The Supreme Court recently gave corporate directors and officers some welcome relief. The Court confirmed that corporate officers and directors can express their honestly held opinions without liability under Section 11 of the Securities Act of 1933—even if those opinions later turn out to be false—so long as they believed those opinions to be true at the time they said it (with some caveats, of course).

In the March issue of InsideCounsel, I wrote about Omnicare, Inc. v. Laborers District Counsel Construction Industry Pension Fund. At that time, we didn't know how the Supreme Court would rule, but we were prepared for it to potentially disrupt the status quo when it came to statements made under Section 11.

As a reminder, Omnicare, a pharmacy service for long-term care facilities, made certain claims regarding its legal compliance in the registration statement for its initial public offering (IPO). After the IPO, serious allegations surfaced about alleged illegal activities, such as kickbacks and the falsification of Medicare and Medicaid claims.

Unsurprisingly, plaintiffs challenged the original IPO disclosure under Section 11, saying that there should be Section 11 liability since it turned out that the statements made about Omnicare's legal compliance were false.

Omnicare argued that the persons making those statements about compliance believed them to be true at the time they were made, so they shouldn't be held liable under Section 11.

The federal circuit courts were split on this issue, which is why the Supreme Court ultimately stepped in.

The 6th Circuit was rigid in its approach to strict liability under Section 11: Defendants should not win a motion to dismiss even if they subjectively believed the statements to be true. All that mattered to the 6th Circuit was if the statement was objectively false.

The 2nd, 3rd and 9th Circuits, however, had previously held that defendants should be able to win a motion to dismiss if the people making the statements believed them to be true at the time. After some lively proceedings and oral arguments in front of the Supreme Court (keeping in mind this was just another layer of litigation in Omnicare's nine years of legal battles), the Court sided with the 2nd, 3rd and 9th Circuits.

That is, statements made that are believed to be true and later turn out to be false won't be liable under Section 11.

People's opinions inherently have a possibility of being false, according to the Court, and the decision stated that “because a statement of opinion admits the possibility of error, such a statement remains true—and thus is not an 'untrue statement of … fact'—even if the opinion turns out to have been wrong.”

However, the Court made a point that persons cannot “assert opinions in statements free from worry.”

Omissions of material information can give way to Section 11 liability, so people are obligated to disclose any facts they may know, meaning facts that would conflict with the understanding of the statement.

From the Court's opinion: “Thus, 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 Section 11's omissions clause creates liability.”

The Court clarified that it does not expect a person to disclose every fact known; however, it does expect facts to be disclosed that “cannot be squared with a fair reading of the registration statement as a whole.”

While Omnicare offers some helpful clarity when it comes to Section 11 liability, the challenge is still the art of disclosure. Too many irrelevant disclosures make for exhausting statements, and too little of the right type leave you possibly liable under Section 11.