In the opinion issued yesterday in Omnicare, Inc. v. Laborers District Council Construction Industry Pension Fund (“Omnicare”), the Supreme Court rejected the two extremes advocated by the parties regarding how the truth or falsity of statements of opinion should be considered under the securities laws, and instead adopted the middle path advocated in the amicus brief that my colleagues and I filed on behalf of the Washington Legal Foundation (“WLF”). In doing so, the Court also laid out a blueprint for examining claims of falsity under the securities laws, which we believe will do for falsity analysis what Tellabs, Inc. v. Makor Issues & Rights, Ltd., 551 U.S. 308 (2007), did for scienter analysis.
From the tenor of oral argument, it seemed inevitable that the Court would reject the Sixth Circuit’s erroneous position – that a genuinely believed opinion may nonetheless be considered “false” under Section 11 of the Securities Act if it is later determined that the opinion was incorrect. But the Court also expressed discomfort with the potential loopholes that could be created by Omnicare’s position at the other extreme – that if a statement is phrased as an opinion, it cannot be found to be either false or misleading under the securities laws, as long as the opinion was honestly held by the speaker.
There were many wrong turns that the Court could have taken in rejecting these two extremes, running the risk of further confusing the law not only regarding the truth or falsity of opinions, but also muddling the law of scienter and materiality. But the Court successfully navigated these potential pitfalls – including refusing to adopt the “reasonable basis” standard advocated by the Solicitor General – and instead adopted an analytically sound approach that is consistent with its previous securities rulings, holding that 1) a statement of opinion is only “false” under the securities laws if it is not genuinely believed by the speaker; and 2) like any other kind of statement, a statement of opinion may be “misleading” if, when considered in context, it creates a false impression in the mind of a reasonable investor.
Because Omnicare’s analysis concerns what makes a statement false or misleading, it will apply not only in Section 11 cases, but in cases brought under Section 10(b) of the Securities Exchange Act. In fact, much of the Court’s reasoning will also assist defendants in battling inadequate allegations that factual statements are false or misleading. Similar to how Tellabs laid a definitive groundwork for the consideration of scienter allegations after the Reform Act, Omnicare has thus laid out a clear blueprint for how courts must consider allegations that statements of fact or opinion were false or misleading.
For our complete discussion of the Omnicare opinion, please see our post today on WLF’s The Legal Pulse Blog.