a widely anticipated decision, the US Supreme Court resolved a conflict among the federal appellate courts concerning the standard of liability that applies to statements of opinion under Section 11 of the Securities Act of 1933. The Court held that for a statement of opinion to constitute an affirmative misstatement under Section 11 (which applies to statements made in offering materials), it must be not only "objectively false" in the sense that the opinion is incorrect, but also "subjectively false" in that the speaker did not honestly believe the statement to be true when made. The Court separately held that the omission of information, where that omission causes an opinion to be misleading, can give rise to liability under Section 11 if the omitted information is contrary to what a reasonable investor would assume was the basis for the stated opinion, even if the opinion was not subjectively false.

Omnicare is the US's largest provider of pharmacy services to nursing homes. The plaintiffs' claims stemmed from statements in a registration statement for a public stock offering that the company "believe[d]" its contractual arrangements were in compliance with law. The plaintiffs claimed these opinions were false because the company allegedly engaged in illegal kickback schemes with pharmaceutical manufacturers and submitted false claims for reimbursement to governmental medical programs.

The plaintiffs in Omnicare conceded that the company's statements of opinion concerning legal compliance were honestly held beliefs, but argued that because Section 11 does not impose any requirement to show a defendant's intent, the fact that the opinion statements were "objectively false" was enough to hold the company liable. The Court, disagreeing, explained that Section 11 imposes liability for "untrue statement[s] of . . . fact" and the factual component of an opinion is that "the speaker actually holds the stated belief." The mere fact that the opinion turns out to be incorrect is not sufficient to show an "untrue statement of material fact" under Section 11. The plaintiffs' claim that Omnicare's opinions about legal compliance were misstatements was therefore insufficient.

The Court went on to rule, however, that the omission of factual information can lead to liability for a statement of opinion under Section 11's prohibition on omissions that render affirmative statements misleading, even if the opinion was honestly held. Because "a reasonable investor may . . . understand an opinion statement to convey facts about how the speaker has formed an opinion," an omission concerning material facts "going to the basis for the issuer's opinion" might give rise to liability if that omission makes the opinion statement misleading. But not all facts going against an opinion need to be disclosed because "[r]easonable investors understand that opinions sometimes rest on a weighing of competing facts." Rather, the assessment about whether an omission is actionable must be done on a case-by-case basis to determine whether the omission genuinely "call[s] into question the issuer's basis for offering the opinion."

The Court's ruling in Omnicare that plaintiffs must show statements of opinion to be subjectively false under Section 11 clarifies this previously uncertain point of law. On the other hand, the Court's ruling that certain omissions can render an opinion statement misleading, even if the statement is an honestly held belief, is likely to create a new avenue for plaintiffs to raise securities claims. The plaintiffs' bar will undoubtedly file additional cases in this area, which in turn will illuminate how lower courts will interpret this new rule.

For more information on the Omnicare decision, please see our client note at: http://www.shearman.com/en/newsinsights/publications/2015/03/opinion-statement-liability-in-omnicare-ruling.

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