Sixth Circuit Splits with Second and Ninth Circuits Regarding Need to Allege Defendants' State of Mind for Claims Challenging Soft Information Under Section 11 of the Securities Act of 1933

by Sheppard Mullin Richter & Hampton LLP

In Indiana State District Council of Laborers & Hod Carriers Pension & Welfare Fund v. Omnicare, Inc., 2013 WL 2248970 (6th Cir. May 23, 2013), the United States Court of Appeals for the Sixth Circuit held that a claim alleging a false statement of opinion or belief in a registration statement may proceed under Section 11 of the Securities Act of 1933, 15 U.S.C. § 77k, despite the absence of allegations suggesting that the defendants did not actually hold the opinion or believe the statement. In reaching this decision, the Sixth Circuit declined to follow decisions by the Second Circuit (see Fait v. Regions Financial Corp., 655 F.3d 105 (2d Cir. 2011) [blog article here]) and Ninth Circuit (see Rubke v. Capital Bancorp Ltd., 551 F.3d 1156 (9th Cir. 2009) [blog article here]) holding that a Section 11 complaint which fails to allege that the defendant did not actually believe the false statement or hold the opinion at issue would be dismissed. This clear Circuit split on an important issue of federal securities law will require resolution by the United States Supreme Court.

Omnicare, Inc. (“Omnicare”) is the nation’s largest provider of pharmaceutical care services for the elderly and other residents of long-term care facilities in the United States and Canada. In December 2005, Omnicare made a public offering of 12.8 million shares of common stock. In its registration statement, Ominicare represented, among other things, “that [its] therapeutic interchanges were meant to provide [patients with] . . . more efficacious and/or safer drugs than those presently being prescribed” and that its contracts with drug companies were “legally and economically valid arrangements that [brought] value to the healthcare system and patients that [Omnicare] serves.”

Plaintiffs (a class of investors who purchased in the offering) alleged that these representations in Omnicare’s registration statement were material, untrue and misleading because they effectively concealed that Omnicare had been engaging in a variety of illegal activities, including kickback arrangements with pharmaceutical manufacturers and the submission of false claims to Medicare and Medicaid. Plaintiffs asserted a claim under Section 11, which provides a remedy for investors who have acquired securities under a registration statement that was materially misleading or omitted material information. Section 11 imposes strict liability on issuers of registration statements containing untrue statements or omissions of material fact.

The United States District Court for the Eastern District of Kentucky dismissed the complaint for failure to state a claim on the grounds that plaintiffs failed to plead defendants’ knowledge that the statements — which were treated as matters of opinion rather than historical fact — were false when made. See Indiana State Dist. Council v. Omnicare Inc., 527 F. Supp. 2d 698, 700-01 (E.D. Ky. 2007). Plaintiffs appealed, arguing that Section 11 provided for strict liability and that it was therefore inappropriate for the district court to require plaintiffs to plead defendants’ state of mind in connection with their Section 11 claim.

The Sixth Circuit agreed with plaintiffs and reversed, holding that it was error to have required plaintiffs to plead defendants’ knowledge in connection with claims of alleged false assertions of “legal compliance.” The Court recognized that its decision conflicted with the decision of the Second Circuit in Fait, where the Court held that statements concerning goodwill and loan loss reserves contained in a prospectus and registration statement were “opinions” which could be false or misleading only if defendants did not genuinely believe the opinions at the time they were issued. In so holding, the Second Circuit in Fait held that the Supreme Court’s decision in Virginia Bankshares v. Sandberg, 501 U.S. 1083, 1095 (1991), controlled and supported requiring a Section 11 plaintiff to allege not only the falsity of the opinion (i.e., that it turned out to be wrong), but also that the defendant did not genuinely believe the opinion expressed. The Sixth Circuit, in contrast, saw nothing in Virginia Bankshares to support such a holding. It refused to extend Virginia Bankshares — which involved a claim under Section 14(a) of the Securities Exchange of Act 1934, 15 U.S.C. § 78n(a) — to impose knowledge of falsity requirement in claims under Section 11.

The Sixth Circuit’s decision makes it easier for plaintiffs to plead a Section 11 claim where predictions and opinions, even if genuinely and reasonably believed by the issuer, turn out not to be true. As the decision directly and expressly conflicts with the Second Circuit’s decision in Fait (as well as the Ninth Circuit’s decision in Rubke), this case would appear ripe for resolution by the Supreme Court.


DISCLAIMER: Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.

© Sheppard Mullin Richter & Hampton LLP | Attorney Advertising

Written by:

Sheppard Mullin Richter & Hampton LLP

Sheppard Mullin Richter & Hampton LLP on:

Readers' Choice 2017
Reporters on Deadline

"My best business intelligence, in one easy email…"

Your first step to building a free, personalized, morning email brief covering pertinent authors and topics on JD Supra:
Sign up using*

Already signed up? Log in here

*By using the service, you signify your acceptance of JD Supra's Privacy Policy.
Custom Email Digest
Privacy Policy (Updated: October 8, 2015):

JD Supra provides users with access to its legal industry publishing services (the "Service") through its website (the "Website") as well as through other sources. Our policies with regard to data collection and use of personal information of users of the Service, regardless of the manner in which users access the Service, and visitors to the Website are set forth in this statement ("Policy"). By using the Service, you signify your acceptance of this Policy.

Information Collection and Use by JD Supra

JD Supra collects users' names, companies, titles, e-mail address and industry. JD Supra also tracks the pages that users visit, logs IP addresses and aggregates non-personally identifiable user data and browser type. This data is gathered using cookies and other technologies.

The information and data collected is used to authenticate users and to send notifications relating to the Service, including email alerts to which users have subscribed; to manage the Service and Website, to improve the Service and to customize the user's experience. This information is also provided to the authors of the content to give them insight into their readership and help them to improve their content, so that it is most useful for our users.

JD Supra does not sell, rent or otherwise provide your details to third parties, other than to the authors of the content on JD Supra.

If you prefer not to enable cookies, you may change your browser settings to disable cookies; however, please note that rejecting cookies while visiting the Website may result in certain parts of the Website not operating correctly or as efficiently as if cookies were allowed.

Email Choice/Opt-out

Users who opt in to receive emails may choose to no longer receive e-mail updates and newsletters by selecting the "opt-out of future email" option in the email they receive from JD Supra or in their JD Supra account management screen.


JD Supra takes reasonable precautions to insure that user information is kept private. We restrict access to user information to those individuals who reasonably need access to perform their job functions, such as our third party email service, customer service personnel and technical staff. However, please note that no method of transmitting or storing data is completely secure and we cannot guarantee the security of user information. Unauthorized entry or use, hardware or software failure, and other factors may compromise the security of user information at any time.

If you have reason to believe that your interaction with us is no longer secure, you must immediately notify us of the problem by contacting us at In the unlikely event that we believe that the security of your user information in our possession or control may have been compromised, we may seek to notify you of that development and, if so, will endeavor to do so as promptly as practicable under the circumstances.

Sharing and Disclosure of Information JD Supra Collects

Except as otherwise described in this privacy statement, JD Supra will not disclose personal information to any third party unless we believe that disclosure is necessary to: (1) comply with applicable laws; (2) respond to governmental inquiries or requests; (3) comply with valid legal process; (4) protect the rights, privacy, safety or property of JD Supra, users of the Service, Website visitors or the public; (5) permit us to pursue available remedies or limit the damages that we may sustain; and (6) enforce our Terms & Conditions of Use.

In the event there is a change in the corporate structure of JD Supra such as, but not limited to, merger, consolidation, sale, liquidation or transfer of substantial assets, JD Supra may, in its sole discretion, transfer, sell or assign information collected on and through the Service to one or more affiliated or unaffiliated third parties.

Links to Other Websites

This Website and the Service may contain links to other websites. The operator of such other websites may collect information about you, including through cookies or other technologies. If you are using the Service through the Website and link to another site, you will leave the Website and this Policy will not apply to your use of and activity on those other sites. We encourage you to read the legal notices posted on those sites, including their privacy policies. We shall have no responsibility or liability for your visitation to, and the data collection and use practices of, such other sites. This Policy applies solely to the information collected in connection with your use of this Website and does not apply to any practices conducted offline or in connection with any other websites.

Changes in Our Privacy Policy

We reserve the right to change this Policy at any time. Please refer to the date at the top of this page to determine when this Policy was last revised. Any changes to our privacy policy will become effective upon posting of the revised policy on the Website. By continuing to use the Service or Website following such changes, you will be deemed to have agreed to such changes. If you do not agree with the terms of this Policy, as it may be amended from time to time, in whole or part, please do not continue using the Service or the Website.

Contacting JD Supra

If you have any questions about this privacy statement, the practices of this site, your dealings with this Web site, or if you would like to change any of the information you have provided to us, please contact us at:

- hide
*With LinkedIn, you don't need to create a separate login to manage your free JD Supra account, and we can make suggestions based on your needs and interests. We will not post anything on LinkedIn in your name. Or, sign up using your email address.