The U.S. Supreme Court will clarify the types of allegations that investors must include in their complaint when they sue over securities registration statements filed with federal regulators.
Last May, the Sixth Circuit took the position in an opinion in Indiana State District Council of Laborers and HOD Carriers Pension and Welfare Fund v. Omnicare, Inc., 719 F.3d 498 (6th Cir. 2013) that §11 of the Securities and Exchange Act of 1933 “provides for strict liability, and does not require a plaintiff to plead a defendant’s state of mind.” Omnicare at 503. Both the Second and the Ninth Circuits had previously held that to state a §11 claim a plaintiff must assert that the untrue statement in the Registration Statement was both “objectively false and disbelieved by the defendant at the time it was expressed.” Fait v. Regional Financial Corp., 655 F.3d 105, 110 (2d Cir. 2011); see also Rubke v. Capitol Bancorp Ltd., 551 F.3d 1156, 1162 (9th Cir. 2009). As such, the Sixth Circuit’s opinion created a circuit split on whether a plaintiff must plead a defendant’s state of mind to state a claim under §11.
The split originates from differing interpretations of the Supreme Court’s opinion in Virginia Bankshares, Inc. v. Sandberg, 501 U.S. 1083 (1991). The Second and Ninth Circuits have looked to that opinion as support for the requirement that knowledge of falsity must be pled in §11 cases, whereas the Sixth Circuit took the position that the language relied on by the Second and Ninth Circuits is merely dicta and that Virginia Bankshares related only to §14(a) claims under the Securities and Exchange Act of 1934. Omnicare at 506-07. In light of their position, the Sixth Circuit determined that Virginia Bankshares was inapplicable to Omnicare and declined to follow the Second and Ninth Circuit’s interpretations of Virginia Bankshares. Omnicare at 506.
The new case is Omnicare v. Laborers District Council Construction Industry Pension Fund, No. 13-435. The justices will consider the case during the nine-month term beginning in October 2014.