Mixed Bag in SCOTUS for Omnicare Shareholders

     WASHINGTON (CN) – The Supreme Court handed Omnicare a mixed bag Tuesday, tossing some claims but demanding scrutiny on whether omissions misled investors.
     The case stems from the December 2005 public stock offering of Omnicare, 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 its registration statement with the Securities and Exchange Commission, Omnicare said its contracts with drug companies were “legally and economically valid arrangements that bring value to the healthcare system and patients that we serve.”
     But a rash of whistleblower suits before and after the IPO accused Omnicare of taking kickbacks from pharmaceutical companies to promote certain drugs, and submitting false claims to Medicare and Medicaid.
     Omnicare agreed last year to pay $124 million to settle claims brought by the Department of Justice involving false billings to federal healthcare programs.
     Investors have been fighting the company since 2006, claiming that there were material misstatements or omissions in Omnicare’s SEC registration statement.
     After a federal judge in Kentucky dismissed the complaint in its entirety in 2007, the 6th Circuit has ruled on the case three times.
     Its latest ruling revived the allegation that Omnicare’s statements of “legal compliance” involved material misstatements and omissions, and the Supreme Court took up the case last year to answer whether a corporation needs a “reasonable basis” for opinions in its SEC registration statement.
     After a November hearing, the justices were mostly unanimous Tuesday in remanding the case because the federal appeals court applied the wrong standard.
     The lead opinion by Justice Elena Kagan has harsh words for Omnicare’s attempt to avoid liability for allegedly omitting information that would have ensured its opinion on legal compliance was “not misleading.”
     Kagan scoffed at the assertion that Omnicare “cannot mislead as to any matter, regardless what related facts the speaker has omitted.”
     Such an interpretation “would nullify that statutory requirement for all sentences starting with the phrases ‘we believe’ or ‘we think,'” Kagan wrote. “But those magic words can preface nearly any conclusion, and the resulting statements, as we have shown, remain perfectly capable of misleading investors. Thus, Omnicare’s view would punch a hole in the statute for half-truths in the form of opinion statements.”
     Citing the difficulty of showing that such statements are literally false, Kagan said siding with Omnicare on this point would give companies “virtual carte blanche to assert opinions in registration statements free from worry about §11.”
     “That outcome would ill-fit Congress’s decision to establish a strict liability offense promoting ‘full and fair disclosure’ of material information,” the 21-page decision continues.
     Kagan said that Section 11’s omissions clause does not deviate from the standard of other legal rules that “hinge on what a reasonable person would think or expect.”
     “To the extent our decision today chills misleading opinions, that is all to the good: In enacting §11, Congress worked to ensure better, not just more, information,” she added (emphasis in original).
     Since neither of the lower courts used the right standard to consider shareholders’ omissions theory, this point must be remanded, according to the ruling.
     The court ruled against the shareholders, however, on the other issue.
     Though statements of opinion can “contain embedded statements of fact,” and though statement of opinion can be proven to falsely describe one’s own statement of mind, the Supreme Court said that Omnicare shareholders “cannot avail themselves of either of those ways of demonstrating liability.”
     “The two sentences to which the funds object are pure statements of opinion: To simplify their content only a bit, Omnicare said in each that ‘we believe we are obeying the law,'” Kagan wrote. “And the funds do not contest that Omnicare’s opinion was honestly held. …What the funds instead claim is that Omnicare’s belief turned out to be wrong – that whatever the company thought, it was in fact violating anti-kickback laws. But that allegation alone will not give rise to liability under §11’s first clause because, as we have shown, a sincere statement of pure opinion is not an ‘untrue statement of material fact,’ regardless whether an investor can ultimately prove the belief wrong. That clause, limited as it is to factual statements, does not allow investors to second-guess inherently subjective and uncertain assessments. In other words, 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.”
     Justices Antonin Scalia and Clarence Thomas issued separate opinions concurring in the judgment.
     A seven-pager from Scalia knocks the majority for counting “far more expressions of opinion to convey collateral facts than I – or the common law – would.”
     “The court’s expansive application of §11’s omissions clause to expressions of opinion produces a far broader field of misrepresentation; in fact, it produces almost the opposite of the common-law rule,” he wrote.
     Scalia said that the majority’s objective test “invites roundabout attacks upon expressions of opinion.”
     Thomas took issue with the same aspect of the lead opinion, saying the couret opined “on an additional theory of liability that is not properly before us.”

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