In  Omnicare, Inc. v. The Laborers District Council Construction Industry Pension Fund, the U.S. Supreme Court clarified the  extent  to which Section 11 of the Securities Act of 1933 imposes liability on securities issuers for making incorrect statements of opinion in  their  registration  statements.    No. 13-435 (U.S. March 24, 2015).

In 2005, Omnicare, Inc., a large pharmacy-related services provider, filed a registration statement expressing the company’s opinion that certain of its business practices, including its contractual arrangements with pharmaceutical manufacturers, complied with state and federal laws. After  the federal government challenged  those  arrangements as  constituting  illegal  kickback  payments, investors sued Omnicare under Section 11 in federal district court, alleging that the opinion statements were “untrue statement[s] … of material fact” and that Omnicare “omitted to state [material] facts necessary” to make those statements not misleading.

The district court dismissed the investors’ claims for failing to allege that Omnicare knew its practices were unlawful. On appeal, the Sixth Circuit reversed, holding that knowledge of falsity was  not necessary to establish a Section 11 violation and, instead, that the plaintiffs could support their claim simply by showing that Omnicare’s opinions about legal compliance were objectively false.

The Supreme Court reversed once  more, rejecting the Sixth Circuit’s view that an opinion constitutes an untrue statement of fact merely because it turns out to be erroneous. However, the Court  did not immunize all statements of opinion in registration statements. Instead, it set forth two  scenarios in which a statement of opinion might nonetheless give rise to liability under Section 11.

First, a statement of opinion is an “untrue statement” of fact if the speaker did not, in actuality, hold the stated belief. The Court reasoned  that  every statement of opinion carries an implied factual claim that the speaker  subjectively  believes  the statement to be correct. Thus,  if an investor can demonstrate that an issuer was  not  sincerely  in agreement with an opinion expressed in its registration statement, the issuer may be liable under Section 11 provided that other requirements, such as materiality of the misstatement, are satisfied.

Second, a statement of opinion can give rise to liability under the “omission” prong  of  Section 11 if the opinion is not accompanied by  a  disclosure of any material facts necessary to  ensure  that  the opinion is not misleading. The Court explained that a reasonable investor might interpret an opinion in a registration statement as conveying facts about the issuer’s basis  for  holding the  opinion.  For example, a reasonable investor might understand Omnicare’s statement that its payments to  pharmaceutical manufacturers were lawful as implying that the company consulted a lawyer to investigate  the legality of the payments. If Omnicare did not, in fact, consult a lawyer about the issue, omitting that fact could render the opinion misleading by omission.

In light of the Omnicare decision, issuers should feel more confident expressing sincerely-held opinions in registration statements without fear that they will be held strictly liable for expressing their honest, but mistaken,   beliefs. Nonetheless,   issuers   should ensure that such opinions accurately reflect the company’s beliefs — and that they disclose any material facts necessary to ensure that the opinion is not misleading.