Omnicare, Inc. v. Laborers District Council Construction Industry Pension Fund: Liability for Opinions in Registration Statements — Supreme Court Clarifies When Statements of Opinion in Registration Statements Can Be Actionable

Sullivan & Cromwell LLP - March 25, 2015

Yesterday in Omnicare, Inc. v. Laborers District Council Construction Industry Pension Fund, No. 13-435, the U.S. Supreme Court addressed the requirement in Section 11 of the Securities Act of 1933 that a registration statement not “contain[] an untrue statement of a material fact” or “omit[] to state a material fact . . . necessary to make the statements therein not misleading.”  Specifically, the Court considered what plaintiffs need to plead under each of those phrases with respect to statements of opinion.  The Court’s guidance is significant in light of the importance of pleading standards and motions to dismiss in securities litigation.  The Court held, consistent with a majority of the federal courts of appeals, that a pure statement of opinion offered in a Section 11 filing is “an untrue statement of material fact” only if the plaintiff can plead (and ultimately prove) that the issuer did not actually hold the stated belief.  At the same time, the Court held that the omission of certain material facts can render even a pure statement of opinion actionably misleading under Section 11.  But the Court emphasized that pleading an omissions claim will be difficult because a plaintiff must identify specific, material facts whose omission makes the opinion statement  misleading to a reasonable person reading the statement fairly and in context.  The Supreme Court’s decision should curtail Section 11 litigation over honestly held opinions that turn out to be wrong, but it may cause the plaintiffs’ bar to bring claims that issuers have not accompanied their opinions with sufficient material facts underlying those opinions.  To ward off the risk of such lawsuits, issuers should consider supplementing their disclosure documents with information about the bases of their opinions that could be material to a reasonable investor.