(CN) - The Supreme Court heard arguments Monday in a securities class action against pharmaceutical giant Omnicare, asking to what extent, if any, a corporation needs a "reasonable basis" for opinions in its SEC registration statement.
Omnicare is the largest provider of pharmaceutical services for residents of long-term care facilities in the United States and Canada.
In 2005, it raised $750 million in a public stock offering, after filing a registration statement with the Securities and Exchange Commission.
The statement said that Omnicare's 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 offering accused Omnicare of taking kickbacks from pharmaceutical companies to promote certain drugs, and submitting false claims to Medicare and Medicaid.
Omnicare agreed in June to pay $124 million to settle claims brought by the Department of Justice involving false billings to federal healthcare programs.
A 2006 shareholder class action accused Omnicare of making false statements to the SEC. A federal judge in Kentucky dismissed that action, finding that plaintiffs could not show Omnicare knew its statements of legal compliance were false at the time.
But the 6th Circuit revived the lawsuit under Section 11 of the Securities Act of 1934, holding that it was unnecessary for shareholders to plead that Omnicare did not believe its own statement.
The Supreme Court heard oral arguments in the case Monday.
Omnicare attorney Kannon Shanmugam, with Williams & Connolly, told the court that the company can be held liable for a false statement in its registration statement only if the person who signed the statement did not actually hold the stated belief - regardless of whether it was reasonable.
Justice Elena Kagan doubted it: "Mr. Shanmugam, suppose that in a particular registration statement there was a statement that said a particular kind of transaction was lawful, all right, and the person who makes that statement, whoever it is, really believes it. But in fact, that person knows that the government is breathing down his neck, that the government seems to have a different view. That person knows that its competitors have a different view. And that person has also consulted three lawyers, and two of them have given a different view. But he still believes what he believes.
"But the only thing he says is, 'I think this is lawful.' Now, why isn't that something where there is an omission that makes the statements misleading?"
Shanmugam said this hypothetical underscored the fact that Congress did not impose liability on untrue or misleading statements - according to Omnicare's reading of the statute. The statements have to be knowingly false to impose liability, he said.
Mark Foster, a securities litigator with Morrison Foerster, told Courthouse News: "Omnicare argues that opinions are exactly that. They are beliefs, not based on objective facts, but expressions of judgment.
"Others may disagree with that judgment - this case raises the question, do all statements of opinion inherently contain this disclaimer?"
Shareholders' attorney Thomas Goldstein, with Goldstein & Russell, argued before the court for the Laborers District Council Construction Industry Pension Fund.