On March 24, 2015, the Supreme Court resolved a circuit split and unanimously held that an issuer cannot be held liable for making an "untrue statement of material fact" in violation of Section 11 of the Securities Act of 1933 if the statement at issue is a sincere expression of pure opinion, regardless of whether an investor can ultimately prove the belief wrong. The Court identified two ways in which an issuer may liable for material false statements of opinion made in a registration statement: (1) if the issuer did not hold the stated belief or embedded statements of untrue facts in the opinion or (2) if the issuer failed to disclose material facts regarding the opinion's foundation.
The case arose from a 2005 registration statement filed by Omnicare that contained statements regarding the company's compliance with legal requirements (for example: "We believe that our contract arrangements. . . are in compliance with applicable federal and state laws."). After the federal government brought lawsuits against Omnicare for violating anti-kickback laws, the plaintiffs brought claims under Section 11 alleging that statements were "materially false," and that the company failed to disclose facts necessary to make its representations not misleading.
The district court granted Omnicare’s motion to dismiss, but the Sixth Circuit reversed, holding that a plaintiff need only plead that an opinion in a registration statement was "objectively false" when made. This decision created a split with the Second, Third, and Ninth Circuits, which had previously held that a statement of opinion could give rise to liability only if it was both objectively and subjectively false. See Fait v. Regions Fin. Corp., 655 F.3d 105, 106 (2d Cir. 2011); Rubke v. Capitol Bancorp Ltd., 551 F.3d 1156, 1162 (9th Cir. 2009); In re Donald J. Trump Casino Sec. Litig.-Taj Mahal Litig., 7 F.3d 357, 368 (3d Cir. 1993).
The Supreme Court considered the sufficiency of Omnicare’s allegations on two distinct theories: whether Omnicare had made a false statement and whether it had omitted material facts that would have rendered the statements not misleading.
With respect to misstatements, the Court held that, assuming the statements were material, a stated opinion could give rise to Section 11 liability if the speaker did not hold the professed belief or if factual assertions embedded in the statement were untrue. The Court rejected the approach urged by the plaintiffs-respondents that a statement of opinion that is ultimately found incorrect, even if believed at the time made, may constitute an "untrue statement of material fact."
Writing for the majority, Justice Elena Kagan observed that this argument "wrongly conflate[d] facts and opinions." "A statement of fact . . . expresses certainty about a thing, whereas a statement of opinion . . . conveys only an uncertain view as to that thing." The Court noted, however, that every expression of opinion "explicitly affirms one fact: that the speaker actually holds the stated belief." In addition, some statements that begin with an opinion contain embedded statements of fact. Justice Kagan offered the following example of a statement by a company's CEO: “I believe our TVs have the highest resolution available because we use a patented technology to which our competitors do not have access.” This statement contains both a statement of belief and the factual assertion that that the company uses a patented technology. Accordingly, the Court concluded that liability under Section 11's false-statement provision would follow (assuming materiality) not only if the speaker did not hold the professed belief, but also if the supporting facts supplied in the statement of opinion were untrue. Because the particular Omnicare statements at issue were “pure statements of opinion” that merely turned out to be wrong, the plaintiffs-respondents could not avail themselves of either way of demonstrating liability for a false statement.
Addressing the plaintiffs’ allegations that Omnicare had omitted facts necessary to make its opinions not misleading, the Court explained that “a reasonable investor may, depending on the circumstances, understand an opinion statement to convey facts about how the speaker has formed the opinion . . . . And if the real facts are otherwise, but not provided, the opinion statement will mislead its audience.” Put differently, “if a registration statement omits material facts about the issuer’s inquiry into or knowledge concerning a statement of opinion, and if those facts conflict with what a reasonable investor would take from the statement itself, then §11’s omissions clause creates liability.” The Court cautioned, however, that not every failure to disclose a “fact cutting the other way” will render a statement misleading: “A reasonable investor does not expect that every fact known to an issuer supports its opinion statement.” Because the lower courts had not considered the plaintiffs’ omission theory under the proper standard, the Supreme Court remanded the case.
Justice Kagan was joined by Chief Justice Roberts and Justices Kennedy, Ginsburg, Breyer, Alito and Sotomayor. Justices Scalia and Thomas each filed a concurring opinion.