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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, 2017 WL 1753276 (9th Cir. 2017) (Smith, Jr., J.).

The Ninth Circuit explained that “Omnicare establishes three different standards for pleading falsity of opinion statements.” First, if plaintiffs assert that the opinion constitutes a “material misrepresentation,” then Omnicare requires plaintiffs to “allege both that ‘the speaker did not hold the belief she professed’ and that the belief is objectively untrue.” Id. (quoting Omnicare, 135 S. Ct. 1318). Second, if plaintiffs contend that “a statement of fact contained within an opinion statement is materially misleading,” then plaintiffs “must allege that ‘the supporting fact [the speaker] supplied [is] untrue.’” Id. (quoting Omnicare, 135 S. Ct. 1318). Third, if plaintiffs claim that a statement of opinion is misleading under ”a theory of omission,” then plaintiffs “must allege ‘facts going to the basis for the issuer’s opinion . . . whose omission makes the opinion statement at issue misleading to a reasonable person reading the statement fairly and in context.’” Id. (quoting Omnicare, 135 S. Ct. 1318).

“Although Omnicare concerned Section 11 claims,” the Ninth Circuit determined that “the Supreme Court’s reasoning is equally applicable to Section 10(b) and Rule 10b-5 claims.” The Ninth Circuit explained that “[t]he Supreme Court’s definition of opinion statements and differentiation of them from factual statements was specific to Section 11 only to the extent that Section 11 imposes liability for ‘untrue statement[s] of . . . fact.’” Id. (quoting Omnicare, 135 S. Ct. 1318). The court noted that “[t]he only other circuit to have considered Omnicare’s effect on the falsity pleading standard for Section 10(b) claims based on opinion statements has held that the reasoning of Omnicare applies.” Id. (citing Tongue v. Sanofi, 816 F.3d 199 (2d Cir. 2016)).[2] The Ninth Circuit stated that it was “likewise so persuaded,” and held “that the three standards for pleading falsity under Omnicare also apply to Section 10(b) and Rule 10b-5 claims.”

In so holding, the Ninth Circuit determined that Omnicare overruled its prior decision in Reese v. Malone, 747 F.3d 557 (9th Cir. 2014)[3] 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, 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.

Judge Kleinfeld issued a concurring opinion expressing his view that Omnicare’s clear irreconcilability with Reese is “debatable” because “[S]ection 10(b) and [S]ection 11 are materially different.”