On March 24 , the Supreme Court decided Omnicare, Inc. v. Laborers District Council Construction Industry Pension Fund, No. 13-345, addressing important issues relating to the pleading standards that apply in actions under Section 11 of the Securities Act of 1933 based on statements of opinion. Reaffirming its holding over 20 years ago in Virginia Bankshares, Inc. v. Sandberg, 501 U.S. 1083 (1991), the Court held that a statement of opinion, if genuinely believed by the speaker, cannot be an "untrue statement of material fact" for purposes of Section 11. Rather, in order to recover under Section 11 on the theory that a statement of opinion was "untrue," the plaintiff must plead and prove both "objective" falsity (that is, the opinion was ultimately shown to be wrong) and "subjective" falsity (that is, the speaker did not believe what she said when she said it). The Court also held in Omnicare that, while a statement of genuinely held opinion may give rise to Section 11 liability if the speaker omitted to disclose material facts that "conflict with what a reasonable investor would take from the statement [of opinion] itself," plaintiffs seeking recovery on that theory must meet a heavy pleading burden.

Section 11 provides that, where a security is issued pursuant to a registration statement that contains a material factual misstatement or omission, the issuer is strictly liable to purchasers who meet statutory standing requirements. Other persons such as underwriters -- as well as accountants and other professionals, with respect to portions of the registration statement they have "expertized" -- can also be liable under Section 11, subject to certain additional statutory defenses. Applying Virginia Bankshares, the Second and Ninth Circuits had held that a plaintiff suing under Section 11 based on a statement of opinion or belief must plead and prove both that the opinion was incorrect and that it did not reflect the defendant's subjectively held belief. See Fait v. Regions Financial Corp., 655 F.3d 105 (2d Cir. 2011); Rubke v. Capital Bancorp Ltd., 551 F.3d 1156 (9th Cir. 2009). But in the decision on review before the Supreme Court, the Sixth Circuit departed from Virginia Bankshares, Fait and Rubke, and held that the statement of an opinion that turned out to be incorrect could support recovery under Section 11, regardless of the defendants' subjectively held beliefs. Indiana State District Council of Laborers & Hod Carriers Pension & Welfare Fund v. Omnicare, Inc., 719 F.3d 498 (6th Cir. 2013). Applying that standard, the Sixth Circuit reinstated a Section 11 complaint, based on statements of opinion, that a district court previously had dismissed.

The Supreme Court vacated the Sixth Circuit's decision in an opinion authored by Justice Kagan. The Court reaffirmed Virginia Bankshares, and held that an incorrect opinion is not, by itself, an "untrue statement of material fact." The Court reasoned that a statement of opinion addresses only the speaker's state of belief, and thus is only "untrue" if the speaker does not actually hold the opinion stated. Thus, noting that Section 11 is not "an invitation to Monday morning quarterback an issuer's opinions," Justice Kagan concluded that a statement of genuinely held opinion cannot be actionable as "false" simply because it proves incorrect. Rather, in order to recover under Section 11 on the theory that a statement of opinion was "false," the plaintiff must plead and prove that the speaker did not subjectively hold the opinion stated.

The Court then went on to consider "when, if ever, the omission of a fact can make a statement of opinion . . . even if literally accurate, misleading to an ordinary investor." The Court noted that "a reasonable investor may, depending on the circumstances, understand an opinion statement to convey facts about how the speaker has formed the opinion" and that "if the real facts are otherwise, but not provided, the opinion statement will mislead its audience." The Court emphasized the difficulty of successfully pleading and proving a claim under that theory. An investor "cannot just say that the issuer failed to reveal its basis" for an opinion, or rely on "conclusory allegation[s] that [the defendant] lacked 'reasonable grounds for the belief.'" Rather, an investor "must identify particular (and material) facts going to the basis for the issuer's opinion -- facts about the inquiry the issuer did or did not conduct or the knowledge it did or did not have -- whose omission makes the opinion statement at issue misleading to a reasonable person reading the statement fairly and in context."

Omnicare provides important clarifying guidance to public companies, their officers and directors, and outside professionals concerning the scope of Section 11 liability. The Court put to rest the notion that a statement of genuinely held opinion can provide the basis for liability as an "untrue statement of material fact." And while the Court left open the possibility that statements of genuinely held opinion may be actionable under Section 11 if omitted facts render them materially misleading, the Court imposed rigorous standards making it "no small task" for an investor pursuing that theory to survive a motion to dismiss, let alone prevail thereafter. Section 11 claims based on the "omission" theory will be the subject of further litigation, as the lower federal courts grapple with Omnicare.