The U.S. Supreme Court on Tuesday remanded a case challenging whether investors can successfully sue if a securities registration statement contains potentially misleading opinions.
The case, Omnicare Inc. vs. Laborers District Council Construction Industry Pension Fund et al., was closely watched by scores of U.S. and foreign pension funds that filed an amicus brief seeking to overturn a District Court's dismissal of the lawsuit.
The Supreme Court vacated that decision and remanded it back to the 6th U.S. Circuit Court of Appeals in Cincinnati, which allowed the case to continue, ruling that the pension funds had a cause of action. In the opinion, Justice Elena Kagan wrote that under Section 11 of the Securities Act of 1933, which governs registration statements, a statement of opinion may be incorrect but not constitute an untrue statement. “The provision is not, as the Court of Appeals and the funds would have it, an invitation to Monday morning quarterback an issuer's opinions,” Ms. Kagan wrote.
“But opinion statements are not wholly immune from liability,” Ms. Kagan continued, particularly if they are not honestly held or omit material facts or knowledge, “and if those facts conflict with what a reasonable investor … would take from the statement itself.” The pension funds in the case will now have to state a viable claim of omission in their case against Omnicare, the justices said.
Tuesday's decision provides “important guidance on a frequently litigated issue that had divided lower courts,” said Josh Yount, a partner in the law firm Mayer Brown. “Omnicare will deter Section 11 opinion claims that cannot be supported with specific factual allegations."
Blair Nicholas, managing partner at securities litigation firm Bernstein Litowitz Berger & Grossmann, called the Supreme Court's decision “an undeniable victory for investors. In addition to affording investors multiple bases for recovery for false 'opinions' included in registration statements, the … decision will hopefully chill misleading half-truths in securities filings and ensure full and accurate disclosure to the markets.”
Mr. Nicholas is one of the lawyers who filed an amicus brief on behalf of 40 U.S. and foreign public pension funds representing $2 trillion in combined assets, including Royal Mail Group's £3.3 billion ($4.9 billion) pension fund and APG Asset Management, which oversees the €325 billion ($351.9 billion) assets of the ABP pension fund, Heerlen, Netherlands.
