Corporate > AG Deal Diary > Outrageous Opinions in Registration Statements
25 Sep '14

In Omnicare, Inc. v. Laborers District Council Construction Industry Pension Fund, No. 13-435, discussed here, the respondents fired back at the petitioners in a brief filed with the Supreme Court, posing a simple question:

“Whether an objectively incorrect statement of opinion is actionable under Section 11 of the Securities Act of 1933, 15 U.S.C. § 77k, only if it was subjectively disbelieved by the defendant.”

The respondents painted a picture of alleged egregious conduct by the defendants, attempting to make Omnicare’s opinions look unreasonable.  Detailing a wide array of violations, respondents alleged, in part, that Omnicare pharmacists illegally recommended that doctors switch patients to off-label uses of drugs, a recommendation that doctors accepted “more than 80 percent of the time,” a result that an Omnicare executive described as “good for us but scary on the power to do this.”  They concluded that Omnicare violated the False Claims Act in improperly submitting Medicare and Medicaid reimbursements and that; accordingly, Omnicare’s statement that it believed it was in compliance with state and federal laws was inaccurate.

The respondents emphasized the strict liability nature of Section 11, noting that with Section 11 claims, “[l]iability against the issuer of a security is virtually absolute.” Herman & MacLean v.  Huddleston, 459 U.S. 375, 382 (1983).  The respondents appealed to the common sense of the Court, arguing that opinions can be false or misleading in three specific ways: (1) the speaker may not actually believe the opinion; (2) the opinion may mislead the listener to a false conclusion; and (3) the opinion may be understood to imply that the speaker had a reasonable basis for the opinion and disclosed any facts that may be deemed to contradict the opinion.

In response to the criticism that this subjects defendants to liability by hindsight, the respondents noted that everyone, except the issuer had good faith and due diligence defenses.  They also noted that the safe harbor for forward-looking statements in the Private Securities Litigation Reform Act would be meaningless if the Court interpreted Section 11 as protecting all opinions.  If it did, then there would be no special protection required for forward-looking opinions.

According to the respondents, there are policy reasons to support their approach as well—they contended that accepting the petitioner’s arguments that statements of opinion are inactionable would “prevent the SEC from using its administrative powers to require changes to grossly misleading statements of opinion in registration statements, so long as the issuer genuinely held its irresponsible beliefs.”

Allies of the plaintiffs’ bar lined up beside the Omnicare respondents, with amicus briefs submissions from Occupy the SEC, AARP, Common Law Scholars, Wyoming Retirement System, Public Citizen, Inc., Professors at Law and Business Schools, and Institutional Investors.  The Court has set oral argument for November 3, when we will get some insight into the Court’s opinions.