On March 24, 2015, the U.S. Supreme Court held that a pure statement of opinion in a securities registration statement is not an “untrue statement of a material fact” under Section 11 of the Securities Act of 1933 just because the opinion is later proven incorrect, but the opinion can create liability if the opinion was not sincerely held at the time, or if the registration statement omitted material facts about the issuer’s inquiry into, or knowledge concerning, the opinion, and those facts conflict with what a reasonable investor would understand from the statement itself.
Omnicare filed a registration statement in connection with a public offering of its stock. The registration statement expressed the company’s view that its contractual arrangements with certain other parties complied with applicable federal and state laws, and that its contracts with pharmaceutical manufacturers were legally and economically valid. The statement cautioned that laws relating to its practices might be interpreted in the future in a manner inconsistent with the company’s interpretation. The statement also mentioned the existence of some state-initiated enforcement actions and that the federal government had expressed “significant concerns” about the company’s rebate practices.
After the public offering, the federal government challenged Omnicare’s practices under anti-kickback laws.
Pension funds that purchased Omnicare’s stock sued under Section 11 of the Securities Act, alleging that Omnicare made materially false representations about its compliance with the law, and omitted material facts necessary to make the representations not misleading.
The district court dismissed the pension funds’ claims, holding that Omnicare’s statements of opinion regarding its legal compliance were not “untrue statements of material fact” without evidence that the company did not actually hold the opinions stated. The Sixth Circuit reversed the dismissal. While acknowledging that the statements expressed opinions rather than “hard facts,” the court held that the pension funds needed to allege only that the stated beliefs were “objectively false,” and not that anyone at Omnicare actually disbelieved them.
The Supreme Court vacated the Sixth Circuit’s decision. The Court first explained that the Securities Act distinguishes between facts and opinions, and makes issuers liable only for untrue statements of fact. An opinion that is later proven to have been wrong is not an untrue statement of “fact,” the Court explained; it was simply an incorrect opinion. But the Court went on to explain that a statement of opinion does affirm one fact: that the speaker actually holds the opinion. Thus, if the statements of opinion were not actually held by the speaker, they would support liability under Section 11. But because the funds in this case disavowed any allegations of intentional falsehood, they had no Section 11 claims based on the statements of opinion.
The funds also alleged that the registration statement omitted facts necessary to make the opinions about legal compliance not misleading (i.e., an “omissions claim”). Omnicare argued that statements of opinion can never support omissions claims because any reasonable person would understand that the statement simply reflects the speaker’s mindset. But the Court rejected that argument and held that a statement of opinion can lead to liability if it “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.” The Court hastened to add that this does not require the issuer to disclose every fact known to it relating to the opinion; it depends on context and the “reasonable-investor” standard.
Justice Kagan delivered the opinion of the Court, in which Chief Justice Roberts and Justices Kennedy, Ginsberg, Breyer, Alito and Sotomayor joined. Justice Scalia filed an opinion concurring in part and concurring in the judgment. Justice Thomas filed an opinion concurring in the judgment.