Unanswered Questions Regarding Statements of Opinion Under Omnicare
The Securities Act of 1933 holds an issuing company liable (without regard to intent to deceive or defraud) if a registration statement either contains an untrue statement of a material fact or omits a material fact necessary to make the statements made not misleading.
On March 24, 2015, in Omnicare Inc. et al. v. Laborers District Council Construction Industry Pension Fund et al., the U.S. Supreme Court applied those requirements to express statements of opinion. The court first held that an express statement of opinion in a Securities Act registration statement does not constitute an untrue statement of fact simply because the opinion proves to be incorrect, provided the opinion expressed was sincerely held. However, it also held that a statement of sincere opinion could still be misleading (with resulting liability) if a reasonable investor, reading the statement fairly and in context, would understand the opinion statement to convey facts about the inquiry or knowledge on which it is based, and those implied facts were untrue.
Although helpful, the Omnicare decision leaves important questions unanswered that may determine the opinion's practical significance.
Some of the key questions concern what an issuer is understood to be saying when it makes a statement of opinion. If the issuer's president and 60 percent of the directors sincerely believe opinion X to be true while the general counsel and the remaining directors do not, can it say "We believe X is true"? Even if the opinion is unanimously held, how much subjective confidence (slight preponderance vs. near certainty) is required?
Related, but even more critical, may be how the lower courts apply the principle that even a sincere opinion may be misleading based on the implied level of inquiry or knowledge on which it is based. The due diligence defense already protects officers and directors (but not issuers) from careful but erroneous statements in most contexts. How much institutional certainty statements of opinion are held to imply may determine how often Omnicare may allow issuers to avoid liability.
For questions, please contact Joseph Masterson at (414) 277-5169 / joseph.masterson@quarles.com, or your local Quarles & Brady attorney.