The Sixth Circuit in Indiana State District Council of Laborers v. Omnicare, No 12-5287 (6th Cir. May 23, 2013), has created a circuit split regarding the standards for pleading claims under Section 11 of the Securities Act of 1933. Section 11 gives plaintiffs a private cause of action against a publicly traded entity, as well as its officers, directors, and other high-level individuals, whenever false statements are contained in the offering documents of the entity’s securities.
Both the Second Circuit and Ninth Circuit previously held that a properly pleaded claim arising under Section 11 must plead both that the statements were false and that the defendant knew that the statements were false. The Sixth Circuit rejected this standard, holding that Section 11 was intended to create strict liability for false statements. Accordingly, the Sixth Circuit held that the defendant’s knowledge was not relevant for purposes of a Section 11 claim and that, because liability could attach without consideration of mens rea, it was not necessary to plead the defendant’s state of mind. While all three circuits considered the issue of scienter in the context of dismissal for failure to plead a claim, the Sixth Circuit’s ruling suggests that successful pursuit of Section 11 claims in the Sixth Circuit may become easier in other ways as well.