The Supreme Court holds that section 11 liability does not attach to a statement of opinion merely because the opinion is objectively false.
On March 24, the US Supreme Court issued its highly anticipated decision in Omnicare Inc. v. Laborers District Council Construction Industry Pension Fund (Omnicare). Justice Kagan delivered the opinion of the Court, in which Chief Justice Roberts and Justices Kennedy, Ginsburg, Breyer, Alito, and Sotomayor joined. Justice Scalia filed an opinion concurring in part and concurring in the judgment. Justice Thomas filed an opinion concurring in the judgment. The Court’s opinion vacated the ruling of the US Court of Appeals for the Sixth Circuit, which held that a plaintiff need not show that a speaker subjectively disbelieved a statement of opinion for section 11 liability to attach, as long as the opinion is objectively false.
Omnicare is the largest US provider of pharmacy services for residents of nursing homes. This case centers on two statements of opinion that Omnicare made in a stock registration statement regarding its belief that it was in compliance with applicable laws. The question before the Court centered on section 11 of the Securities Act of 1933, which provides for strict liability if a registration statement for a public offering either contains an untrue statement of a material fact or omits a material fact that renders a statement made misleading. Unlike section 10(b) of the Securities Exchange Act of 1934, there is no general requirement that a plaintiff show scienter under section 11 of the 1933 act. Omnicare addresses the question of whether a statement of opinion constitutes an “untrue statement of a material fact” when the opinion turns out to have been objectively false. The Court answered that question in two steps. First, it considered when an opinion itself can constitute a factual misstatement. Second, the Court addressed when an opinion may be rendered misleading by virtue of the omission of a material fact.
When Does a Statement of Opinion Constitute a Factual Misstatement?
In answering this question, the Court first charted the key difference between a statement of opinion and a statement of fact. As the Court explained, “a statement of fact (‘the coffee is hot’) expresses certainty about a thing, whereas a statement of opinion (‘I think the coffee is hot’) does not.” As such, and as the Court noted, statements of opinion are often expressed using subjective terms, such as “I believe” or “I think.” Having established the line of demarcation between statements of opinion and statements of fact, the Court noted that Congress itself recognized that line by specifically conditioning section 11 liability on “untrue statement[s] of . . . fact.” Thus, the Court concluded that statements of opinion are not actionable under section 11 merely because they prove to be objectively untrue.
However, the Court explained that statements of opinion can be actionable under section 11 if a plaintiff can show that they were subjectively false, i.e., that the speaker did not actually believe the stated opinion. As the Court put it, “every such statement explicitly affirms one fact: that the speaker actually holds the stated belief.” Accordingly, the Court held that a pure statement of opinion can give rise to section 11 liability if the speaker did not actually believe the stated opinion.
When May an Opinion Be Rendered Misleading Through the Omission of a Material Fact?
Next, the Court addressed the question of when a literally accurate opinion may be rendered misleading due to the omission of a material fact. The Court examined this question through the lens of a hypothetical reasonable investor. At the outset of its analysis, the Court accepted the proposition that reasonable investors do not understand statements of opinion to be “guarantees,” and section 11 “does not treat them that way.”
Nevertheless, the Court made clear that a reasonable investor may understand a statement of opinion to convey facts about how the speaker has formed the opinion, i.e., the speaker’s basis for holding his or her view. If a reasonable investor would interpret a statement of opinion as implying that there is an underlying basis to support the opinion, but no such basis exists, the opinion will mislead. The Court provided the following example to prove its point:
Consider an unadorned statement of opinion about legal compliance: “We believe our conduct is lawful.” If the issuer makes that statement without having consulted a lawyer, it could be misleadingly incomplete. In the context of the securities market, an investor . . . likely expects such an assertion to rest on some meaningful legal inquiry—rather than, say, on mere intuition, however sincere.
Accordingly, the Court held that when a registration statement omits known material facts concerning the basis for a statement of opinion, and those facts conflict with what a reasonable investor would discern from the statement, the statement of opinion may be actionable under section 11. As the Court noted, to hold otherwise “would nullify the statutory requirement for all sentences starting with the phrases ‘we believe’ or ‘we think.’”
The Court, however, was careful to qualify its holding on two grounds. First, the Court noted that both “[a] reasonable investor does not expect that every fact known to an issuer supports its opinion statement” and “Section 11’s omissions clause . . . is not a general disclosure requirement.” Second, the Court explained that whether an omission makes an opinion misleading will always depend on context. That is, a reasonable investor understands statements of opinion within their greater context, and section 11 “creates liability only for the omission of material facts that cannot be squared with such a fair reading.” Accordingly, the Court stressed that successfully pleading that a statement of opinion was misleading because of an alleged material omission may not be accomplished “merely by means of conclusory assertions” but only through the identification of “particular facts” “whose omission makes the opinion misleading when the statement is placed in context.” The Court described that pleading requirement as “no small task for an investor.” The Court remanded to the lower courts the issue of whether the challenged statements of opinion were actionable based on any alleged omissions, as it ruled that the lower courts did not consider the plaintiffs’ “omissions theory with the right standard in mind.”
Justices Scalia and Thomas each filed separate concurring opinions. Justice Scalia, concurring in part and concurring in the judgment, wrote separately and took issue with the majority’s approach to analyzing the question of when a statement of opinion is rendered misleading due to the omission of a material fact. Justice Thomas, concurring only in the judgment, believed that the majority should not have reached the omission question because it was not properly before the Court.
The Court’s decision has significant implications. First and foremost, Omnicare makes clear that statements of opinion are not actionable under section 11 merely because they turn out to be objectively false. Second, statements of opinion may be actionable when either (1) the speaker does not believe the stated opinion or (2) the stated opinion omits a material fact that renders the statement misleading when considered in context. Crucially, the Court appeared to acknowledge that a plaintiff could adequately allege that the speaker did not believe the stated opinion only by grounding that claim on allegations sounding in fraud. Such allegations should trigger the stricter pleading standards of Federal Rule of Civil Procedure 9(b), which applies to all claims grounded in averments of fraud, regardless of the claim’s title. In that respect, Omnicare should make it more difficult for a plaintiff to adequately plead a section 11 claim based on a statement of opinion that turns out to have been objectively false.