Cengage Advantage Books: Business Law Today, The Essentials 11th Edition by Roger LeRoy Miller

Exercise 1

Omnicare, Inc. v. Laborers District Council Construction Industry Pension Fund
Supreme Court of the United States, __ U.S. __, 135 S.Ct. 1318, 191 L.Ed.2d 253 (2015).
FACTS Omnicare, Inc., a pharmacy services company, filed a registration statement in connection with a public offering. The statement expressed the company's opinion that it was in compliance with federal and state laws. Later, the federal government accused Omnicare of receiving kickbacks from pharmaceutical manufacturers. The Laborers District Council Construction Industry Pension Fund and others (the Funds), who had bought the stock, filed a suit in a federal district court against Omnicare.
The plaintiffs alleged that Omnicare's legal-compliance opinion was "untrue" and that Omnicare had, in violation of the Securities Act, "omitted to state [material] facts necessary" to make that opinion not misleading. Omnicare claimed that "no reasonable person, in any context, can understand a pure statement of opinion to convey anything more than the speaker's own mindset." The court dismissed the suit. The U.S. Court of Appeals for the Sixth Circuit reversed the dismissal in part and affirmed in part. The Funds appealed to the United States Supreme Court.
ISSUE If a registration statement omits material facts about the issuer's inquiry into or knowledge concerning a statement of opinion, and those facts conflict with what a reasonable investor would understand from the statement, is the issuer liable under the Securities Act
DECISION Yes. The Court vacated the lower courts' decision. But because "neither court... considered the Funds' omissions theory with the right standard in mind," the Court remanded the case "for a determination of whether the Funds have stated a viable omissions claim (or, if not, whether they should have a chance to replead)."

REASON Whether a statement is "misleading" depends on the perspective of a reasonable investor. A reasonable investor may, depending on the circumstances, understand a statement of opinion to convey particular facts about the speaker's basis for holding that view. If the real facts are otherwise, and are not provided, the statement will mislead its audience. An opinion statement is not misleading, however, simply because an issuer knows "some fact cutting the other way" and fails to disclose it. A reasonable investor does not expect that every fact known to an issuer supports the issuer's opinion. Moreover, whether an omission of fact makes a statement of opinion misleading depends on the context.
Registration statements are formal documents-a reasonable investor would expect an opinion in such a statement to be more carefully considered than an opinion casually expressed in daily life. In addition, the investor reads the statement "in light of all its surrounding text, including hedges, disclaimers, and apparently conflicting information," as well as the customs and practices of the issuer's business. The Securities Act "creates liability only for the omission of material facts that cannot be squared with such a fair reading."
CRITICAL THINKING-Legal Consideration Would a reasonable investor have cause to complain if an issuer, without having consulted a lawyer, states, "We believe our conduct is lawful" Explain.