The Supreme Court, in Omnicare, Inc. v. Laborers District Council Construction Industry Pension Fund, 575 U.S. ___ (March 24, 2015), expanded the scope of liability for expressions of opinions under Section 11 of the Securities Act of 1933. While keeping to a relatively constrained view of the interplay between opinion statements and Section 11’s prohibition on misrepresentations of material facts, the Court set out a broader, more unbounded set of criteria for judging whether an opinion can be said to have omitted a material fact.

Section 11 is designed to protect investors by requiring the filing of registration statements with the Securities and Exchange Commission that make a “full and fair disclosure of information” relevant to a public offering. Pinter v. Dahl, 486 U.S. 633, 646 (1988). The act imposes strict liability on sellers of securities if the registration statement “contain[s] an untrue statement of a material fact” or “omit[s] to state a material fact . . . necessary to make the statements therein not misleading.” 15 U.S.C. §77k(a).  

Omnicare is the nation’s largest provider of pharmacy services for residents of nursing homes. Plaintiffs challenged the adequacy of two sentences in a registration statement filed by Omnicare: one addressing the belief that the company’s contract arrangements with other healthcare providers, pharmaceutical suppliers and pharmacy practices were in compliance with applicable federal and state laws and the other expressing the belief that the company’s contracts with pharmaceutical manufacturers were “legally and economically valid arrangements that bring value to the healthcare system and the patients that we serve.” While the registration statement contained certain caveats to those opinions, Plaintiffs challenged the statements as materially false based on allegations in later-filed lawsuits that the company’s receipt of certain payments from drug manufacturers violated anti-kickback laws. Plaintiffs alleged that the company did not possess reasonable grounds to believe that the opinions were truthful and complete, particularly in light of a warning the company received from one of its attorneys that a particular contract “carrie[d] a heightened risk” of liability.  

The Court began with a straightforward discussion of the notion that opinions are not facts and rejected the position staked out by the Sixth Circuit in the decision under review that Section 11 liability can be established where a statement of opinion turns out to be “objectively false.” The Court rejected the notion that opinion statements can be misrepresentations of material fact with two exceptions. First, if the speaker did not actually hold the professed belief, the belief statement would be a misstatement of the fact. Second, the Court, citing Justice Scalia’s concurrence in Virginia Bankshares, Inc. v. Sandberg, 501 U.S. 1083, 1109 (1991), allowed that opinion statements sometimes include supporting facts and if those supporting facts are untrue (and material), there may be Section 11 liability for misrepresentation of fact. Concluding that Omnicare’s challenged statements were pure expressions of opinion, the majority moved to an analysis of whether Section 11’s prohibition on omissions of material fact might apply to expressions of opinion and ultimately remanded the case for further consideration.

In its discussion of the contours of Section 11 liability for omissions, the Court plowed new territory and did so despite Justice Thomas’s admonition to avoid addressing issues not raised below. “We therefore must consider when, if ever, the omission of a legal fact can make a statement of opinion like Omnicare’s, even if literally accurate, misleading to an ordinary investor.” The Court outlined two potential paths to such a finding. First, it is a misstatement of fact if the expressed belief is not sincerely held. Second, an expression of opinion may be misleading if it “omits material facts about the issuer’s inquiry into or knowledge concerning a statement of opinion, and if those facts conflict with what a reasonable investor would take from the statement itself.”  

Boldly declaring that if the decision “chills misleading opinions, that is all to the good,” the Court held that issuers must “divulge an opinion’s basis, or else make clear the real tentativeness of its belief.” Insisting that some level of specificity in pleading is required, rather than mere conclusory allegations, the Court required allegations of (1) an omitted fact (2) that would have been material to a reasonable investor (3) that rendered the opinion misleading because the excluded fact shows the lack of basis for the opinion. The majority spelled out some of the highly factual inquiries that may flow from this final prong in a case like Omnicare where legal compliance is the subject of the opinion—for example, the status and expertise of an attorney providing legal advice, other legal information available to the company, the steps the company took to act on legal compliance, and the actions that have been initiated against the company. Justice Kagan, writing for the majority, stated that “to avoid exposure for omissions under §11, an issuer need only divulge an opinion’s basis, or else make clear the real tentativeness of its belief.”  

Justice Scalia, concurring in part and concurring in the judgment, takes the majority opinion to task for what he perceives as “invit[ing] roundabout attacks on expressions of opinion” by dramatically increasing the scenarios in which an opinion statement may be read to convey “collateral facts” and, thus, increasing the potential for statements of opinion to become misleading. In particular, Justice Scalia disagreed with the majority’s view that an opinion statement in a registration statement necessarily implies that it is based on an objectively reasonable investigation into the subject matter of the opinion. Justice Scalia would rely on the common law and read an opinion statement as explicitly disclaiming the assertion of a fact, whereas the majority opinion, Justice Scalia argues, “adopt[s] a presumption of expertise on all topics volunteered within a registration statement.” The common law Justice Scalia would apply allows for expressions of opinion to be deemed misleading where the speaker stands in a relationship of trust to the listener, expresses his opinion as one of an expert, does not actually hold the expressed opinion, or expresses an ambiguous opinionand intends the listener to fall prey to that ambiguity. This approach, Justice Scalia asserted, more accurately focuses on whether the speaker had a reasonable basis for expressing the opinion, rather than focusing on what thelistener believed would be required as a reasonable basis to express the opinion. Moving forward, Justice Scalia predicted the majority’s opinion will yield a future rife with plaintiffs leveraging the benefit of hindsight to attack the objective adequacy of the basis for the opinions included in registration statements.