Monday’s oral argument before the Supreme Court in Laborers District Counsel Construction Industry Pension Fund v. Omnicare, Inc., (“Omnicare”) was remarkable in that, as Omnicare attorney Kannon Shanmugam noted, it was the “rare case in which none of the parties is defending the reasoning of the court of appeals below.”
As we explained in last week’s blog post previewing the decision, the Sixth Circuit held in the decision under review that a showing of so-called “objective falsity” alone was sufficient to demonstrate falsity in a claim filed under Section 11 of the Securities Act – in other words, that an opinion could be false even if was genuinely believed, if it was later concluded that the opinion was somehow “incorrect.” On appeal, Omnicare contended, as did we in our amicus brief on behalf of the Washington Legal Foundation (“WLF”), that this ruling was contrary to the U.S. Supreme Court’s decision in Virginia Bankshares, Inc. v. Sandberg, 501 U.S. 1083, 1095 (1991). Virginia Bankshares held that a statement of opinion is a factual statement as to what the speaker believes – meaning a statement of opinion is “true” as long as the speaker honestly believes the opinion expressed, i.e., if it is “subjectively” true.
Other than a passing and unenthusiastic nod made by plaintiffs’ counsel to defending the Sixth Circuit’s reasoning, Monday’s discussion assumed that some showing other than so-called “objective falsity” would be required to establish the falsity of an opinion. Most of the argument by Omnicare, the plaintiffs, and the Solicitor General revolved around what this additional showing should be, as did the extensive and pointed questions from Justices Breyer, Kagan, and Alito.
It thus seems unlikely from the tone of the argument that the Court will affirm the Sixth Circuit’s holding that an opinion is false if it is “objectively” untrue. If the pointed opening question from Justice Roberts is any indication, the Court also may not fully accept Omnicare’s position, which is that an opinion can only be false or misleading if it was not actually believed by the speaker. It seems more probable that the Supreme Court will take one of two middle paths – one that was advocated by the Solicitor General in Monday’s argument, and that was advanced in our brief for the WLF.
In a position embraced by the plaintiffs, the Solicitor General contended that a statement of opinion should be considered “false,” even if it was genuinely believed, if plaintiffs can show that there was no “reasonable basis” for the speaker to hold that opinion. As we have observed, however, this test breaks down quickly. Any reasonableness inquiry is, in and of itself, entirely subjective, meaning that whether an opinion was true or false would hinge on someone else’s later opinion as to its “reasonableness.” Although Justice Breyer seemed to be leaning toward such a “reasonableness” test in much of his questioning, both he and Justice Alito expressed concern over how this reasonableness would be determined, and in particular, how to decide what sort of inquiry it was “reasonable” for a company or individual to conduct before voicing a particular opinion.
A far better middle path, advocated by our WLF brief (see pp. 23-29), is to subject statements of opinion to the same sort of inquiry about whether they were “misleading” as for any other statement. In other words, a statement of opinion can be honestly believed (and thus “true), but nonetheless rendered misleading by the omission of certain facts. Justice Kagan urged such a standard in her questioning of the parties, although none took advantage of the opening that she provided. If framed correctly, this standard would avoid the pitfalls of the Solicitor General’s reasonableness standard, because liability would not hinge upon a later opinion about the validity of a speaker’s original expressed opinion. Rather, by this standard, plaintiffs would be required to demonstrate either that an opinion was false because it was not actually believed, or that omitted facts caused the opinion – when considered in the full context of the company’s other disclosures – to be misleading because it “affirmatively create[d] an impression of a state of affairs that differs in a material way from the one that actually exists.” Brody v. Transitional Hosps. Corp., 280 F.3d 997, 1006 (9th Cir. 2002).
Such a standard would be faithful to the text of the most frequently litigated provisions of the federal securities laws – Section 11, at issue in Omnicare, and Section 10(b) of the Securities Exchange Act – which allow liability for statements that are either false or that omit material facts “required to be stated therein or necessary to make the statements therein not misleading . . . .” At the same time, this standard would preserve the commonsense holding of Virginia Bankshares – that an opinion is “true” if it is genuinely believed – and prevent speakers from being held liable for truthfully expressed opinions simply because someone else later disagrees with them.