Just over a year ago, on March 24, 2015, the U.S. Supreme Court issued its opinion in Omnicare, Inc. v. Laborers District Council Construction Industry Pension Fund. Omnicare held that a statement of opinion is only false under the federal securities laws if the speaker does not genuinely believe it, and is only misleading if it omits information that, in context, would cause the statement to mislead a reasonable investor. This ruling followed the path Lane Powell securities litigation partners Douglas W. Greene and Claire Loebs Davis advocated in Washington Legal Foundation’s amicus brief in Omnicare. In the wake of the decision, Greene and Davis opined that it would “help defense counsel defeat claims that opinions were false or misleading in § 11 cases, as well as in cases brought under § 10(b) of the Securities Exchange Act.”
Although Omnicare arose from a claim under § 11 of the Securities Act, all of its core concepts are equally applicable to § 10(b) of the Securities Exchange Act and other securities claims with similar falsity elements. Due to the importance of its holdings and the detailed way in which it explains them, Omnicare is the most significant post-Reform Act Supreme Court case to analyze the falsity element of a securities class-action claim, laying out the core principles of falsity in the same way that the Court did for scienter in its 2007 Tellabs, Inc. v. Makor Issues & Rights, Ltd. decision. If used correctly, Omnicare thus has the potential to be the most helpful securities case for defendants since Tellabs, providing attorneys with a blueprint for how to structure their falsity arguments in order to defeat more complaints on motions to dismiss.
Nevertheless, over the past year, some commentators and members of the defense bar have raised alarm about Omnicare, asserting the decision was a win for plaintiffs because it created a new area of potential liability for statements of opinion that were honestly held, but nonetheless misleading.
The view that Omnicare was a plaintiff-friendly result seems to be based on two misconceptions: first, a misunderstanding of the law as it existed before Omnicare; second, a misunderstanding of the ruling itself.
As part of Washington Legal Foundation's Critical Legal Issues Working Paper Series, Greene and Davis break down these misconceptions and survey the lower courts’ decisions applying Omnicare and concluding that, on the whole, courts are generally applying the decision as the Supreme Court intended — including in the Second Circuit’s recent decision in Tongue v. Sanofi. View the working paper.
