Monday’s oral argument before the Supreme Court in Laborers District Counsel Construction Industry Pension Fund v. Omnicare, Inc. (“Omnicare”) was remarkable in that, as Omnicare attorney Kannon Shanmugam noted, it was the “rare case in which none of the parties is defending the reasoning of the court of appeals below.”

As we explained in last week’s blog post previewing the argument, the Sixth Circuit held in the decision under review that a showing of so-called “objective falsity” alone was sufficient to demonstrate falsity in a claim filed under Section 11 of the Securities Act – in other words, that an opinion could be false even if was genuinely believed, if it was later concluded that the opinion was somehow “incorrect.”  On appeal, Omnicare contended, as did we in our amicus brief on behalf of the Washington Legal Foundation (“WLF”), that this ruling was contrary to the U.S. Supreme Court’s decision in Virginia Bankshares, Inc. v. Sandberg, 501 U.S. 1083, 1095 (1991).  Virginia Bankshares held that a statement of opinion is a factual statement as to what the speaker believes – meaning a statement of opinion is “true” as long as the speaker honestly believes the opinion expressed, i.e., if it is “subjectively” true.

Other than a passing and unenthusiastic nod made by plaintiffs’ counsel in defense of the Sixth Circuit’s reasoning, Monday’s discussion assumed that some showing other than so-called “objective falsity” would be required to establish the falsity of an opinion.  Most of the argument by Omnicare, the plaintiffs, and the Solicitor General revolved around what this additional showing should be, as did the extensive and pointed questions from Justices Breyer, Kagan, and Alito.

It thus seems unlikely from the tone of the argument that the Court will affirm the Sixth Circuit’s holding that an opinion is false if it is “objectively” untrue.  If the pointed opening question from Chief Justice Roberts is any indication, the Court also may not fully accept Omnicare’s position, which is that an opinion can only be false or misleading if it was not actually believed by the speaker.  It seems more probable that the Supreme Court will take one of two middle paths – one that was advocated by the Solicitor General in Monday’s argument, or one that was advanced in our brief for the WLF.

In a position embraced by the plaintiffs, the Solicitor General contended that a statement of opinion should be considered “false,” even if it was genuinely believed, if plaintiffs can show that there was no “reasonable basis” for the speaker to hold that opinion.  As we have observed, however, this test breaks down quickly.  Any reasonableness inquiry is, in and of itself, entirely subjective, meaning that whether an opinion was true or false would hinge on someone else’s later opinion as to its “reasonableness.”  Although Justice Breyer seemed to be leaning toward such a “reasonableness” test in much of his questioning, both he and Justice Alito expressed concern over how this reasonableness would be determined, and in particular, how to decide what sort of inquiry is “reasonable” for a company or individual to conduct before voicing a particular opinion.

A far better middle path, advocated by our WLF brief (see pp. 23-29), is to subject statements of opinion to the same sort of inquiry about whether they were “misleading” as for any other statement.  In other words, a statement of opinion can be honestly believed (and thus “true”), but nonetheless rendered misleading by the omission of certain facts.  Justice Kagan urged such a standard in her questioning of the parties, although none took advantage of the opening that she provided.  If framed correctly, this standard would avoid the pitfalls of the Solicitor General’s reasonableness standard, because liability would not hinge upon a later opinion about the validity of a speaker’s original expressed opinion.  Rather, by this standard, plaintiffs would be required to demonstrate either that an opinion was false because it was not actually believed, or that omitted facts caused the opinion – when considered in the full context of the company’s other disclosures – to be misleading because it “affirmatively create[d] an impression of a state of affairs that differs in a material way from the one that actually exists.”  Brody v. Transitional Hosps. Corp., 280 F.3d 997, 1006 (9th Cir. 2002).

Such a standard would be faithful to the text of the most frequently litigated provisions of the federal securities laws – Section 11, at issue in Omnicare, and Section 10(b) of the Securities Exchange Act – which allow liability for statements that are either false or that omit material facts “required to be stated therein or necessary to make the statements therein not misleading . . . .”  At the same time, this standard would preserve the commonsense holding of Virginia Bankshares – that an opinion is “true” if it is genuinely believed – and prevent speakers from being held liable for truthfully expressed opinions simply because someone else later disagrees with them.

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Photo of Claire Loebs Davis Claire Loebs Davis

Claire Loebs Davis is a seasoned litigator who focuses on using her commercial litigation experience to assist nonprofit entities and advocate for animal and environmental causes. Claire is Co-Chair of Lane Powell’s Nonprofit Team and its Animal and Earth Advocacy Team. She also chairs the Pro Bono Committee in Seattle.

Claire has more than a decade of experience in commercial litigation, including trial and appellate advocacy, and securities and corporate governance litigation. She has represented a wide range of companies and their directors and officers, including Ambassador’s Group, Biovest International, Cell Therapeutics, Dendreon Corporation, Lihua International, Micron Technology, Nordstrom, PremierWest Bancorp, Primo Water, Sterling Financial, Washington Mutual, Washington Banking, WSB Financial Group, and Zumiez.

Claire has assisted nonprofit organizations with a variety of legal needs, including:

  • Helping them to incorporate, draft governance documents and file for federal 501(c)(3) tax-exempt status;
  • Advising them on employment matters, risk assessment and issues of corporate governance; and
  • Representing them in a variety of commercial disputes, such as actions for breach of contract, RICO violations and defamation.

Throughout her legal career, Claire has focused on advocacy on behalf of animals and the environment, including serving as a general counsel and legal consultant for Best Friends Animal Society, the country’s largest animal sanctuary and a leading national proponent of companion animal welfare.  Since leaving Best Friends to enter private practice, Claire has represented nonprofit organizations including the Animal Legal Defense Fund and the Center for Biological Diversity, in addition to multiple regional animal rescues and sanctuaries. She has also been extensively involved in community advocacy efforts, including leading a successful grassroots effort to reform King County, Washington’s animal shelters.

Claire defended the former Administrative Director of Sea Shepherd Conservation Society in a contempt action brought by the Institute for Cetacean Research, a Japanese whaling entity, related to Sea Shepherd’s interference with Japan’s killing of whales in the Southern Ocean. Following a two-week trial in the Ninth Circuit Court of Appeals and extensive appellate practice, Claire secured a defense verdict for her client. She subsequently represented Sea Shepherd and its founder, Paul Watson, in litigation against the Institute for Cetacean Research that raised multiple unique questions of standing, animal rights and international law.

As the Chair of the firm’s Seattle Pro Bono Committee, Claire led the citywide effort to provide legal assistance at SeaTac airport to travelers affected by President Trump’s travel bans. She has shown a commitment throughout her career to pro bono work, advising numerous nonprofit entities, volunteering at a variety of local legal clinics, representing asylum seekers in immigration court, working with the American Civil Liberties Union to bring an action against the state of California on behalf of English language learners in the state’s public schools, and submitting amicus briefs in State of Washington v. Trump and State of Hawaii v. Trump.

Claire joined Lane Powell from Wilson Sonsini Goodrich & Rosati in December 2012. She graduated from the University of Michigan Law School in 2003 (class rank 2 of 387), and clerked for the Honorable Richard Nygaard of the Third Circuit Court of Appeals. Before attending law school, Claire was a newspaper reporter for several years, primarily covering legal and political issues, and winning multiple state and national writing awards.