Sixth Circuit Lowers Bar for Soft Information Prospectus Claims
- The U.S. Court of Appeals for the Sixth Circuit has ruled that plaintiffs, in a claim made under Section 11 of the Securities Act of 1933, need not show that defendants were aware that the beliefs or opinions contained in a registration statement were false. Indiana State District Council of Laborers and Hod Carriers Pension & Welfare Fund v. Omnicare, No. 12-5287 (6th Cir. May 23, 2013). The primary defendant in the case is a provider of pharmaceutical care services that allegedly was engaged in a variety of illegal activities including kickback arrangements with pharmaceutical manufacturers and submission of false claims to Medicare and Medicaid. Its registration statement stated that its contracts with drug companies were "legally and economically valid arrangements that bring value to the healthcare system and patients." The court characterized this legal compliance statement as "soft information," which also includes matters of opinion and predictions.
Claims made under Rule 10b-5 require the plaintiff to show scienter, or knowledge of wrongdoing, and in such cases the defendant can be held liable for its statement of its belief or opinion only if the statement was both objectively false and disbelieved by the defendant at the time it was expressed. Although Section 11 claims do not require any showing of scienter, the Second and Ninth Circuits have held that the same standard applies to Section 11 claims based on the defendant's statements of its beliefs or opinions. The Sixth Circuit opinion rejected the Second and Ninth Circuit precedents, ruling that a defendant's knowledge is not relevant to a strict liability claim under Section 11.
The court's ruling creates a more favorable environment for soft information claims under Section 11 in Michigan, Ohio, Kentucky, and Tennessee, the states in which appeals flow to the Sixth Circuit. The defendants reportedly are considering a motion for rehearing en banc, and the split among the circuits makes a Supreme Court appeal a possibility. However, because other courts do not necessarily consider a statement of legal compliance to be equivalent to a statement of opinion or prediction, the Supreme Court may not consider this case a good vehicle for presenting the issue.
The opinion is available online at
John M. Baker
Stradley Ronon Stevens & Young, LLP
1250 Connecticut Avenue, NW, Suite 500
Washington, DC 20036
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