Yes-No Signs

False opinions

Giving a knowingly false opinion about a public company can expose the company and its insiders to liability for securities fraud under federal law.

But what about an opinion that they truly believe but for which they have a flimsy basis?

The Supreme Court held today that the lack of rigor may indeed support a claim under the Securities Act of 1933, 15 U.S.C. 77k(a), in spite of the opinion-giver's earnestness.

Omnicare's belief

The case arose from a public stock offering by Omnicare, Inc., a company that provided pharmacy services for people who reside in nursing homes. Omnicare said in the registration statement that it "believe[d]" it complied with relevant law. The belief proved untrue; Omnicare's rebates to pharmacies did violate federal law against paying kickbacks.

Pension funds that bought Omnicare stock in the initial public offering sued under section 11 of the Securities Act after lawsuits by the federal government undercut Omnicare's claim of legal compliance. The district court dismissed the case, but the Sixth Circuit reversed, holding "that a statement of opinion that is ultimately found incorrect — even if believed at the time made — may count as count as an 'untrue statement of material fact.'" Omnicare, Inc. v. Laborers Dist. Council Constr. Industry Pension Fund, No. 14-435, slip op. at 6 (U.S. Mar. 24, 2015) (quoting 15 U.S.C. 77k(a)).

Facts and opinions

The Court ruled 9-0 that the court of appeals erred in concluding that Omnicare had made an "untrue statement of material fact". While "a statement of fact ('the coffee is hot') expresses certainty about a thing," "a statement of opinion ('I think the coffee is hot') does not." Id. Because Ominicare said only that it "believe[d]" its rebates didn't violate anti-kickback law and the pension funds "do not contest that Omincare's opinion was honestly held", the statement — of a false but sincere view — did not run afoul of the Securities Act, all nine justices agreed. Id. at 9. "[A] sincere statement of pure opinion is not an 'untrue statement of material fact,' regardless whether an investor can ultimately prove the belief wrong." Id.

That left the question of whether the funds had alleged a viable claim that "Omnicare 'omitted to state facts necessary' to make its opinion on legal compliance 'not misleading.'" Id. at 10 (quoting 15 U.S.C. 77k(a)). Seven of the justices concluded that the funds deserved a chance to persuade the courts below that they had stated an adequate omission claim.

The majority pointed out that "a reasonable investor may, depending on the circumstances, understand an opinion statement to convey facts about how the speaker has formed the opinion—or, otherwise put, about the speaker’s basis for holding that view." Id. at 11. Justice Kagan explained:

Section 11’s omissions clause, as applied to statements of both opinion and fact, necessarily brings the reasonable person into the analysis, and asks what she would naturally understand a statement to convey beyond its literal meaning. And for expressions of opinion, that means considering the foundation she would expect an issuer to have before making the statement. 

Id. at 17. The Court sent the case back to the Sixth Circuit for analysis of whether the pension funds' complaint adequately stated an omissions claim.

Concurrences

Justices Antonin Scalia and Clarence Thomas concurred in separate opinions. Justice Scalia wrote that section 11 does not apply to omissions about the basis for opinions unless the opiner "intend[ed] to deceive" by failing to disclose the flimsiness of the basis. Id. at 6 (Scalia, J., concurring). Justice Thomas felt that the question of liability for an omission "is not properly before us" since the courts below had not passed on it. Id.  at 1 (Thomas, J., concurring).

Upshot

Omnicare offers more to plaintiffs than to defendants, for two main reasons. First, the mere fact that a public disclosure expresses or relates to an opinion will not preclude liability. Section 11 covers not only lying about an opinion — saying you believe something when you don't — but also falsely implying that an opinion rests on a reasonably rigorous basis — suggesting that adequate expertise and a sufficient investigation support it.

Second, the Court's ruling saves Securities Act claims from the challenges of pleading a claim under the onerous standards of the Private Securities Litigation Reform Act of 1995. Justice Scalia would have imported scienter into the section 11 analysis despite its absence as an element under the Securities Act, but the majority rejected that approach. Id. at 15 n.11 (stating that "we think Justice Scalia's reliance on the common law’s requirement of an intent to deceive is inconsistent with §11’s standard of liability").

The Court's decision will give new life to securities cases that target false statements about legal and other opinions. Plaintiffs may want to rejoice.

In Blawgletter's opinion.

Note: Our series on the hottest oil and gas claims will resume tomorrow.

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Photo of Barry Barnett Barry Barnett

Clients and colleagues call Barry Barnett an “incredibly gifted lawyer” (Chambers and Partners) who is “magic in the courtroom” (Who’s Who Legal), “the top antitrust lawyer in Texas” (Chambers and Partners), and “a person of unquestioned integrity” (David J. Beck, founder of Beck…

Clients and colleagues call Barry Barnett an “incredibly gifted lawyer” (Chambers and Partners) who is “magic in the courtroom” (Who’s Who Legal), “the top antitrust lawyer in Texas” (Chambers and Partners), and “a person of unquestioned integrity” (David J. Beck, founder of Beck Redden).

Barnett is a Fellow in the American College of Trial Lawyers, and Lawdragon has named him one of the top 500 lawyers in the United States three years in a row. Best Lawyers in America has honored him as “Lawyer of the Year” for Bet-the-Company Litigation (2019 and 2017) and Patent Litigation (2020) in Houston. Based in Texas and New York, Barnett has tried complex business disputes across the United States.

TRIAL COUNSEL
Barnett’s background, training, and experience make him indispensable to his clients. The small-town son of a Texas roughneck and grandson of a Texas sharecropper, Barnett “developed an unusual common sense about people, their motivations, and their dilemmas,” according to former client Michael Lewis.

Barnett has been historically recognized for his effectiveness and judgment. His peers chose him, for example, to the American College of Trial Lawyers and American Law Institute. His decades of trial and appellate work representing both plaintiffs and defendants have made him a master strategist and nimble tactician in complex disputes.

Barnett focuses on enforcement of antitrust laws, the “Magna Carta of free enterprise,” in Supreme Court Justice Thurgood Marshall’s memorable phrase. “Barry is one of the nation’s outstanding antitrust lawyers,” according to Joseph Goldberg, a member of the Private Antitrust Enforcement Hall of Fame. Named among Texas’s top ten antitrust lawyers of 2023, Business Today calls Barnett a “trailblazer” among the “distinguished legal minds” who “dedicate their skill and expertise to the maintenance of healthy competition in various sectors” of the Lone Star State’s booming economy. Barnett is also adept in energy and intellectual property matters and has battled for clients against a Who’s Who list of corporate behemoths, including Abbott Labs, Alcoa, Apple, AT&T, BlackBerry, Broadcom, Comcast, Dow, JPMorgan Chase, Samsung, and Visa.

Barnett commands a courtroom with calm and credibility and “is the perfect lawyer for bet the company litigation,” said Scott Regan, General Counsel of former client Whiting Petroleum. His performance before the Supreme Court in Comcast Corp. v. Behrend prompted the Court to withdraw the question on which it had granted review. The judge in a trial involving mobile phone technology called Barnett “one of the best” and that his opening statement the finest he had ever seen. Another trial judge told Barnett minutes after a jury returned a favorable verdict against the county’s biggest employer that he was one of the two best trial lawyers he’d ever come across—adding that the other one was dead.

COMPLETE PACKAGE
A versatile trial lawyer, Barnett knows how to handle a case all the way from strategic pre-suit planning to affirmance on appeal. He’s tried cases to verdict and then briefed and argued them when they went before appellate courts, including the Second, Third, Fifth, and Tenth Circuits, the Supreme Court of Louisiana, and (in the case of Comcast Corp. v. Behrend) the Supreme Court of the United States.

Barnett is a sought-after public speaker, often serving on panels and talking about topics like the trials of antitrust class actions and techniques for streamlining complex litigation. He also comments on trends in commercial litigation and the implications of major rulings for outlets such as NPR, Reuters, Law360, Corporate Counsel, and The Dallas Morning News. He’s even appeared in a Frontline program about underfunding of state pensions, authored chapters on “Fee Arrangements” and “Techniques for Expediting and Streamlining Litigation” (the latter with Steve Susman) in the ABA’s definitive treatise on Business and Commercial Litigation in Federal Courts, 5th, and commented on How Antitrust Enforcers Might Think Like Plaintiffs’ Lawyers.

HARD GRADERS
Clients and other hard graders have praised Barnett for his courtroom skills and legal acumen.

A client in a $100 million oil and gas case, which Barnett’s team won at trial and held on appeal, said Barnett and his team “presented a rare combination of strong legal intellect, common sense about right and wrong, and credibility in the courtroom.” David McCombs at Haynes and Boone said Barnett “has a natural presence that goes over well with juries and judges.”

Even former adversaries give Barnett high marks. Lead opposing counsel in a decade-long antitrust slugfest said “Barry is a highly skilled advocate. He understands what really matters in telling a narrative and does so in a very compelling manner.”

CIVIC ENGAGEMENT
Barnett relishes opportunities to collaborate with all kinds of people. At the Center for American and International Law (CAIL), founded by a former prosecutor at Nuremberg in 1947 and headquartered in the Dallas area, he has served on the Executive Committee, co-chaired the committee that produced CAIL’s first-ever strategic plan, supported CAIL’s Institute for Law Enforcement Administration and other development efforts, and proposed formation of a new Institute for Social Justice Law. CAIL’s former President David Beck said “Barry is extremely bright” and is “very well prepared in every lawsuit or professional task he undertakes.”

Barnett is also a Trustee of the New-York Historical Society, a Sterling Fellow at Yale, a member of the Yale University Art Gallery’s Governing Board, a winner of the Class Award for his work on behalf of his college class, and a proud contributor to the Yellow Ribbon Program at Harvard Law. Barnett’s pro bono work includes leading the trial team representing people who are at greatest risk of severe illness and death as a result of being exposed to the novel coronavirus SARS-CoV-2 while being detained in the Dallas County jail—work for which he received the NGAN Legal Advocacy Fund RBG Award.

At Susman Godfrey, Barnett has served on the firm’s Executive Committee, Employment Committee, and ad hoc committees on partner compensation, succession of leadership, and revision of the firm’s partnership agreement. He also twice chaired the Practice Development Committee.

KEEPING PERSPECTIVE
Barnett understands that clients face many pressures. Managing the stress is important, especially in matters that take years to resolve. He encourages clients to call him whenever they have a question or concern and to keep the inevitable ups and downs in perspective. He wants them to know that he will do his level best to help them achieve their goals. He also strives to foster trust and to make working with him a pleasure.

Cyrus “Skip” Marter, the General Counsel of Bonanza Creek in Denver and a former Susman Godfrey partner and client, said Barnett is “excellent about communicating with clients in a full and honest manner” and can “negotiate for his clients from a position of strength, because he is not afraid to take a case through a full trial on the merits.” Stacey Doré, the President of Hunt Utility Services and a former client, said that Barnett is “an excellent trial lawyer and the person you want to hire for your bet-the-company cases. He is client focused, responsive, and uniquely savvy about trial and settlement strategy.” A New York colleague said, “Barry is a joy to work with as co-counsel. He tackles complex procedural and factual hurdles capably, efficiently, and without drama.”

PERSONAL
Barnett’s wide-ranging experience and calm, down-to-earth approach enable him to connect with clients, judges, jurors, witnesses, and even opposing counsel. He grew up in Nacogdoches, Texas. He co-captained his high school varsity football team as an All-East Texas middle linebacker while also serving as the Editor of Key Club’s Texas-Oklahoma District, won the Best Typist award, took the History Team to glory, and sang in the East Texas All Region Choir. As Dan Kelly of client Vistra Corp. put it, Barnett is “a great person to be around.”

Barnett is steady and loyal. He has practiced at Susman Godfrey his entire career. He and his wife Nancy live in Dallas and enjoy spending time in Houston and New York. Their daughter works for H-E-B in Houston, and their son is a Haynes and Boone transactions lawyer in Dallas.

As a member of Ivy League championship football teams in his junior and senior years at Yale and a parent of two Yalies, Barnett has no trouble choosing sides for “The Game” in November. And he knows how important fighting all the way to the end is. On his last play from scrimmage, in the waning minutes of The Game on Nov. 22, 1980, he recovered a Crimson fumble.

Yale won, 14-0.