Supreme Court Likely to Set Forth Middle Ground in Omnicare

Nov 11, 2014

Reading Time : 2 min

At oral argument, none of the parties appeared to agree with the 6th Circuit’s broad holding.  The government set forth a middle ground:  there must be a reasonable basis for a statement of opinion.  See Amicus Curiae Brief of the United States.  First, the Court appeared hesitant to issue an opinion that adopts fraud by hindsight.  The justices used a hypothetical opinion where an issuer states it believes it has one million units in inventory. 

—Assume the factory burns down after the registration statement.  Your inventory opinion is no longer correct, but according to Justice Sotomayor, you cannot be held liable because it happened after the registration statement was issued.  This makes sense because issuers must be judged by the facts and circumstances as they existed at the time the statement was made.

—Assume the factory burns down the day before the registration statement was issued, but the factory was in rural India and none of the executives knew about it.  Justices Breyer and Ginsburg appeared to believe there would be no liability under this scenario, arguing that plaintiffs are essentially “saying there is no such thing as an opinion versus a fact.”

The justices seemed loathe to hold that only subjective opinion matters however, noting that registrants could simply qualify every statement with “in our opinion” and thus face no liability.  Justice Breyer gave a humorous example of an archeologist who says, “It is my opinion that those bones in that mountain are of a Diplodocus, not a Trisopterus.”  Breyer noted, “Now, wouldn’t you have thought that at least he’d looked into it, that at least he’d seen the bones?  You see, it’s absolutely open—it is a matter of opinion—but there are some things implied.  If you had learned later that he’d been in the bar all night and had never even seen or heard one word about what the bones were like, wouldn’t you think he had issued a misrepresentation?”

But the Court gave very little indication of what a reasonableness standard would look like.  When Justice Alito probed counsel for the plaintiffs and the government, both responded that it was a circumstantial inquiry informed by case law, a response that did not satisfy Justice Alito.  Defendants reminded the Court that imposing a reasonableness standard on opinions goes directly against the text of the statute, which directly includes a reasonableness standard in the due diligence defense for outside directors and underwriters.

The Court appears unlikely to adopt the polar standards of either plaintiffs or defendants.  Yet it remains unclear how the Court will define the middle ground and whether it will reverse and remand for the 6th Circuit to make additional findings based on the newly articulated standard.   The Court will likely issue its opinion in the coming months, but in the meantime, issuers should carefully consider any statements of opinion in a registration statement because plaintiffs will be looking over their shoulder if their opinion ends up being incorrect.

Share This Insight

Previous Entries

Akin Deal Diary

April 12, 2023

Read More

Akin Deal Diary

2022-12-15

On December 14, 2022, the Securities and Exchange Commission (SEC) adopted amendments regarding Rule 10b5-1 insider trading plans and related disclosures. The amendments aim to strengthen investor protections concerning insider trading and to help shareholders understand when and how insiders are trading in securities for which they may at times have material nonpublic information (MNPI). In light of these amendments, issuers should review and revise, if needed, their insider trading policies and equity grant policies.

Read more.

...

Read More

© 2024 Akin Gump Strauss Hauer & Feld LLP. All rights reserved. Attorney advertising. This document is distributed for informational use only; it does not constitute legal advice and should not be used as such. Prior results do not guarantee a similar outcome. Akin is the practicing name of Akin Gump LLP, a New York limited liability partnership authorized and regulated by the Solicitors Regulation Authority under number 267321. A list of the partners is available for inspection at Eighth Floor, Ten Bishops Square, London E1 6EG. For more information about Akin Gump LLP, Akin Gump Strauss Hauer & Feld LLP and other associated entities under which the Akin Gump network operates worldwide, please see our Legal Notices page.