RESPONDENT:Indiana State District Council of Laborers and Hod Carriers Pension and Welfare Fund, et al.
LOCATION: United States District Court for the Eastern District of Kentucky
DOCKET NO.: 13-435
DECIDED BY: Roberts Court (2010-2016)
LOWER COURT: United States Court of Appeals for the Sixth Circuit
CITATION: 575 US (2015)
GRANTED: Mar 03, 2014
ARGUED: Nov 03, 2014
DECIDED: Mar 24, 2015
Kannon K. Shanmugam – for the petitioner
Nicole A. Saharsky – Assistant to the Solicitor General, Department of Justice, for the United States as amicus curiae supporting the respondent
Thomas C. Goldstein – for the respondent
Facts of the case
Plaintiffs were investors who bought Omnicare securities in a December 15, 2005 public offering. At the same time, Omnicare offered 12.8 million shares of common stock and made related filing with the Securities and Exchange Commission. These filings were incorporated into a Registration Statement. The plaintiffs sold all the securities by January 31, 2006. Plaintiffs brought suit under §11 of the Securities Act of 1993 claiming Omnicare materially misled or omitted material information on the registration statement because they were engaged in illegal activities that included kickback arrangements with pharmaceutical manufacturers and submitting false claims to Medicare and Medicaid. Plaintiffs further allege that Omnicare failed to comply with Generally Accepted Accounting Principles (GAAP), which resulted in a substantial overstatement of the company’s revenue affecting the 2005 public offering.
The original suit filed in the district court had multiple claims from which this case arose, but all were dismissed in favor of Omnicare. The claims were dismissed because the plaintiffs failed to plead that the defendants had knowledge of wrongdoing when they materially falsified information on the registration statement. The United States Court of Appeals for the Sixth Circuit affirmed the dismissals except one filed under §11 for materially misleading or omitting material information because that claim was filed under a strict liability statute which did not require pleading to knowledge of wrongdoing. The Court held that plaintiffs had met their burden for making a prima facie case under §11 and remanded the case to district court.
For purposes of §11 of the Securities Act of 1933, may an entity’s opinion statements constitute an untrue statement of fact if the opinion statement is shown to be objectively false without proof that the entity knew the opinion statement was false?
Media for Omnicare, Inc. v. Laborers District Council Construction Industry Pension Fund
Audio Transcription for Opinion Announcement – March 24, 2015 in Omnicare, Inc. v. Laborers District Council Construction Industry Pension Fund
John G. Roberts, Jr.:
Justice Kagan has our opinion this morning in Case 13-435, Omnicare, Inc. v. Laborers District Council Construction Industry Pension Fund.
Before a company can sell stock to the public, it has to file something called a registration statement.
The point of that statement is to disclose various things about the company that a potential buyer might want to know.
That allows people to make informed investment decisions.
Section 11 of the Securities Act allows an investor to sue for damages if a registration statement is false or misleading.
That has two parts.
The first allows recovery when the registration statement contains an untrue statement of material fact.
The second permits recovery when the registration statement omits a material fact that is necessary to make the statement not misleading.
The petitioner here is a pharmaceutical company called Omnicare.
In connection with the stock offering it filed a registration statement containing various legal opinions.
It took care to freeze those opinions as opinions, not as demonstrated facts.
In essence, the company said that it believed it was following the law in running its business.
Respondents are Pension Funds that purchased Omnicare stock.
They assert in this lawsuit that Omnicare was actually not following the law and they ask for damages under both parts of Section 11.
They say first that Omnicare’s legal opinions were untrue statements of material fact, and second that Omnicare’s registration statement omitted facts that were necessary to make those opinions not misleading.
We took this case to decide how Section 11’s two parts applied to expressions of opinion.
As to the first part, we think that in prohibiting false statements of fact, the statute is making a commonsensical distinction between statements of fact and statements of opinion.
Suppose I say the coffee is hot, that’s a statement of fact.
But suppose I say I think the coffee is hot, that’s a statement of opinion.
It expresses a degree of uncertainty that a factual statement doesn’t.
When I say I think the coffee is hot, I am making only one factual representation, which is about my own belief.
I am saying in other words that I really do think the coffee is hot.
Because that’s so we hold that a statement of opinion can count as an untrue statement of fact under Section 11 when, but only when, the speaker doesn’t really hold the stated belief.
The Pension Funds that brought this suit didn’t make that claim; they declined to allege that Omnicare knew all along that it was breaking the law, so their suit can’t proceed any further under Section 11’s first part.
But still, the omissions provision might allow the suit.
That depends on whether and when an omission of a fact can render a statement of opinion misleading.
Now, as to that question, we hold that an opinion can be misleading if the speaker has omitted facts about his or her basis for holding that opinion.
Suppose that when I said I think the coffee is hot, someone had just told me it was ice cold and I failed to disclose that fact.
Or suppose I knew absolutely nothing about when the coffee was made and I failed to disclose that I had never investigated that matter.
In those circumstances my statement of opinion misleads other people, because they think I have a firmer foundation than I actually do for my opinion.
And so too here, this suit can go forward if the Pension Funds can identify omitted facts about the knowledge Omnicare had or the legal inquiry it had conducted that are not what a reasonable investor would expect.
For example, if Omnicare had never consulted with a lawyer, or if its lawyers had told Omnicare it was violating the law, those omissions would mislead reasonable investors about Omnicare’s basis for holding the opinion, even if the opinion is sincere, and so would permit recovery under Section 11.
Our opinion doesn’t decide whether the funds have made that showing.
The Lower Courts didn’t consider that question and we leave it to them to do so.
We accordingly vacate the decision below and remand for further proceedings.
Justice Scalia has filed an opinion concurring in part and concurring in the judgment.
Justice Thomas has filed an opinion concurring in the judgment.