The U.S. Supreme Court laid down new rules for lawsuits that accuse companies of being deceptive when they sell stock to the public, giving a partial victory to the nursing-home pharmacy Omnicare Inc.
The unanimous ruling centered on opinions expressed in the documents companies must file with regulators. The high court said investors can sue if those documents omit important facts.
At the same time, the justices rejected a federal appeals court's conclusion that a provision in federal securities laws allows suits when investors can show an opinion is objectively wrong.
That provision "does not allow investors to second-guess inherently subjective and uncertain assessments," Justice Elena Kagan wrote for the court.
Federal appeals courts around the country had been divided on that latter issue. Most had required investors to show that company officials expressed opinions they didn't believe.
Omnicare is defending against a lawsuit centering on its sale of 12.8 million shares in December 2005. Investors accuse the company of misleading purchasers by saying it was operating within the law in documents filed with regulators.
A federal appeals court ruling would have required Omnicare to defend against the lawsuit. The Supreme Court decision sends the case back to the lower courts to assess whether Omnicare omitted any material facts in its filing.
Kagan said an investor might be misled if a company says it believes its conduct to be lawful, without saying that it didn't consult an attorney.
"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," she wrote. "And if the real facts are otherwise, but not provided, the opinion statement will mislead its audience."
Omnicare has since reached a series of settlements with state and federal officials to resolve allegations involving illegal kickbacks. In 2009, the company agreed to pay $98 million to settle government accusations it paid kickbacks to obtain business and received them for recommending drugs. The agreement didn't include any finding of wrongdoing by the Covington, Ky.-based company. "Under the legal standard the Supreme Court announced today, plaintiffs' case against Omnicare is without merit and should be dismissed," the company said in a statement.
Kagan said that to press an omission claim, an investor would have to identify particular facts that undercut the basis for a disputed opinion. "This is no small task for an investor," she said.
The lead lawyer for the funds suing Omnicare, Darren J. Robbins, called that "an appropriate hurdle." "It is easily met in this case and will be met in meritorious cases," he said in a phone interview.
Kagan said she sees no reason the court's ruling in Omnicare v. Laborers District Council Construction Industry Pension Fund would make companies hesitant to disclose information useful to investors.
"To the extent our decision today chills misleading opinions, that is all to the good," Kagan said, noting that Congress wanted investors to have better information, not simply more of it.