(Article from Securities Law Alert, Year in Review 2017)
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Ninth Circuit: Omnicare’s Pleading Standards for Opinion-Based Section 11 Claims Apply to Claims Alleging Misstatements of Opinion Under Section 10(b) and Rule 10b-5
On May 5, 2017, the Ninth Circuit held that the pleading standards for alleging a Section 11 claim based on a misstatement of opinion set forth in Omnicare v. Laborers Dist. Council Const. Industry Pension Fund, 135 S. Ct. 1318 (2015),[1] apply to opinion-based claims brought under Section 10(b) and Rule 10b-5. City of Dearborn Heights Act 345 Police & Fire Ret. Sys. v. Align Technology, 856 F.3d 605 (9th Cir. 2017).
The Ninth Circuit determined that Omnicare overruled its prior decision in Reese v. Malone, 747 F.3d 557 (9th Cir. 2014) [2] to the extent that Reese permitted plaintiffs to allege the falsity of a statement of opinion by pleading that the speaker had “no reasonable basis for the belief” expressed. Id. (quoting Reese, 747 F.3d 557). The Ninth Circuit stated that under Omnicare, “pleading falsity by alleging that ‘there is no reasonable basis for the belief’ is permissible only under an omissions theory of liability.” To assert an omission-based claim after Omnicare, a plaintiff must “‘call into question the issuer’s basis for offering the opinion’” by alleging “‘facts about the inquiry the [issuer] did or did not conduct or the knowledge it did or did not have.’” Id. (quoting Omnicare, 135 S. Ct. 1318). The Ninth Circuit found Reese’s “no reasonable basis for the belief” standard “clearly irreconcilable” with Omnicare.
Ninth Circuit: Expressing a Favorable Opinion Concerning FDA Clearance May Be Misleading If the Speaker Does Not Disclose Relevant Adverse FDA Developments
On August 18, 2017, the Ninth Circuit reversed dismissal of securities fraud claims where defendants allegedly represented that “FDA clearance risk has been achieved” without disclosing that the company had not obtained clearance for one of the key products discussed. In re Atossa Genetics Sec. Litig., 868 F.3d 784 (9th Cir. 2017).
The Ninth Circuit found the statement at issue to constitute an opinion, rather than a statement of fact, but found plaintiffs adequately alleged that the opinion did not “fairly align[ ] with the information in [the company’s] possession at the time” under the standard set forth in Omnicare. The court observed that “the omitted facts [were] strikingly similar to [the] hypothetical the Supreme Court offered in Omnicare” of “an issuer [who] publicly stated, ‘we believe our conduct is lawful,’ but did not disclose the issuer’s knowledge that the Federal Government took the opposite view.”
[1] Please click here to read our prior discussion of the Court’s decision in Omnicare.
[2] Please click here to read our prior discussion of the Ninth Circuit’s decision in Reese.