In the two months since the U.S. Supreme Court issued its landmark decision in Omnicare v. Laborers District Council Construction Industry Pension Fund, 135 S. Ct. 1318 (2015), several federal district courts have applied the court’s new two-prong standard for determining opinion statement liability under Section 11 of the Securities Act of 1933 to claims of false statements of belief under Section 10(b) of the Securities Exchange Act of 1934. Under the second prong of the Omnicare standard, a plaintiff may plead an opinion statement violation of Section 11, a strict liability statute, even where the defendant honestly believed the statement when he made it. The plaintiff can do this by adequately alleging that a reasonable investor would find the statement misleading due to the omission of material facts. Holding a defendant liable under Section 10(b) for stating an opinion he or she honestly held at the time, however, conflicts with that statute’s requirement that the plaintiff plead a strong inference that the defendant acted with scienter, or the intent to deceive, manipulate or defraud. None of the district court decisions applying the Omnicare standard to Section 10(b) claims addresses this conflict.
Two-Prong Standard For Opinion Statement Liability
In Omnicare, the Supreme Court vacated the ruling by the U.S. Court of Appeals for the Sixth Circuit that an issuer of securities and its officers and directors could face liability under Section 11 for opinions set forth in a registration statement that later proved to be false, regardless of whether the defendants subjectively believed the opinions when the issuer filed the registration statement with the U.S. Securities and Exchange Commission (SEC). Rejecting the Sixth Circuit’s objective-falsity test for determining Section 11 opinion statement liability, the court’s decision sets two separate standards instead: (1) a subjective-falsity standard for evaluating a plaintiff’s claims that the defendants’ opinions constitute untrue statements of material fact, so long as the statements are “pure” opinions and contain no “embedded statements of [untrue] fact”; and (2) a “reasonable investor” standard for reviewing claims that the defendants’ opinions omitted material facts. To successfully allege that a pure statement of opinion is materially false under Omnicare‘s first prong, a plaintiff must plead facts showing that the defendants did not “honestly” hold the opinion stated since “a sincere statement of pure opinion is not an ‘untrue statement of material fact,’ regardless [of] whether an investor can ultimately prove the belief wrong.” As the Supreme Court explained, this provision does not “allow investors to second-guess inherently subjective and uncertain assessments” or provide “an invitation to Monday morning quarterback an issuer’s opinions.” To satisfy the “reasonable investor” prong for alleged omissions of material fact, a plaintiff must identify “particular” material “facts about the inquiry the issuer did or did not conduct or the knowledge it did or did not have,” the omission of which “makes the opinion statement at issue misleading to a reasonable person reading the statement fairly and in context.” A plaintiff can meet this standard without having to further allege that the defendant did not honestly hold the opinion when he or she stated it.
