In a decision that may be viewed as a warning to lower courts to be cautious of early dismissal of securities cases, the Sixth Circuit expressly rejected the pleading requirements articulated by the influential Second and Ninth Circuits for claims against an issuer under Section 11 of the Securities Act. Indeed, the Sixth Circuit was critical of the Second and Ninth Circuits for improperly applying Supreme Court “dicta” and “musings” regarding an “unrelated statute” to require a Section 11 plaintiff to plead that disclosures of opinion (or “soft information”) are both objectively false anddisbelieved by the defendant.
Indiana State Dist. Council v. Omnicare, Inc. Case No. 12-5287 (slip op. May 23, 2013) (Omnicare II), is the second Sixth Circuit decision in this securities class action concerning disclosures in a registration statement that Omnicare’s contracts with drug companies were “legally and economically valid,” when, at the time, the company purportedly was engaged in a variety of illegal activities, including kickback arrangements with drug companies and the submission of false claims to Medicare and Medicaid. In the first decision, 583 F.3d 935 (6th Cir. 2009) (Omnicare I), the Sixth Circuit affirmed the district court’s dismissal of plaintiffs’ claims under Section 10(b) of the Securities Exchange Act and under Rule 10b-5 for the failure to plead loss causation. The court, however, reversed the district court’s dismissal of the Section 11 claims, finding that loss causation is not an element of a Section 11 claim, but an affirmative defense. In Omnicare I, the Circuit Court further found that the Section 10(b) and Rule 10b-5 claims should be dismissed because the plaintiffs failed to plead that management knew its statements concerning compliance with the law were false at the time they were made. After Omnicare I and proceeding on remand, the district court dismissed the Section 11 claim because the plaintiffs failed to meet the heightened pleading standard of Fed. R. Civ. P. 9(b) by failing to plead knowledge of the falsity of the representation.
In OmnicareII, the Sixth Circuit reversed the dismissal of the Section 11 claim and emphasized that Section 11 provides for “strict liability” against the issuer when a registration statement contains an untrue statement of material fact, regardless of the defendant’s knowledge or state of mind. The court refused to follow Fait v. Regions Financial Corp., 655 F.3d 105 (2d Cir. 2011), and Rubke v. Capitol Bancorp Ltd., 551 F.3d 1156 (9th Cir. 2009), in which both the Second and Ninth Circuits found that the Supreme Court’s decision in Virginia Bankshares, Inc. v. Sandberg, 501 U.S. 1083 (1991), supported requiring a Section 11 plaintiff to plead that a statement of opinion was both objectively false and disbelieved by the defendant at the time it was expressed. The Sixth Circuit saw “nothing in Virginia Bankshares” to support requiring plaintiffs to plead facts concerning the defendant’s knowledge that the statement was false. According to the Omnicare II Court, in Virginia Bankshares, the Supreme Court was applying Section 14(a) of the Securities Exchange Act and “effectively treated [that enactment] as a statute that required scienter,” even though the Court expressly reserved the question of whether scienter is an element of a Section 14(a) claim. The Sixth Circuit found that, because the Supreme Court previously held that Section 11 created strict liability for the issuer in a decision that specifically addressed Section 11, it was improper to apply the Supreme Court’s analysis for liability under Section 14(a) to Section 11 claims. The Sixth Circuit stated that the language the Second and Ninth Circuits relied upon in Virginia Bankshares were only “musings” and “dicta.” Indeed, the Sixth Circuit’s criticism of the Second and Ninth Circuits went so far as to state: “it would be unwise for this Court to add an element to Section 11 claims based on little more than a tea-leaf reading in a § 14(a) case.” 
Sitting on the Omnicare II panel by designation, Judge James S. Gwin of the U.S. District Court for the Northern District of Ohio filed a concurring opinion that addressed the powers of district courts “to resurrect previously dismissed claims and previously dismissed parties should later discovered evidence warrant it.” Judge Gwin stated that this authority is particularly relevant to the PSLRA, which he describes as “passed in 1995 after considerable lobbying by corporate and investment interests.” He noted that motion to dismiss practice under the PSLRA often includes questions “that formerly would have been considered trial worthy.” Judge Gwin encouraged district court judges to permit claims to be revived in securities cases if newly-found evidence supports the previously dismissed claim. He ended the concurrence by noting that, in the language of Fed. R. Civ. P. 1, “[t] here’s a reason that ‘just’ precedes ‘speedy.’”
Omnicare II’s adoption of a more liberal pleading standard for Section 11 claims than the standard adopted by both the Second and Ninth Circuits creates a split among the Federal courts of appeals that ultimately may be resolved by the Supreme Court. The decision may be understood as a caution to district courts about early dismissal of securities claims; particularly given the Circuit Court’s somewhat direct criticism of the Second and Ninth Circuits and Judge Gwin’s concurrence.  The decision also can be instructive to corporate lawyers who draft registration statements. A practitioner should consider drafting so-called “soft information,” such as opinions on the merits of a transaction or the compliance with laws, as expressly reflecting management’s belief or understanding. If that language becomes the subject of a Section 11 claim, even under Omnicare II’s strict liability approach, management’s state of mind – e.g., that they knew the opinion was false – is likely to be required to be pled and proven in order to show that the statement was false.