Securities litigators eagerly await the Supreme Court's decision in Omnicare, Inc. v. Laborers' District Council Construction Industry Pension Fund, No. 13-435. The central question before the Court requires defining the standard under Section 11 of the Securities Act ("Section 11) for alleging falsity of a statement that is couched in terms of opinion or belief. More specifically, the Court is asked to decide whether, in alleging falsity of such a statement, a complaint must plead that the persons legally responsible for the registration statement containing the statement, at the time of its effective date, had: (1) no reasonable basis for making the statement; (2) did not subjectively believe in the truth of the statement; (3) were required but failed to set forth contrary opinions; or (4) any combination of the above. In the alternative, though not argued by the litigants or amicus in the case, the Court may agree with the Sixth Circuit's opinion in the underlying case that a statement about a present state of affairs that may be deemed to be objectively ascertainable, is subject to a standard of strict liability under Section 11, whether or not couched in terms of opinion or belief.

Some speculate that the Court will adopt the position advanced by an amicus, the Securities & Exchange Commission (hereafter, the "Government"), which it characterized as "a middle position:" a Section 11 plaintiff sufficiently pleads that a statement of opinion or belief in a registration statement is false if a complaint alleges, with some degree of particularity, facts showing either that the statement objectively had no reasonable basis at the time it was made, or that the statement was not actually believed to be true by the issuer. Under the alternative choices, how would the Court's ruling practically affect the pleading and proof of falsity as an element of a violation of the securities laws? To answer this question, we look for guidance to the briefs filed with the Court and especially to the oral argument, which reveals the Court's reaction to the parties' and amicus positions. [FN 1]

1. The Sixth Circuit Opinion Underlying Omnicare

Indiana State District Council of Laborers & Hod Carriers Pension & Welfare Fund v. Omnicare, Inc., 719 F.3d 498 (6th Cir. 2013), addressed a complaint alleging that Omnicare, Inc., a provider of pharmaceutical care services to residents of long-term care facilities, made misrepresentations in its financial statements and also misrepresented that "we believe" that its contracts with drug companies were "legally and economically valid arrangements that bring value to the healthcare system and patients that we serve." The lawsuit originally had been brought under Section 11 of the Securities Act and Section 10(b) of the Exchange Act, but the Section 10(b) claim had been dismissed in earlier proceedings and not reasserted in the amended complaint at issue on the appeal. On that appeal, the Sixth Circuit first held that Federal Rule of Civil Procedure 9(b) provided the pleading standard although the plaintiffs had removed the Exchange Act claim and had included a one sentence disclaimer stating that the complaint was not based on fraud. The court also affirmed the dismissal of the claim based on misrepresentations in the financial statements.

The key statement that remained at issue was that the company believed that its contractual arrangements with other healthcare providers and pharmaceutical suppliers were legally and economically valid arrangements. Variations of this statement appeared in a registration statement for the company's secondary offering and documents incorporated by reference. Defendants contended that this statement was an expression of belief or opinion that the company's contracts were in compliance with the law, and that the falsity of the statement could not be pleaded with sufficiency unless facts were alleged showing that the defendants did not actually hold that belief, citing opinions issued by the Second and Ninth Circuits: Fait v. Regions Financial Corp., 655 F.3d 105 (2d Cir. 2011), and Rubke v. Capital Bancorp Ltd., 551 F.3d 1156 (9th Cir. 2009).

The Sixth Circuit rejected this position, finding that Fait and Rubke had been based on Virginia Bankshares, Inc. v. Sandberg, 501 U.S. 1083 (1991), which the court limited to the context of proxy statements challenged under Exchange Act Section 14(a), noting that scienter was an element of that claim. The court reiterated that Section 11, in contrast, is a "strict liability" statute and that a claim under Section 11 had no state of mind element. As a result, the court found that in the Section 11 context, if a materially false or misleading statement allegedly has been made, a defendant's belief or knowledge of the underlying fact addressed by the statement is irrelevant, and hence pleading defendant's belief was unnecessary to state a claim. In light of its holding, the court did not explicitly assess whether the statement at issue was one of opinion or belief at the time it was made, but rather treated the statement as stating a fact that was allegedly objectively false or misleading. The amended complaint alleged that the statement was objectively false by relying on allegations (largely taken from qui tam lawsuits) that the company had received illegal kickbacks from pharmaceutical suppliers in exchange for recommending certain drugs to health care facilities and had submitted false claims to Medicare and Medicaid. [FN 2] The court thus reversed the portion of the district court ruling dismissing the Section 11 claim.

2. The Supreme Court Briefing

A. Defendants' opening brief

In their opening brief, the defendants \ petitioners pointed to the text of Section 11, which prohibits the making of untrue or misleading statements of material fact, and argued that an opinion is not a "fact" because opinions, by definition, convey uncertainty and room for contrary opinions. They argued that the statement at issue, which was prefaced by the words "we believe" was a statement of opinion or belief and that the only "fact" represented in such statement is that the speaker genuinely holds ("we believe") that opinion or belief; therefore the only way such statement may be an untrue statement of material fact under Section 11 is if the speaker did not genuinely hold the opinion or belief. The defendants argued that these propositions were supported by logic, the common law, and Virginia Bankshares. Defendants asserted that Virginia Bankshares, which also construed a federal securities statute, Exchange Act Section 14(a), which prohibits untrue or misleading statements of material fact, should be interpreted consistently with Section 11 on this point. They warned that the Sixth Circuit's holding, if affirmed, would expose Section 11 defendants to strict liability for making inherently subjective statements, including projections of future events, that turned out to be mistaken. This would encourage plaintiffs to second-guess, with hindsight, statements whose ultimate truth necessarily depends on future events, and chill issuers from voluntarily expressing such opinions. Defendants also argued that the use of the phrase "we believe" explicitly signaled investors that the statements reflected the issuers' subjective belief, and that the challenged statements expressing belief that the Company's contractual arrangements were in compliance with the law are an archetypical example of statements of subjective belief.

B. The Government's amicus brief

The Government's amicus brief substantially agreed with defendants' characterization of the statements at issue as statements of belief or opinion. In its view, however, a statement of opinion is actionable under Section 11 if it either lacked a basis that was reasonable under the circumstances, or if it was not in fact held, and these factors therefore should set the pleading and proof standard for statements of opinion or belief. This is true, argued the Government, because a statement of opinion generally conveys two facts: that an opinion has a reasonable basis and that it is held by the speaker. This is especially true of the statements at issue, urged the Government, which concern the lawfulness of the company's own conduct, and is a matter for which the reader of a registration statement would expect a company to have a reasonable basis and a sincere belief. The government argued that this proposition was recognized under the common law in circumstances in which it was reasonable to rely on the speaker's opinion or where there was an imbalance in knowledge between the contracting parties. Section 11 fits this paradigm because it does not require proof of reliance (nor scienter and causation), rejects caveat emptor, requires full disclosure, places the burden of a reasonable investigation (due diligence) as an affirmative defense on defendants, and thus imposes liability well beyond common law fraud principles. The Government argued that Virginia Bankshares also recognized this proposition in stating that subjective statements of value are reasonably understood to rest on a factual basis. In light of these factors, an opinion lacking a reasonable basis omits to state facts necessary to make the statement not materially misleading, because the statute requires issuers to tell "the whole truth" rather than "incomplete statements and half-truths."

Given this valid alternative basis for pleading liability under Section 11 (objective lack of a reasonable basis for the statement), the Government continued, the Sixth Circuit correctly held that a plaintiff need not allege that a Section 11 defendant did not believe his or her statement of opinion to allege falsity. The Government added that in its opinion, the amended complaint did allege that the defendants did not have reasonable grounds to believe that the challenged statements were truthful and complete. The Government went on to argue, however, that the Sixth Circuit's stated reasons for the holding were incomplete: state of mind is not irrelevant as held by the Sixth Circuit, but rather is directly relevant to whether a statement of opinion is untrue, because a statement of opinion includes a further implied representation that the speaker's state of mind is consistent with the opinion. Moreover, the Sixth Circuit had erred in suggesting that a statement of opinion is actionable whenever it is ultimately proven incorrect, when the proper standard is that it must be incorrect based on the facts at the time the part of the registration statement containing the statement became effective. Thus, so long as an opinion expressed in a registration statement is sincerely held and premised on a basis that is reasonable under the circumstances, a subsequent determination that the statement was incorrect would not mean that the statement was false or misleading at the time made, for Section 11 purposes.

C. Plaintiffs' brief

In their brief, plaintiffs \ respondents stated that in their view the registration statement had told investors that the company was not engaging in the illegal practices alleged in the complaint. It did so by admitting that the company was required to follow laws that forbade kickbacks and other illegal practices, and then stating that the company believed that its contracts with drug companies were "legally and economically valid arrangements." (The registration statement also included claims of legal compliance not cast as opinions.) As a result, plaintiffs continued, the company effectively stated that it did not engage in kickbacks. In contrast, argued plaintiffs, the amended complaint alleged there could be no reasonable dispute that the company was receiving illegal kickbacks, and defendants did not contend otherwise.

Plaintiffs characterized defendants' position as claiming they could not be liable for their "baseless and irresponsible" opinion at issue unless the complaint also alleged that they did not genuinely believe their opinion. The Sixth Circuit had correctly rejected this argument, maintained plaintiffs, which, if accepted, would allow defendants to escape Section 11's strict liability regime by merely prefacing a statement with "we believe." Section 11 imposes liability for statements that are misleading by omission as well as false statements. Under the common law and Virginia Bankshares, a statement of opinion may mislead about the subject matter of the statement even if genuinely believed-i.e., the statement implied that the subject matter is in fact true when it is not. This principle applied to legal opinions such as the statement of compliance at issue in the case. Plaintiffs allowed that statements about truly subjective matters may not have the capacity to mislead and hence are not implicated by Section 11.

Plaintiffs also agreed with the Government's position that a statement of opinion (including a legal opinion) may reasonably be understood to imply that the speaker had a reasonable basis for the opinion and had disclosed any facts incompatible with that opinion. Plaintiffs argued that under the common law, disclosing the incompatible facts may render a statement of opinion non-misleading, but that the company had not made such disclosures here and the complaint alleged that none of the defendants had made a reasonable investigation or had reasonable grounds to believe or opine that their challenged statements were "truthful or complete." Plaintiffs also argued that imposing liability for incorrect, baseless, or reckless opinions regardless of the defendants' belief also comported with the strict liability regime of Section 11. This mirrors the basis for the common law right of rescission and puts the risk of error as to the truth of a statement-even if the error results from a reasonable mistake-on the persons responsible for a registration statement. In contrast, plaintiffs continued, any obligation on Section 11 plaintiffs to plead or prove defendants' state of mind would be irreconcilable with the assignment of burdens of proof under the statute, including the placing of the burden of reasonable investigation underlying the statutory affirmative defense on those defendants who assert the defense. [FN 3] Plaintiffs argued it also would hinder the SEC from enforcing the securities laws where the statements at issue were matters of opinion.

Plaintiffs also addressed the defendants' expressed concerns about the application of a reasonable basis standard viewed in hindsight. Any concerns about imposing liability based on hindsight (which they argued was not implicated in this case in any event) already are addressed by the "reasonable investigation" affirmative defense available to all defendants except issuers; and to all defendants as to certain (but not all) forward-looking statements under the Safe Harbor provision enacted in the Private Securities Litigation Reform Act of 1995, which set the appropriate limits of protection for statements of opinion about future events. Plaintiffs also contended that while some statements of opinion or belief involve matters of judgment, issuers can avoid misleading investors by disclosing the bases of their opinions. While including opinions that lack a reasonable basis in a registration statement may provide investors with more information, in such case, more is not better.

D. Defendants' reply brief

Defendants' reply brief reiterated their position that the only "fact" included in a statement of belief is that the speaker believes the statement. The alleged omission of a reasonable basis for a belief does not turn an opinion into a false or misleading "material fact" for purposes of Section 11 liability because it does not mean that the speaker did not hold the opinion. The Government was incorrect in asserting that a statement of opinion implies that the speaker had an objectively reasonable basis for it because people often hold and express opinions based on reasons they find sufficient, but without objective proof. In any event, defendants argued, the Government's proposed reasonable basis standard necessarily would require judgment calls that are themselves opinions and that amount to second-guessing as to what was "reasonable" at the relevant time. For this reason and others, the "reasonable basis" standard would have at least as pernicious policy consequences as plaintiffs' "objective falsity" standard, as it would require an issuer to either not provide opinions at all or, to protect itself, flood the registration statement with any information that could potentially undermine its opinions.

Defendants also addressed Virginia Bankshares. As noted, that opinion construed Exchange Act Section 14(a) that prohibits false or misleading statements of fact, and held that a statement of opinion is actionable solely if the speaker did not believe what was said. Virginia Bankshares stated that an opinion expressed in conclusory terms is reasonably understood to rest on a factual basis that justifies it as accurate, the absence of which renders it misleading. However, this discussion was in the context of explaining how subjective disbelief may be proven, not a suggestion that a lack of a reasonable basis would independently be actionable under Section 14(a), and subsequent courts had not interpreted Virginia Bankshares in this manner. Defendants argued that Virginia Bankshares' reasoning should be extended to Section 11, which does not differ from Section 14(a) in identifying what type of statements or omissions may give rise to liability (untrue statements or statements rendered materially misleading by omission), and which does not impose a duty to disclose all material information. Nor did any of the common law cases cited by plaintiffs hold that a statement of sincerely-held opinion constituted fraud; plaintiffs cited inapposite defamation cases and contractual rescission cases, whereas (according to defendants) Section 11 does not provide any form of rescissionary remedy.

Applying the proper standard to this case, defendants continued, while it is not the case that any statement beginning with "we believe" is automatically a statement of opinion-there may be embedded facts in the statement-the statements at issue clearly were pure opinions, matters of judgment about the law and were surrounded by warnings about why the judgment may be wrong, such as statements that the government may interpret the applicable law differently and that the company may be sued as a result. Defendants also disputed plaintiffs' contention that a clear violation of law had been alleged, arguing instead that the complexity of the relevant regulatory context further demonstrates that statements of belief in a company's compliance with the law are necessarily judgmental.

3. The Oral Argument

The oral argument of the appeal was lively and informative. To assess the potential outcome and implications of the Court's eventual decision, in the remainder of this article, we present the discussion at the oral argument organized by issues and potential legal outcomes and implications. We reference pages of the oral argument transcript in [square brackets]. [FN 4]

A. What Are The Implications Of Prefacing A Statement With "We Believe?"

i. Contentions of the parties and the Government

As noted above, the Sixth Circuit had not dwelled on whether the statements at issue about the legally of the company's contracts with drug companies were statements of opinion or belief, despite that they were prefaced with the qualification "we believe," but rather treated the statements as if they were statements of fact as to which the only issue was whether plaintiff had sufficiently alleged contemporaneous falsity. Finding that the allegations that the company had engaged in kickbacks and Medicare fraud to be sufficient to allege the falsity of the statements that the company's contracts with drug companies were legally valid arrangements, the court had reversed the dismissal of the Section 11 claim.

The implications of prefacing a statement with "we believe" were discussed at several junctures in oral argument before the Supreme Court. Shortly after defendants commenced their argument, Chief Justice Roberts asked whether an issuer could create a statement of opinion by prefacing a representation that there was a "very precise number" of something ("3.5 million units of inventory in our secret warehouse") with "we believe" [4]. These questions appeared to imply that Chief Justice Roberts found the addition of the phrase "we believe" to be relevant, in contrast to the Sixth Circuit holding. Defendants responded that this ultimately would be a factual issue. If the number was "nowhere near that," this would be an objectively false statement of fact (as opposed to an opinion) and therefore actionable [5]. Hence, as in their reply brief, defendants did not contend at oral argument that "we believe" automatically transformed a factual statement into one purely of opinion or belief.

At oral argument, plaintiffs also discussed the impact of prefacing a sentence with "we believe," noting that Congress had treated some statements as "opinions" when it wrote the Exchange Act because Section 11 refers to "opinions" in the context of auditors' opinions [25]. Congress also amended the standard for Section 11 liability in the Private Securities Litigation Reform Act of 1995, which created an "actual knowledge" state of mind requirement for liability for certain (but not all) forward-looking statements, "which are opinions" [25]. Plaintiffs opined that while there may be different types of statements of opinion, the defendants had not asked the Sixth Circuit to consider a statement that explicitly told investors that the issuer was not certain of a fact expressed in a statement of opinion or belief [26]. Plaintiffs later returned to this point in response to a question from Justice Ginsburg by stating that when a statement was expressed as one of belief, it could be phrased, as was the case here, so as to connote that the speaker had examined the matter and was expressing certainty, not doubt, about its truth [30-31]. Here, the statements at issue were unqualified statements that the company's contracts were legally valid (rejecting the proposition that "we believe" lent qualification).

Based on plaintiffs' arguments, Justice Ginsburg posited that plaintiffs' position was that "there was no such thing as an opinion versus a fact," and that the inclusion of "we believe" does not make a difference [31-32]. Plaintiffs replied that a registration statement could include a qualified statement that makes clear that the statement is a subjective or qualified assessment on which one should not rely, but that such was not the case here [33]. Justice Kagan questioned aloud whether plaintiffs were correct in this assessment, as the registration statement and incorporated documents were replete with reasons to discount the statements of legal compliance at issue; in her opinion, the company "actually did a pretty good job of saying, look, we think this, but there are - there are some problems -" [32]. Plaintiffs did not entirely disagree, but stated that the defendants had not raised this argument below [33]. Plaintiffs also stated that there were statements of compliance with the law challenged in the amended complaint that were not qualified or hedged [34]. On remand, plaintiffs would strive to prove that the actual facts were such that a person would not reasonably conclude that the activity in question was legal regardless of how the pertinent regulations could be construed; that is, under all disclosed constructions of the regulations. This was consistent with the Government's view and the strict liability nature of Section 11, which plaintiffs opined does not allow an issuer to avoid speaking truthfully by placing the words "we believe" in the front of a sentence or place the burden of proving what was inside defendants' heads on plaintiffs [34-35].

The Government for its part had not disputed the defendants' contention that the challenged statements were statements of opinion or belief but rather proposed standards for liability for such statements as set forth in its briefs, discussed above. At oral argument, it supported plaintiffs' position in part by arguing that defendants' position was erroneous to the extent that defendants argued that an issuer can put "we believe" in the front of a statement and then not have to make an investigation as to whether the statement had a reasonable basis [52].

ii. Assessment: the Court is likely to give guidance on an objective standard to identify statements of opinion or belief

Our assessment, based on the Justices' questions and remarks at oral argument, is that the Court will recognize a difference between pure statements of fact on the one hand and statements of opinion or belief on the other for Section 11 pleading purposes and adopt a different standard for pleading and proving liability for statements of opinion or belief. As an initial matter, we expect that, as conceded by defendants in this case, the Court will agree that a speaker cannot reliably turn a statement of fact (which under current law is subject to a strict liability standard for Section 11 purposes) into a statement of opinion or belief, which may be subject to a different standard after the Court's decision in Omnicare, merely by prefacing the statement with the words "we believe." As commented on by Chief Justice Roberts, plaintiffs and the Government during oral argument, we think the Court will agree that the creation of a reliable safe harbor through the addition of the words "we believe" could readily lend itself to abuse. However, the addition of the words "we believe" likely will not be held to be meaningless as the Sixth Circuit had ruled. We think it will generally be held to signal that what follows is a matter of opinion or belief as to which there may be room for disagreement or for contrary or alternative views, or a measure of uncertainty, stripping the statement of its presumptive strict liability designation for Section 11 purposes.

The Court may give guidance on the application of objective criteria that helps to identify whether a statement is one of opinion or belief based on its subject matter. If the subject matter of a statement is inherently subjective or one on which reasonable persons could reach different conclusions about its truth or falsity at the time the statement was made, it may be viewed as a statement of opinion or belief, regardless of how the statement is prefaced. Hence, for example, the statement "our product is superior to our competitors' products and we expect that this will result in market dominance within two years" is a statement of opinion or belief that addresses both a present state of affairs and a projection as to the future. Whether a product is "superior" usually (if not always) involves a subjective judgment; and because it cannot be known whether a product has market dominance (whatever that means) in two years until the two years have passed (understanding that even plaintiffs characterized forward-looking statements as "opinions"), this projection must be said to always involve opinion. If, in contrast, the subject matter of the statement is one on which only one reasonable conclusion could be reached at the time the statement was made, it is not a statement of opinion and belief and there will likely be no special pleading or proof rules needed to adjudicate the statement in a Section 11 case except to allege facts showing it is false or misleading. Thus, for example, Chief Justice Roberts' hypothetical statement "we believe there are 3.5 million units of inventory in our secret warehouse" is a statement of fact, as would be the statement "we believe our product processes 3.5 million bytes of information per second," even though both sentences are preceded by "we believe."

Statements made with no qualification presumptively would retain their identity as statements of fact, but not always, inasmuch as some statements are inherently subjective even without qualification (e.g., our products are " superior, without peer"). While qualifications such as the phrase "we believe" would have to be viewed in context, they would not suffice to transform a fact into an opinion, the Court could reason that such phrases presumptively signals the reader of a registration statement that a particular statement is one for which other or different conclusions reasonably may be drawn (as defendants contended in their brief). [FN 5] Further qualification, such as citing opposing views as alluded to by Justice Kagan, would tend to move the statement into the "opinion or belief" category. Quantitative statements that pertain to the company's business would be viewed as falling presumptively into the "fact" category (e.g., "we believe that we have 3.5 million pieces of product in our warehouse"). A present tense statement of a matter that a reader would think is objectively ascertainable would be categorized differently from a forward looking statement.

Guidance on applying an objective standard to identify statements of opinion and belief would present several implications for Section 11 lawsuits. First, it would reconcile defendants' "concession" that statements of fact can be prefaced by "we believe" with plaintiffs' contention that some "we believe" statements are not matters of opinion at all and their recognition that there can be purely subjective statements of opinion in a registration statement. As shown in Section 3(D)(ii) below, this means that at the pleading stage, there will not be a one-size-fits-all standard, even for statements of opinion and belief.

Second, guidance on an objective standard for determining whether a statement is one of opinion or belief would better equip persons responsible for the contents of registration statements to more easily identify such statements and to document the reasonable basis for expressing them at the time the registration statement becomes effective, if it turns out that the Court adopts the "no reasonable basis" criteria for liability for such statements.

Third, if the Court adopts an objective standard to identify statements of opinion and belief, it would not need to distinguish or overrule prior cases that already have determined that some type of statements are statements of opinion because they involve inherently subjective assessments-such as certain accounting judgments [FN 6] and fairness opinions. [FN 7]

B. Does A Statement Of Opinion Or Belief Include An Implied Statement That There Is A Reasonable Basis Underlying The Opinion Or Belief?

For most of the oral argument, it was taken as a given that a statement of opinion or belief was at issue in Omnicare. The principal topic of debate was whether such a statement includes an implied representation that the opinion or belief has a reasonable basis and to a lesser extent whether such statement includes an implied representation that the opinion or belief is held by the issuer.

i. Contentions of the parties and the Government

The defendants, adhering to their briefs, denied that the statement of opinion at issue in the case, or any statement of opinion, included a representation that the opinion has a reasonable basis. Their position asked for the most literal interpretation of Section 11 and the challenged statement. The issuer had stated in the registration statement that it held a belief, and the only issue in defendants' view was whether plaintiffs had pled particular facts showing it did not hold the belief in question.

Several Justices appeared to challenge defendants' position, almost from the outset of the argument. Justice Breyer amended Chief Justice Roberts' initial hypothetical discussed above ("3.5 million units of inventory in our secret warehouse") to describe an opinion of an expert as to a disputed issue (an archaeologist opines that a dinosaur skeleton is of a particular species), and asked whether one would expect that the expert had investigated the matter before speaking. If that had not been the case, Justice Breyer continued, "wouldn't you think he had issued a misrepresentation?" [5]. Defendants stuck to their guns and replied that it would clearly be a statement of opinion, with the only fact being conveyed being "the fact of the speaker's belief" [6]. Justice Breyer understood that this was the defendants' position, which "doesn't seem quite so reasonable" because any listener would expect that some investigation had been undertaken; there was an "implied statement" that the expert had "done some work to figure this out." [6]. Justice Breyer later returned to his hypothetical of an archeologist expressing an opinion about a dinosaur and posited: "He, you know, looks around, sees the sky, the mountains. There's some basis .... A registration statement, you ought to have looked into it" [12]. Justice Breyer later followed up by asking whether the law was designed to catch situations in which a registration statement made very detailed and fact-based statements of opinion "where people would think that some work was being done," but in fact "far less work had been done that anybody would think was plausible...." [14-15].

Justice Ginsburg also appeared to side with Justice Breyer by asking whether there was an implicit representation when an issuer included something in a registration statement that it had "acted with diligence in making that statement?" [8]. Justice Alito too asked whether there could be situations in which a person made a statement of belief he or she believed to be true, but lacked a reasonable basis for stating the belief [9]. Justice Sotomayor asked why it would not be the case that one would expect "some sort of reasonable basis," borrowing the Government's words, before making even predictive statements [10]. And Justice Scalia later asked defendants whether there was a difference between a factual basis and a reasonable factual basis, and why the Court should adopt a standard that set liability for a statement that had only an "unreasonable factual basis" [13-14]. All of these remarks of the Justices tended to indicate that they thought that the reasonable expectations of the reader of a registration statement was a factor in interpreting Section 11, and that there could be "an implied statement" in a registration statement regarding the underlying basis for an opinion.

Defendants replied that Congress had not required a reasonable basis for an opinion in the text of the Section 11 statute, which did not "impose an obligation on issuers of essentially providing an implied warranty for any statement of opinion that issuers make in their registration statements," and that a position that would "open up issuers to after-the-fact second guessing on matters of judgment" was problematic as a policy matter [10-11]. Defendants later stated that the lower courts had not construed Virginia Bankshares to stand for the proposition that a statement of opinion includes "an implied warranty that the speaker has a reasonable basis for that statement" [16]. Nor could a requirement to have an objectively reasonable basis for a belief be derived from the Section 11 reasonable investigation affirmative defense [56-57]. The text of Section 11 did not specifically impose liability for statements made without a reasonable basis, when the statute could have been written to do so; and the SEC could exercise its statutory authority to specify what information should be included in a registration statement or prevent a registration statement from becoming effective if it believed that there was an issue about opinions that were "objectively false" [57-58].

However, defendants did not contend that an alleged lack of a reasonable basis for an opinion is irrelevant to assessing Section 11 liability. Rather, if making statements of opinion in the absence of a reasonable basis was a concern of the Government or the courts, it could be addressed through imposing a subjective falsity standard. The ultimate legal inquiry would be whether the speaker did not hold the stated belief, and the facts of Justice Breyer's hypothetical positing a lack of any investigation by the dinosaur expert could constitute circumstantial evidence that the expert did not possess that belief [7-8] (or, to the contrary, that the expert held it so firmly that he or she found investigation unnecessary). The same point arose later when Justice Ginsburg noted that Virginia Bankshares included a statement that "conclusory opinions in a commercial context are reasonably understood to rest on a factual basis that justifies them as accurate" [15]. Defendants interpreted the statement, in context, as standing for the proposition that a lack of any basis for making a statement "may be relevant in showing disbelief" as well as in showing objective falsity [15-16]. A plaintiff "is not restricted to smoking gun evidence that the speaker did not possess the stated belief," but could state a claim based on a lack of investigation, provided that the allegations to that effect met a plausibility standard [9]. In response to Justice Alito, defendants opined that there will be "comparatively few cases" where a speaker had a stated belief "but lacked any basis for it whatsoever" [9]. If, however, it could be alleged that there was no factual basis whatsoever for a statement, that would suffice for plaintiffs to go forward [12, 13].

Applying their proposed standard to the case at bar, in response to Justice Ginsburg's question, defendants explained why the complaint did not allege that they had no reasonable ground to believe that the agreements at issue in the case were lawful. Plaintiffs had disclaimed any allegation relying on fraud or intentional misconduct, and did not appear to assert that their case could proceed under the subjective falsity standard advocated by defendants [17]. Even under the Government's proposed reasonable basis standard, the defendants would have a very strong argument on remand because the allegations of a lack of a reasonable basis were conclusory [17-18].

On rebuttal, defendants reiterated that the representation made by a statement of opinion is nothing more than that the speaker holds the belief that the statement is true. If that is the case, simply stated, the statement is true if the issuer indeed holds that opinion, and untrue if it does not [56]. Whether there is a reasonable basis for such a statement is itself a judgment, a matter of opinion [55]. The supposedly omitted facts about a lack of a reasonable basis are not facts that are necessary to make the statement not misleading, as a statement of opinion does not imply that it has a reasonable basis in the first place.

The other interlocutors at the oral argument rejected the defendants' position. Plaintiffs endorsed the reasonable basis standard that the Government had argued, while also going beyond that standard [28, 32]. Justice Kagan returned to this issue by stating that she thought that as of this point in the argument, plaintiffs had not disagreed with defendants that the only untrue statement in an opinion is whether the person holds it, and asked whether plaintiffs were relying on the omissions language in Section 11 for their position [35-36]. Plaintiffs replied by citing the language in Virginia Bankshares to the effect that an opinion also makes an implied statement as to the subject matter of the opinion. Either that basis or the omissions language in Section 11 supported plaintiffs' position [36-37]. Justice Sotomayor noted that in Virginia Bankshares, it was stipulated or proven that the speakers did not believe their opinion. Plaintiffs replied that would be anomalous to require proof of the defendants' state of mind for the Section 11 statute, which has strict liability and places the burden on defendants to justify an opinion when that term is used in the statute (in the context of auditors' opinions) [38-39].

The Government began its oral presentation by opining that the parties had offered "two extreme positions," when "the answer lies in the middle." [43]. Section 11 forbids not only statements that are not literally accurate, but statements that are misleading as a result of a material omission [43-44]. This applies to the case at issue, "where we're talking about whether something in a registration statement has a reasonable basis." The Government argued that the lack of a reasonable basis for an opinion is an omitted fact that makes the statement about the opinion misleading [44]. Later, Chief Justice Roberts asked why the Government's position could not be addressed through the subjective falsity standard as defendants had suggested: "Why can't that be submitted to the jury? In other words, you can look, not to see if in fact it has a reasonable basis, but to use the evidence about how unreasonable the basis must be to suggest that the belief was not sincere?" [52]. The Government agreed that subjective falsity was probative evidence in a Section 11 case, but the Section 11 statute does not limit liability to statements that are literally untrue (here, that the defendants "believe" something). It could be literally true that speaker had the belief, but the statement was nevertheless misleading [52].

According to the Government, the Sixth Circuit had not focused on the lack of reasonable basis standard and hence remand was required to address that standard, although there were some elements of the complaint that could allow it to be re-pleaded under that standard [49]. Defendants concurred that were the Court to adopt the Government's legal standard of "whether or not there was a reasonable basis for the opinion," it would need to vacate the opinion and remand because the Sixth Circuit had not applied that standard [17]. Later, in questioning plaintiffs, Justice Breyer opined this was one of the aspects of the Sixth Circuit's decision that "do require reversal." The Sixth Circuit had opined that state of mind was irrelevant, but if the standard is whether the issuer had a reasonable basis for its opinion, that is a fact about its state of mind [27-28].

ii. Assessment: the "middle position" will prevail

We think that the defendants' position that the only representation in the expression of a belief or opinion is that the speaker holds it has significant appeal to Justices who prioritize literal interpretation (as it perhaps did for Chief Justice Roberts) because it is simple and literal. We are skeptical of attempts to create implied statements on the part of an issuer or other speaker that are not based on the words actually used by the speaker and we think the reasonable expectations of a reader of a registration statement should be strictly tied to the statutory language and avoid "implied representations." Moreover, if the concern about including statements of opinion and belief is (as expressed by the Government) that some statements should not be put into a registration statement without an investigation, the defendants have a point that the SEC can remedy that concern by either forbidding issuers from making such statements (as it formerly forbid issuers from making earnings forecasts) or requiring registration statements to explicitly disclose the bases for opinions and belief where such statements are made in the document. After all, registration statements are heavily regulated documents; Regulation S-K is lengthy and detailed, and the SEC conducts a meaningful review of registration statements, often sending comment letters, before it declares them effective.

That being said, five Justices vigorously questioned the defendants' position on this issue and \ or made statements expressing support for the Government's presentation: Justices Alito, Breyer, Ginsburg, Scalia, and Sotomayor. Moreover, as elaborated in Section 3(E)(i) below, Justice Kagan questioned the parties about an additional prong of the Government's standard that also could impose Section 11 liability for sincerely held statements of opinions or belief: the proposition that such statements could be misleading by the failure to disclose facts contrary to the expressed opinion. The questions or statements on the part of these Justices support the forecast that the Court will adopt some version of the Government's "middle position," which plaintiffs also urged. In other words, we think the Court likely will hold that a statement of opinion or belief includes an implied representation that the statement had a reasonable basis and was subjectively held, and that a statement of opinion or belief may be misleading for Section 11 purposes if the plaintiff can plausibly allege that the statement lacks any reasonable basis or if the issuer did not genuinely hold that opinion or belief. [FN 8] At a minimum, the alleged absence of any reasonable basis for a statement of opinion or belief may be used under the defendants' alternative approach to attempt to plead that the persons responsible for a registration statement could not have, and therefore did not genuinely possess, that opinion or belief. Under either alternative, we believe the presence or absence of any reasonable basis for a statement of opinion or belief will be relevant to the element of falsity.

However, it is only the starting point in assessing the potential implications of Omnicare to conclude that the decision will render the existence or absence of a reasonable basis relevant to falsity for Section 11 purposes. In the remainder of this article, we try to assess how the Court will address the issues that a "reasonable basis" standard would create in adjudicating Section 11 cases, and the implications its answers will have for transactional attorneys and litigants.

C. What Type of Allegations Would Be Sufficient to Challenge A Reasonable Basis?

If a "reasonable basis" standard is recognized as the standard for liability for statements of opinion or belief under Section 11, the next analytical task-which the Court itself identified-is to assess how the law will define a "reasonable basis, " and more particularly, how plaintiffs may plead the absence of a reasonable basis supporting an opinion.

i. Contentions of the parties and the Government

Inasmuch as defendants opposed a reasonable basis standard in their briefs and oral argument, it is not surprising that they contended at oral argument that such a standard would be amorphous and that applying it would lead to adverse policy consequences. Defendants contended that once the inquiry starts to look into how the speaker had actually arrived at the challenged opinion, "you're really getting into a matter of opinion" [9-10]. Soon thereafter, Justice Scalia asked whether there was a difference between a factual basis and a reasonable factual basis, and why the Court should adopt a standard that accepted an "unreasonable factual basis" for liability purposes [13-14]. Defendants replied that the Court should be careful in setting any factual basis standard. Turning to the context of the case, which involves a statement of legal compliance, defendants argued there could be two differing legal opinions as to whether a particular practice was legal. The issuer would have to have at least some basis for a statement, but its statement "may be open to after-the-fact determination as to whether or not that was a reasonable basis in light of the fact that there was a competing opinion" [14]. Defendants returned to this position in the rebuttal argument. A reasonable basis standard for statements of opinion or belief would "require[] some evaluation of whether the basis is sufficient," which itself is a matter of judgment and opinion [55]. The amorphous character of the reasonable basis standard was confirmed by the Government's and plaintiffs' explanation that it depends on the context, which would not provide clarity or predictability [59]. The lack of clarity and predictability would chill the disclosure of matters of opinion, as there are very few opinions (such as those of the auditors) that specifically are required in a registration statement [59-60].

In response, Justice Breyer acknowledged that the defendants had made a good point "that it isn't so easy to figure out exactly what the standard is" [14]. This followed the Justice's earlier question why a standard under which "[t]here has to be a factual basis for making" statements would not work [11], and his comments that whether a factual basis existed would depend on context and the decision of the factfinder [12-13]. Justice Alito also thought that defendants had a point that a reasonable basis standard was open-ended [39], and as noted below asked plaintiffs about this issue.

For their part, plaintiffs acknowledged that under the common law, if a speaker obtains an opinion from an expert (such as an expert archeologist in Justice Breyer's dinosaur hypothetical, or an art appraiser), "you're allowed to rely on the truth of the assertion," provided that the statement relying on the expert is phrased as an opinion [30]. In the case at issue, however, plaintiffs intended to prove on remand that "a person would not reasonably conclude that this activity was legal" as there had not been such information from counsel; rather, counsel allegedly had informed the issuer that the contractual agreements at issue were not legal [34, 42].

Questioning the plaintiffs, Justice Alito inquired further, asking, "if it's not purely subjective, if it's the reasonable basis test, what does that mean?" [39]. Plaintiffs replied that the common law had long addressed this issue. In this case, plaintiffs would be required to prove, with respect to the hedged statements of legal compliance ( which could constitute opinions in plaintiffs' view), that the company "couldn't reasonably hold this legal view" under the alleged facts of the case (the alleged kickbacks) [39]. Judge Alito pressed on this point by presenting plaintiffs with a hypothetical that a CEO was told by compliance personnel that no bribes were being paid and hence that the contracts were legal. He asked plaintiffs how much further investigation the CEO would have to undertake in order to express a belief to that effect [40]. Plaintiffs replied that according to Section 11, reasonable investigation is an affirmative defense, and hence the burden is on the defendant to show a reasonable investigation [40-41]. However, under the middle ground position, the CEO's statement implied that he had a reasonable basis for it, and that "[w]e then will have to prove as the plaintiffs that there was not a reasonable set of facts that could lead them to say this" [41].

Justice Alito stated that he was still uncertain as to what a reasonable basis would be, and in response plaintiffs stated that what constitutes a "reasonable investigation" depends on the context. Thus, there could be circumstances in which a heightened obligation to investigate existed based on the facts known to the CEO at the time, but there also could be circumstances in which a CEO could express a belief that something was legal if told by the General Counsel that it was legal [41-42]. Pressed further by Chief Justice Roberts, Plaintiff agreed with the Chief Justices' statement that in the final analysis, if the General Counsel tells the CEO and others at the company (given that the CEO is not the only signatory of a registration statement affiliated with the registrant) that no bribes had been paid, "it is reasonable to say that in our opinion, bribes were not being paid" [43]. [FN 9]

For its part, the Government stated that a "reasonable basis" meant "a basis that would be expected under the circumstances...." [44]. In the context of an opinion, the type of things that would be omitted material facts for purposes of Section 11 liability "are things that undercut a basis that you would expect...." This included a lack of any investigation whatsoever [46, 52]. The Government further explained that:

this no reasonable basis standard is really something that polices the egregious cases because it has to be the case that the plaintiff can come forward with information and that the basis that the company had is really outside the bounds of reasonableness, and we need to have it for egregious cases, for example, if there was a company that really did no investigation before putting statements like financial statements or financial predictions in its-

[50]. Soon thereafter, Justice Breyer questioned whether it would be difficult to meet this standard other than by alleging that no investigation whatsoever had been made, and hence that no reasonable basis for an expressed opinion existed [51].

ii. Assessment: many reasons to believe

It is difficult to conceive of a reasonable basis standard for pleading the falsity of a statement of opinion and belief that does not depend to some extent on the context of the statement at issue. Usually, what is "reasonable" means what is reasonable under the circumstances, and if the Court adopts the Government's position across the board, it will include the Government's gloss that a reasonable basis for an opinion is the basis one would expect for such an opinion-which is a contextual inquiry and one that would likely not provide predictive value.

The Government's assessment was that a reasonable basis standard would affect only the "egregious cases." This statement could prove accurate, for two reasons. One reason was acknowledged by all sides of the argument: registration statements tend to be detailed, carefully-crafted and supported documents. [FN 10] The other reason-which also found some support from all sides to the argument-is that case law already recognizes several types of reasonable bases for making statements of opinion or belief challenged in securities cases, which presumably have affected and do affect due diligence for preparing registration statements.

One reasonable basis to make a statement of opinion or belief is information supporting the statement obtained from persons knowledgeable about its subject matter. While the parties disagreed whether this had occurred in Omnicare-plaintiffs alleged that the company's lawyers had informed it that the contracts at issue were not legal-there was no disagreement at the oral argument that information provided by a subject matter expert provides a reasonable basis for expressing a belief that a statement is true, at the very least if there are no additional facts contradicting that information (a topic discussed in Section 3(E) below).

The case law recognizes that a person responsible for a statement may rely on information provided by persons knowledgeable about the subject matter of a statement. While this case law derives from the Section 10(b) context, where scienter is required, the information provided in support of a statement was discussed in the context of falsity under a reasonable basis standard. Thus, in In re Seagate Technology II Sec. Litig., No. C-89-2493(A)-VRW, 1995 WL 66841 (N.D. Cal. Feb. 8, 1995), aff'd, 98 F.3d 1346 (9th Cir. 1996), summary judgment was granted in a case challenging a disc drive company's forward-looking statements about the demand for its products on the basis that the statements were not materially misleading. Some of the challenged statements were non-specific projections of demand made by an officer. Applying a reasonable basis standard, the court ruled that the statements were not actionable because, inter alia, they "were consistent with contemporaneous projections by both independent industry analysts and [the company's] marketing department." 1995 WL 66841 at *8. [FN 11] More recently, In re Corning, Inc. Sec. Litig., 349 F. Supp. 2d 698 (S.D.N.Y. 2004), granted summary judgment in a lawsuit alleging that Corning failed to disclose and take $1 billion reserve for potential litigation liability from defective breast implants manufactured by a joint venture, Dow Corning. The general manager of the business unit testified that he had told the company's board that an adverse jury verdict in an early product liability case was an aberration and contrary to the company's scientific findings about the product. The directors and other officers also testified that they had been assured consistently by the joint venture's workers that the product was safe, and that the senior officers and the company's lawyers continued to provide this information after another adverse litigation outcome. The court cited these facts in ruling that the company did not have or breach any duty to disclose under the securities laws. [FN 12]

Another reasonable basis to make a statement of opinion or belief, related to the reason discussed above, is that the statement was the product of a deliberative system or process. This is illustrated by Mathews v. Centex Telemanagement, Inc., No. C-92-1837-CAL, 1994 WL 269734 (N.D. Cal. June 8, 1994), which granted summary judgment on a claim that the company had set inadequate reserves for uncollectible receivables. The court characterized the setting of reserves as a matter of judgment and opinion, anticipating Fait. The defendants had "performed a detailed review" of its receivables and relied on outside auditors. Id. at *4. While plaintiffs' expert arrived at different conclusions (which defendants challenged), the court ruled that it "need not reconcile those differences of opinion, because they are just that; that is, differences of opinion. They are not evidence of misstatements or material omissions." Id. at *5. Likewise, In re Sybase, Inc., Sec. Lit., 48 F. Supp. 2d 958 (N.D. Cal. 1999), granted summary judgment for defendants in a lawsuit challenging a database company's earnings forecasts, which are a type of opinion or belief (as acknowledged at the oral argument of Omnicare). The defendants introduced evidence that the forecast was the product of a process that gathered and assessed information from a variety sources within the company. The court ruled that the forecast that resulted from that process was neither false nor misleading under a standard that included falsity based on a lack of a reasonable basis. Id. at 961, 962. While plaintiffs pointed to other internal metrics within the company and claimed that they pointed to a different forecast, the court replied: "After a thorough review of all of the evidence, the Court rejects plaintiffs' invitation to second guess [the company's] elaborate forecasting system." Id. at 962. Eleven years later, the Ninth Circuit affirmed summary judgment in a lawsuit challenging another database company's earnings forecasts, In re Oracle Corp. Sec. Litig., 627 F.3d 376, 389 (9th Cir. 2010), ruling that as a result of the company's "thorough forecasting process, plaintiffs are unable to prove that defendants lacked at least a reasonable basis for their belief in the 3Q01 forecast." Id. at 389. [FN 13]

The existence of a reasonable basis to make a statement of opinion or belief is buttressed when the statement is supported by internal forecasts. Thus, in In re Cypress Semiconductor Sec. Litig., 891 F. Supp. 1369, 1375 (N.D. Cal. 1995), aff'd, 113 F.3d 1240 (9th Cir. 1997), summary judgment was granted because a company had "more than reasonable basis" in making a public forecast that was supported by its internal forecast, where the internal forecasting system had proven accurate. [FN 14] A reasonable basis is further buttressed where actual historical results supported the process and the statement produced by the process. [FN 15]

Finally, the involvement or oversight of legal counsel in the process that results in a statement of opinion or belief provides further support for the existence of a reasonable basis for the statement (as plaintiffs acknowledged at the oral argument). This factor has arisen most often in addressing a defendant's good faith in making a public statement. Counsel's involvement is often a part of a broader process by which such statements are prepared. It is reasonable for corporate officials to rely on such processes, and their reliance establishes good faith. Thus, in Dellastatious v. Williams, 242 F.3d 191 (4th Cir. 2001), outside directors of SAIL were sued as controlling persons under Exchange Act Section 20(a) and Virginia law, based on allegations that the company's offering documents were false and misleading. In assessing the good faith defense to both claims, the court reasoned that under corporation law, "as long as directors have no knowledge that makes reliance unwarranted, they may rely on financial statements prepared by corporate officers, legal counsel, or public accountants." [FN 16] Here, it "was reasonable for [the defendants] to delegate the creation and review of SAIL's offering documents to SAIL's officers ... and their attorney...." Moreover, the documents had then been reviewed by a former attorney for the SEC. Id. at 196. Notwithstanding plaintiff's criticisms that the defendants had not reviewed every draft or had heard concerns about certain drafts, the court held that because the defendants had relied on SAIL's "system for identifying and correcting any errors in the offering documents," defendants had established their good faith as a matter of law. Id. at 197. [FN 17]

We draw two main conclusions from the legal context set forth above for the future of Section 11 litigation. First, even if the Court adopts a standard under which a statement of opinion or belief may be false when made if it lacks any reasonable basis (as we predict the Court will do), this will not mean that Section 11 plaintiffs are more likely to prevail. Rather, it will mean that in the registration process going forward, the identification of the bases for opinions or beliefs expressed in the offering statement are more likely to be memorialized; and that in litigation, the parties to a Section 11 case will focus their efforts on identifying or refuting reasonable bases for the statements of opinion at issue in the case, drawing from the case law that already has addressed this topic, and set forth the many types of reasonable bases to believe a statement of opinion. In the next two sections, we analyze what this effort will look like at the pleading stage and at summary judgment, respectively.

Second, if the Government is correct, there will be few cases in which Section 11 liability will be found on the grounds that a statement of opinion lacked any reasonable basis. If that is the case, plaintiffs will be incentivized to resist the characterization of the statements at issue in a Section 11 case as statements of opinion or belief, while defendants will be incentivized to argue that the statements fit in that category-even though (under this hypothetical) there will be a new and additional basis for pleading falsity for statements of opinion or belief as compared to prior law in the Second and Ninth Circuits.

D. How Would Plaintiff Plead The Absence Of Any Reasonable Basis?

The next issue in assessing the potential implications of Omnicare is the guidance the decision may provide about what a Section 11 complaint must plead in order to state a claim that a statement of opinion or belief was false or misleading on the grounds that it lacked any reasonable basis.

i. Contentions of the parties and the Government

There was little discussion on this issue at the oral argument. The Government opined that ultimately, a Section 11 plaintiff has the burden to come forward with and allege a specific omitted fact that should have been included with a statement of opinion in a registration statement so as not to make the opinion misleading [44, 46, 51]. As noted in the previous section, the omitted fact for a statement of opinion and belief could be that no investigation existed to support the statement, or a description of the investigation which may show it was less robust than one would expect under the circumstances. However, allegations to this effect have to be based on information existing at the time of the registration statement, in order that the statement of opinion can be alleged to have been false when made. Echoing the position in its brief, the Government argued that it disagreed with Sixth Circuit to the extent that that court would allow liability by hindsight; that is, allow the plaintiff to plead facts that came into existence later as a basis for pleading that a statement was false when the registration statement became effective [46].

Two Justices appeared to reach opposite conclusions about the difficulty plaintiffs would face in meeting this standard. As noted, Justice Breyer questioned whether it would be difficult to plead a claim other than by alleging that no investigation whatsoever had been made [51]. Justice Alito, in contrast, asked whether it would be too easy for plaintiffs to plead the falsity of a statement of opinion or belief if, later in time, a fact opposite to the opinion emerged; plaintiffs would allege that a reasonable investigation at the time of the registration statement would have discovered those opposite facts [47, 48]. The Government replied that allegations of a lack of reasonable investigation cannot be conclusory under Twombly and Iqbal, and that Rule 9(b) may also apply (as it did in Omnicare) [47, 50].

Defendants, for their part, opposed a reasonable basis standard and did not suggest how it could be pleaded (other than that the standard would be amorphous and hence lead to results contrary to public policy). Plaintiffs stated that they intended to prove on remand that "a person would not reasonably conclude that this activity was legal" as there had not been such information from counsel; rather, as their amended complaint alleged, counsel allegedly had informed the issuer that the contractual agreements at issue were not legal under any interpretation of the pertinent regulations [34, 42]. In other words, consistent with their brief, plaintiffs contended that the amended complaint already pleaded that there was no reasonable basis for the statements of legal compliance at issue in the case. The Government later supported this position by opining that these allegations could allow falsity to be pleaded under a lack of a reasonable basis standard without the need to engage in pleading falsity by hindsight [49-50].

ii. Assessment: plaintiffs must plead facts showing the absence of any reasonable basis and cannot plead the existence of any reasonable basis

In our assessment, there was no dispute among the parties or the Government that even if the Court adopts the Government's "middle position," a Section 11 plaintiff will have the burden to plead that a statement of opinion or belief lacked any reasonable basis at the time it was made, via non-conclusory allegations to that effect. The absence of a dispute on this point is understandable in the context of the allegations of the Omnicare amended complaint. Both plaintiffs and the Government read the complaint to allege that as of the time of the registration statement, the issuer had been told the statements of opinion or belief regarding legal compliance were false by persons in a position to provide valid, expert information about the statements-i.e., the attorneys, who allegedly had opined that the company's contractual arrangements were not legal. In these alleged extreme circumstances, assuming that the allegations are sufficiently specific and non-conclusory, the burden to plead a lack of any reasonable basis for an opinion that the arrangements were legal is met.

We also think that if the Court adopts the Government's position that the falsity of a statement of opinion and belief may be pleaded by specific allegations that the opinion lacked any reasonable basis, it will also adopt the Government's caveat that the allegations must indicate that the statement was false when made (that is, when the part of the registration statement containing the challenged statement became effective). Again, plaintiffs did not object to this caveat because they did not need to do so under their theory of the case. This caveat follows from the text of Section 11(a), which allows suit "[i]n case any part of the registration statement, when such part because effective contained an untrue statement of a material fact or omitted to state a material fact required to be stated therein or necessary to make the statements therein not misleading...."; the Government and plaintiffs placed much emphasis on the statutory text of Section 11 in supporting their positions. The caveat also follows from the objective standard for identifying statements of opinion and belief referenced in Section 3(A)(ii) above. If a statement is one of opinion because reasonable persons could reach different conclusions about its subject matter at the time the statement was made, the need for a reasonable basis for the statement is grounded on the information that exists at the time the statement was made.

At the same time, Omnicare will not answer all of the questions one might ask about pleading a lack of any reasonable basis for statements of opinion and belief in Section 11 cases. Omnicare is an extreme case, as it should rarely be the case that an issuer will include statements expressing legal opinions in a registration statement that its attorneys have advised are untrue (assuming the truth of plaintiffs' allegations). Hence, the Court's decision in the case may not provide much guidance as to whether and how a lack of any reasonable basis for a statement of opinion or belief may be pleaded in less extreme circumstances.

Moreover, the statements of legal compliance at issue in Omnicare are susceptible to different interpretations. In one sense (as defendants interpreted the statements in their briefs), the statements were opinions that the company's contractual arrangements might be deemed legal or might not be deemed legal if they were examined by a court, and that the answer was not known to the issuer with certainty at the time of the registration statement. (An example of such a statement would be, today, "in order to plead falsity for a statement of opinion or belief in a Section 11 case, a plaintiff must plead that the persons responsible for the statement did not genuinely believe it," when the truth of that proposition will not be known until the Supreme Court decides Omnicare next year.) Plaintiffs and the Government contended that even under this interpretation, a lack of any reasonable basis was alleged on the grounds that the issuer had been told that the arrangements undoubtedly were illegal. If the Court sets forth a pleading standard under this interpretation, it will be relatively easy to understand and apply, even as (as explained above) it was created in an extreme factual context.

In another sense, however (and as plaintiffs interpreted the statements at one point in their brief and oral argument), the statement of legal compliance at issue in Omnicare represented a statement that no set of facts existed that rendered the contractual arrangements illegal, regardless of how the pertinent regulations were construed and the potential that they may be construed differently in the future. In plaintiffs' position, there was no reasonable basis for the statement and the statement was objectively untrue because contrary facts did exist; allegedly, the company had paid bribes, which, if this had occurred, no one disputed were illegal under any interpretation of the law. This scenario was barely discussed at oral argument, and hence it is uncertain whether the Court's opinion will provide guidance for a statement interpreted in this manner. In other words, there will not be a one-size-fits all pleading standard even for statements of opinion or belief; the standard will depend on what type of opinion is expressed, and whether a statement can be characterized as a hybrid of opinion and objective fact. [FN 18]

A point on which we are more confident, however, is that if the Government's "middle position" is adopted, if a Section 11 complaint fails to allege that there was no reasonable basis for a statement of opinion and belief, it does not plead that the statement was false or misleading, unless it pleads in the alternative that the statement was not genuinely believed by the issuer.

Indeed, courts already have dismissed such cases. MHC Mutual Conversion Fund, L.P. v. Sandler O'Neill & Partners, L.P., ___ F.3d ___, No. 13-106, 2014 WL 3765717 (10th Cir. Aug. 1, 2014), a case cited in defendants' reply brief, held that even if a bank's statement of opinion about expected loan delinquencies and defaults could be false or misleading under Section 11 on the basis that the statement lacked any objectively reasonable basis (a proposition with which the court disagreed), falsity was not pleaded because the complaint itself alleged that the opinion was supported by information on which a reasonable issuer could rely, including the analyses of outside advisors. Likewise, City of Edinburgh Council v. Pfizer, Inc., 754 F.3d 159 (3d Cir. 2014), affirmed the dismissal of a Section 10(b) lawsuit alleging that a pharmaceutical company misrepresented the interim clinical trial data for a drug in development with a co-partner, based on the failure to plead a false or misleading statement. The complaint's allegations, at most, showed an internal difference of opinion about whether the interim results justified further testing. But one of the anonymous sources cited in the complaint admitted that the interim results showed some efficacy for an important patient subgroup, and hence it could not be said that the company's interpretation of the data to support further testing lacked a reasonable basis.

The same proposition applies at the pleading stage where a reasonable basis for an opinion is evident in matters for which a court may take judicial notice. See New Jersey Carpenters Pension & Annuity Funds v. Biogen IDEC Inc., 537 F.3d 35 (1st Cir. 2008) (affirming dismissal of complaint alleging that pharmaceutical company had no reasonable basis to represent that drug could be used in combination with other drugs, where product label for which plaintiffs requested judicial notice indicated that FDA had allowed this combination); ACA Financial Guaranty Corp. v. Advest, Inc., 512 F.3d 46 (1st Cir. 2008) (affirming dismissal of complaint alleging that college misrepresented attendance and financial aid prospects while selling dormitory improvement bonds, where statistical record of admittances and financial performance disclosed to public and subject to judicial notice showed that there was a reasonable basis for whatever optimism was expressed in the challenged statements).

Significantly, this rule would apply to all defendants to a Section 11 claim, including the issuer. The Government heavily relied on the peculiar aspects of the Section 11 statute (strict liability and the reasonable investigation affirmative defense) in contending that a statement of opinion and belief includes an implied statement that the opinion has a reasonable basis. Plaintiffs grounded the need for a reasonable basis in the reasonable investigation affirmative defense available only to individuals, and on the fact that registration statement are carefully created documents used to raise capital from investors. Regardless of whether the defendant is an individual (who has a reasonable investigation defense) the issuer (which does not), however, if a statement of opinion or belief is one that has a reasonable basis, the statement is not false or misleading.

A holding that the falsity of a statement of opinion or belief is not pleaded when a reasonable basis for the opinion is evident at the pleading stage would have implications for Section 10(b) cases. It is very possible that the proposition that a statement of opinion or belief includes an implied representation that a reasonable basis exists for the opinion will be limited to the Section 11 context in which Omnicare will be decided. Alternatively, the Court may speak more broadly and decide that any statement of opinion or belief includes an implied representation of a reasonable basis; for example, it may interpret Virginia Bankshares as holding this to be true in the Section 14(a) context. If this alternative view prevails, however, so too will the proposition that falsity is not pleaded in the Section 10(b) context if a complaint or matters of judicial notice reveal a reasonable basis for an opinion (as City of Edinburgh Council v. Pfizer already has held). Apart from this, Section 10(b) complaints also must plead a strong inference of scienter, and hence the alleged lack of a reasonable basis for an opinion will not by itself state a claim.

E. What If There Are Differences In Opinion?

As explained in Section 2(B) above, the Government's brief advanced as an alternative basis for potential liability for statements of opinion and belief, albeit not as forcefully as its principal argument based on the need for a reasonable basis for the statement: that a statement of opinion, sincerely held and with a reasonable basis, might be materially misleading for Section 11 purposes if it omitted contradictory information known to the speaker, including contradictory opinions. This position raises an additional issue that may arise from an Omnicare decision: must a registration statement disclose facts that undermine a sincerely held, reasonably-based opinion?

i. Contentions of the parties and the Government

At the oral argument, Justice Kagan was very interested in the Government's alternative position. Justice Kagan began by asking defendants whether a sincerely held statement of opinion could be misleading by the failure to disclose facts contrary to that opinion, even where the matter was a judgment call (and hence undoubtedly a matter of opinion). For example, a registration statement could state, with genuine belief, that a particular kind of transaction was lawful, but the person with that belief also might know that the company's competitors and the government vehemently disagreed and that two out of the three lawyers the person consulted opined that it was unlawful [19]. Justice Kagan followed by questioning whether, once a choice to make the statement of legal compliance had been made and "you're in the position to know and all your readers are not in the position to know," it was accurate to say that the statement was not misleading if the contrary information was not disclosed [20-21]. Even accepting the defendants' argument that this was a statement of opinion or belief on the part of management, a reasonable reader would read the statement to say that the speaker had done something to check whether the transaction was legal and that "he doesn't know anything that's very dispositive going the other way. And both of those things, I mean, could be false." [21].

Defendants responded that "it is not worth the candle to frame the legal standard" to cover a hypothetical situation in which a speaker "in the face of overwhelming contrary evidence and no basis nevertheless adheres to a genuine belief" [22]. A standard that would impose strict liability in such a situation "would open up issuers to after-the-fact second-guessing by jurors about whether or not a particular basis is reasonable" and could make it "very difficult for issuers to avoid liability at the pleading stage" [22-23, 24]. Justice Kagan replied that the strict liability nature of Section 11 existed to cover this situation, given that "it was the issuer who knows the facts, not the readers," as well as because "it is awfully hard to show subjective intent" [23].

The Government later returned to Justice Kagan's points. In its view, an omission of facts necessary to make a statement that the issuer complied with the law not materially misleading could include a situation, "as Justice Kagan said, that you have been sued [a]nd several courts have held against you" [47]. "[T]his is the kind of inquiry that comes up in omissions cases all the time," and ultimately involves a "very context-specific discussion" by the finder of fact to decide whether the omission made the statement misleading [48, 51]. The Court and other courts had addressed this type of inquiry, which has deep roots in the common law, and it also the long-standing position of the SEC [48-49]. The Government later presented a hypothetical statement that a company in litigation stated it believed it would win a lawsuit, "and the company lawyer thinks we're going to win this, we can, but they haven't been winning it, and they don't disclose the fact that there are some serious risks there." According to the Government, this is the type of statement that "really shouldn't be put in registration statements without qualification" [53]. In questioning defendants on rebuttal, Justice Kagan echoed these comments. She stated that what the Government (but perhaps not plaintiffs) was saying is that there could be omitted adverse facts (such as not checking with lawyers or that the lawyers had provided an opposite opinion) that could make the statement misleading by omission, and hence covered by Section 11 [55, 56].

ii. Assessment: one reason should be enough

In contrast to the extensive colloquy regarding the Government's main position-a statement of opinion or belief may be misleading if it lacks a reasonable basis-only one Justice (Justice Kagan) took up the Government's alternative position that a statement may be misleading based on the failure to plead contradictory facts or opinions. Even then, there is sufficient ambiguity in the expressed positions of the Government and Justice Kagan to infer that this proposition applies only if all of the facts are to the contrary of the expressed belief-or, to use Justice Kagan's phrase, if the contrary facts and opinions are "very dispositive going the other way."

In addition, although other portions of the Government's position allow for liability based on the failure to disclose contradictory facts or opinions even where there are also supporting facts and opinions, the hypotheticals used by the Government to illustrate this position are extremely vulnerable to a criticism made by the defendants: the SEC can address any concerns in this area by regulation. The hypotheticals involve statements of opinion or belief of compliance with the law (i.e., the statements at issue in Omnicare) juxtaposed with lawsuits filed against the issuer that advocate a contrary legal position ("you have been sued") and adverse developments in those lawsuits ("[a]nd several courts have held against you"). But there is already a regulation applicable to registration statements that sets forth what must be disclosed about lawsuits: Regulation S-K, Item 103, 17 C.F.R. §229.103. [FN 19] Item 103 requires registrants to disclose material legal proceedings, including proceedings known to be completed by governmental authorities. Moreover, notwithstanding comments by the parties and certain Justices about the disparity of information between the parties to a securities sale in a registered offering, it is reasonable to assume that investors know that the outcome of litigation is inherently uncertain and subject to different opinions without specific disclosures to that effect from an issuer. [FN 20]

Furthermore, the proposition that Section 11 liability may exist based on the failure to disclose contradictory facts or opinions, even where there is also a reasonable basis for the opinion, would conflict with the Government's primary position that a statement of opinion and belief may be actionable if there is no reasonable basis for it and, as defendants argued, "open up issuers to after-the-fact second-guessing by jurors about whether or not a particular basis is reasonable." In contrast, a rule that a statement of opinion and belief is not actionable if there is a reasonable basis for the statement, even if there are also contrary opinions about the truth of the statement, is consistent with the likely definition of a statement of opinion and belief as one on which reasonable persons may disagree, as set forth in Section 3(A)(ii) above.

Finally, case law in the Section 10(b) context holds that issuers need not disclose differences of opinion that may exist within the organization. [FN 21] It is possible that the Court may decide to eschew this proposition in construing Section 11 to require disclosure of opinions that may differ with those expressed in a registration statement that are held by persons outside (or within) the organization, but if it does so, it would threaten to create different (and contradictory) disclosure standards for registration statements vs. periodic reports and other post-offering investor communications. Such a rule also would impose costly additional obligations on the part of registrants to investigate, fact-check, and accurately disclose information that is not unique to the registrant at all but rather concerns external sources and facts-i.e., the opinions of persons outside the organization and the factual bases for those opinions. In the strict liability context of Section 11, additional disclosure obligations such as this impose particularly high costs, as the risk of error in characterizing someone else's position could be borne by the defendants.

For these reasons, we do not predict that the Court will adopt the Government's alternative position that the disclosure of contradictory facts or opinions is required. A registration statement may not include a statement of opinion and belief (e.g., that the issuer believes that its contracts comply with the law) when all of the information the issuer received contradicted that statement (e.g., that all of the lawyers with whom the issuer consulted disagreed with the opinion, as plaintiffs alleged in Omnicare itself); but the statement may be made so long as there is some reasonable basis for it (e.g., some lawyers reasonable advised that the contracts complied with the law), even if other facts or opinions are to the contrast (e.g., other lawyers reached the opposite conclusion).

This will not mean that the existence or lack thereof of qualifiers to a statement of opinion or belief is irrelevant to a Section 11 case. If the registration statement also discloses contradictory opinions or facts (as Justice Kagan believed was the case in Omnicare itself), those disclosures will serve to identify the statement as one of opinion and belief and reduce the capacity of the statement to be materially misleading by omission, as discussed in Section 3(A)(ii) above. In contrast, if the statement at issue is worded so as to rule out any contradictory facts or opinions-for example, if a registration statement says, "we believe there is no question but that our contractual arrangements are legal," as plaintiffs would read some of the statements in Omnicare to state-then the existence of undisclosed contradictory opinions or facts is relevant to proving the falsity of the statement

At the base line, however, so long as a reasonable basis exists for a statement of opinion or belief, such a statement is not false or misleading for Section 11 purposes. This proposition, if adopted, will have an important implication for Section 11 cases, as some courts already have recognized in the Section 10(b) context: at summary judgment, if there is uncontested evidence that any reasonable basis exists for a statement of opinion or belief, falsity will not exist as a matter of law. This is true even if a Section 11 plaintiff comes forward with evidence that there was a contrary opinion that also had a reasonable basis at the time of the registration statement. So long as one reasonable basis exists for an opinion, plaintiffs cannot argue that a different interpretation of the information was "more reasonable" or the "most reasonable." [FN 22]

Evidence of a reasonable basis for a statement of opinion or belief also will negate falsity as a matter of law even if there is evidence that persons had different opinion. As the likely definition of a statement of opinion or belief will be a statement on which reasonable persons may disagree, it is to be expected (including by investors) that different opinions about the truth of the statement will exist. Thus, the existence of contradictory opinions is simply not an indication that the statement lacked any reasonable basis. As stated in City of Edinburgh Council v. Pfizer, Inc., which addressed a life science company's expressed opinion that interim clinical trial results supported further testing of a drug in development, "the disagreement of some [company] employees with the company's interpretation of the interim results is not sufficient to show defendants' interpretation lacked a reasonable basis." 754 F.3d at 170." [FN 23]

Finally, evidence of a reasonable basis for a statement of opinion or belief also will negate falsity even if there are factors that would tend to undermine the opinion, so long as those factors were taken into account in reaching the expressed opinion. Thus, Asher v. Baxter Int'l, Inc., No. 02 CV 5608, 2009 WL 260979 (N.D. Ill. Feb. 4, 2009), granted summary judgment in a lawsuit alleging that a biotechnology company made false forecasts even though plaintiffs cited an alleged internal memorandum reporting an adverse reaction to one product sold by the company. The court responded that even if plaintiffs had authenticated the memorandum or established that any of the defendants had seen it (neither of which plaintiffs had dome), they could not raise a triable issue of fact because they had not shown that that the defendants had not already taken the issues set forth in the memorandum into account in their forecasts. [FN 24]

In light of these principles, going forward, Section 11 litigation concerning statements of opinion and belief will focus on identifying and defending reasonable bases for those opinions, if the plaintiff pleads that there was no reasonable basis for the statement in the first place and proceeds to discovery; and if the defendants identify any reasonable basis, plaintiffs will have do more than come up with either witnesses and documents that disagree with the issuer's opinion or counter-opinions. This enterprise is somewhat consistent with the steps Section 11 litigants already undertake in adjudicating the reasonable investigation affirmative defense for individuals and underwriters, which examines the processes used to prepare and check a registration statement and the reasons why particular statements are included (or not included) in the document. The differences, however, will be that if a reasonable basis for a statement of opinion and belief exists, the statement will not be false as a matter of law for all defendants, including the issuer; and it will be plaintiffs' burden to undermine every evidentially supported reasonable basis for an opinion proffered by the defendants, given than any one reasonable basis suffices.

In addition, if the Court rules that a statement of opinion or belief is false if it lacks any reasonable basis for purposes of all securities cases, rather than restricting that proposition to the Section 11 context, it will provide the Court's imprimatur to the cases cited above that have held that evidence of a reasonable basis for an opinion undermines falsity in the Section 10(b) context.

F. May A Statement Of A Sincerely Held Belief, Made With A Reasonable Basis, But Which Turns Out To Be Incorrect, Give Rise To Section 11 Liability?

The preceding sections of this article predict and address many of the implications of the post-Omnicare regime. One important question remains: what are the consequences under Section 11 of a statement of opinion that is sincerely held and has a reasonable basis at the time, but which nevertheless is incorrect-particularly if it is based on a false understanding of the facts underlying the opinion? As discussed in Section 2(C) above, a portion of plaintiffs' brief addressed this situation. However, the brief had also repeatedly characterized the statements of legal compliance at issue in the case as baseless rather than as statements that could have had a reasonable basis, and hence directed attention away from considering the statements as opinions made with a reasonable (albeit ultimately incorrect) basis.

i. Contentions of the parties and the Government

Plaintiffs started their presentation by emphasizing that a registration statement is a "very solemn document," for which strict liability inheres without the elements of reliance, scienter and causation [25]. Soon thereafter, Justice Breyer stated that he did not understand plaintiffs or the Government to argue that a statement of opinion is actionable "when it is ultimately found to be false." [27]. He also posited that plaintiffs would agree that an opinion that a fact was true (such as that a warehouse could withstand a certain wind speed for a certain time) was not actionable if the issuer had performed a variety of tests before making the statement, even it turned out to be wrong (that the warehouse collapsed under these circumstances). Rather, liability would attach to a statement that was not only false when made, but which had no reasonable basis supporting it [28].

Plaintiff replied by relying on Section 11's status as a strict liability statute (as to issuers) that assigns the risk of statement error to defendants. Statements that contain implied or express factual representations such as the hypothetical provided by Justice Breyer that turn out to be wrong are actionable, even if the defendants did their best to try to ascertain the right answer [28]. Justice Sotomayor thought that this did not make sense because it implied that a statement could be actionable if it proved later to be false, when a statement actually is true or false at the time it is made [28-29]. In response, plaintiffs substituted a hypothetical involving an opinion as to a present fact (the value of inventory in a remote warehouse as of the date of a registration statement). If despite defendants' best efforts they did not know that the statement was false (because the warehouse burned down the day before), Section 11 renders them liable [29-30]. Justice Breyer disagreed: he questioned how plaintiffs could recover if the statement was an opinion for which the defendants had some reasonable basis at the time [30].

Later, Justice Kagan stated that she thought that as of this point in the argument, plaintiffs had not disagreed with defendants that the only untrue statement in an opinion is whether the person holds it, and asked whether plaintiffs were relying on the omissions language in Section 11 for their position [35-36]. Plaintiffs replied by citing the language in Virginia Bankshares to the effect that an opinion also makes an implied statement as to the subject matter of the opinion. Either that basis or the omissions language in Section 11 supported plaintiffs' position [36-37]. In plaintiffs' view, it would be anomalous to require proof of the defendants' state of mind for the Section 11 statute, which provides strict liability and places the burden on defendants to justify an opinion when that term is used in the statute (in the context of auditors opinions) [38 39].

ii. Assessment: no liability for sincerely held, reasonably based, but erroneous opinions

We think that plaintiffs were accurate in recognizing that the "hard case" under Section 11 is a reasonably based, sincerely held, but incorrect, opinion. This is illustrated by the statement essentially at issue in Omnicare: "We believe that our contractual arrangements with other healthcare providers and pharmaceutical suppliers are legally and economically valid arrangements."

Read in one sense, the statement expresses an opinion (presumably obtained from an attorney), that the contractual arrangements are legal under a reasonable interpretation of the pertinent regulations-given all of the facts that existed at the time about those contracts, reasonably known to the speaker-but that there may be other opinions about the legality of the contents because the applicable regulations are ambiguous or have not yet been fully explicated. Under this hypothetical, so long as there was any reasonable interpretation of the regulations that rendered the contractual arrangements legal, there was a reasonable basis at the time for the statement. Thus, even if the regulations were interpreted in the future in a manner that would have deemed the arrangements illegal at the time of the statement, under the Government's position-especially as developed through the colloquy with the Court-the statement was neither false nor misleading at the time it was made (so long as the issuer believed the statement), and Section 11 liability cannot exist. In contrast, if a Section 11 complaint sufficiently alleges that there was no reasonable interpretation of the regulations as of the time of the registration statement under which the arrangements were legal (or that the issuer did not believe the statement), Section 11 liability could attach, subject to the affirmative defense of a reasonable investigation for certain defendants.

The scenario set forth above is how most of the oral argument proceeded. The statement at issue may be read in a second sense, however, as plaintiffs urged on occasion. Under this scenario, there is no ambiguity as to the contents of the regulations and what is legal or illegal thereunder at the time of the registration statement, or at least it is clear that certain contracts or practices are illegal. The issuer then states that its contractual arrangements are legal. If characterized as a statement of fact, the statement can be false if the practices that are illegal did exist; or, if characterized as an opinion, the statement can be misleading if no reasonable basis existed for the opinion that there were no illegal practices. The most difficult case to address is the following scenario: the statement is characterized as an opinion, perhaps due to the presence of qualifying facts or opinions in the registration statement; a reasonable investigation was conducted to ascertain whether the illegal practices existed; that investigation did not discover any illegal practices; but in fact such practices existed at the time of the registration statement, presumably (in this scenario) not known to the issuer.

We can foresee the Supreme Court not addressing the difficult scenario set forth above at this time. If the Court agrees with the Government (and the defendants) that the statement at issue expressed an opinion under the uncertain legal context (the first sense above), it will remand for the Sixth Circuit to assesses the amended complaint under a 'no reasonable basis' standard, without having to address the situation further. The Court may do so knowing that the plaintiffs are prepared to pursue the case under that standard, given their position that there was no reasonable interpretation of the regulations that would provide a reasonable basis for any opinion that the company's contractual arrangements were legal.

If the Court reaches the difficult case, however, it will face a conundrum. As explained in Section 3(C)(i) above, plaintiffs themselves acknowledged that in the final analysis, it is reasonable to state an opinion that was untrue at the time (that no bribes were being paid, when in fact they were) if a reasonable investigation was conducted to support that statement. Perhaps plaintiffs should not have conceded as much, given the strict liability nature of Section 11 liability for issuers; or perhaps this statement was meant to refer to an affirmative defense that is not available to issuers. Most likely, plaintiffs expressed confidence that the ultimate facts in Omnicare support liability under this standard, as by their own account the amended complaint is replete with allegations of a wide-ranging scheme to engage in illegal kickbacks.

Nevertheless, plaintiffs' acknowledgment, which makes sense, presents the Court with two options. First, the Court may derive the proposition that any statement of opinion or belief implies that a reasonable investigation and reasonable basis for the opinion exists from Virginia Bankshares, as the Government and plaintiffs urged the Court to do. This would not require the Court to define a different falsity standard for Exchange Act Section 14(a) and Securities Act Section 11, and hence would agree with the defendants' contention that the two securities statutes with identical relevant language should not be construed differently. But if a statement of opinion or belief is not false or misleading unless it lacks any reasonable basis, then a statement that had a reasonable basis produced by a reasonable investigation, even if incorrect, cannot form the basis of Section 11 liability-which is the position plaintiffs ultimately expressed at oral argument, and which comports with the Government's expressed concern that registration statements not contain opinion statements made without any investigation or basis. This would be a departure from the strict liability standard that applies to statements of facts that are not opinions. The implication of this outcome for Section 11 litigation would be to further enhance the search for reasonable bases (or the lack thereof) set forth above for opinion statements. If challenged, defendants would be incentivized to characterize statements as matters of opinion and belief, and plaintiffs would be incentivized to do the opposite. Litigation would focus on the existence or non-existence of any reasonable basis for an opinion, even if it turns out that the opinion was based on what is revealed to be factually incorrect premises.

Alternatively, the Court may adopt a position closer to that of plaintiffs' brief, under which Section 11's strict liability status assigns all risk of error in any statement-including, in the difficult case, an erroneous understanding of the underlying facts on which a statement of opinion or belief is predicated-on the issuer. The rationale for this, as sometimes argued by plaintiffs, is that issuers obtain investors' money based on a state of affairs defined by defendants in the registration statement, and if that state of affairs does not comport with reality, for whatever reason, the economic consequences should fall on the issuer (assuming that the individual defendants prevail on a reasonable investigation defense). Were the Court to accept this position, however, it would define a different standard by which a statement of opinion was false or misleading for Section 11 cases as compared to Section 14(a) (and perhaps Section 10(b)) cases, in effect holding that the scienter element or lack thereof affects the falsity element for purposes of both statutes.

The Court, however, could alleviate this difference in standards, and advance the policy positions expressed by the Government in advancing the reasonable basis standard, by recognizing the significance of the additional aspirational goal raised by the Government: that registration statements, when they include a statement of opinion or belief, also disclose any contrary opinions or facts tending to undermine the expressed opinion. As explained in Section 3(E)(ii) above, imposing such a disclosure requirement in the abstract would add significant costs to the registrant. However, the costs may be accompanied by a benefit. The Court may hold that if a registrant makes a sincerely-held statement of opinion or belief for which it has a reasonable basis, but also undertakes the effort to warn prospective investors that the opinion may turn out to be incorrect and informs investors of the reasons why this is the case so that they can conduct additional investigation before investing (as urged by the Government), the risk of error in the statement would not be borne by the defendants.

4. Conclusion

We think that the defendants' proposed standard should prevail in Omnicare. That is, we think the Supreme Court should hold that a statement of opinion or belief is rendered false or misleading under Section 11 only if a plaintiff can show it is not genuinely held by the issuer. This holding would comport with the literal language of the statute, which singles out untrue or misleading statements of fact-not opinion-as the basis for liability. Plaintiffs would not be left without a remedy if defendants made a statement of opinion or belief that lacks any objectively reasonable basis, but their remedy would be under Section 10(b) and they would have to show actual knowledge of falsity for forward looking statements (except for forward looking statements in an IPO registration statement) and scienter based on either recklessness or actual knowledge of falsity for non-forward looking statements of opinion.

Our opinions aside, we think, based on the briefs and colloquy during oral argument, that the Court will hold as follows:

• To state a Section 11 claim based on an alleged false or misleading statement of opinion or belief, a complaint will need to allege, with some degree of factual particularity (a factor that varies depending on whether Rule 9(b) applies), either than there was no reasonable basis for the statement as of the effective date of the part of the registration statement in which the opinion was included, or that the issuer did not genuinely believe the statement.

• As a result of this standard, in Section 11 cases, courts and litigants will debate whether a challenged statement is a statement of opinion or belief, which could be defined as a statement that is inherently subjective or for which the subject matter is one on which reasonable persons could reach different conclusions, each supported by a reasonable basis.

• In this debate, the preface "we believe" will be neither sufficient nor necessary to identify a statement of opinion or belief. Nevertheless, it will be a probative factor because its use signals that a statement may be one of opinion and belief, especially if there are contrary facts or opinions in the registration statement. In some cases, the inclusion of contrary facts or opinions may be sufficient to render the statement of opinion or belief so uncertain that it cannot be actionable.

• If any reasonable basis for a challenged statement of opinion and belief is evident from the allegations of the complaint or matters of judicial notice, a Section 11 claim based on that statement must be dismissed, unless the complaint alleges that the issuer did not genuinely believe the statement.

• At summary judgment, if there is uncontradicted evidence of any reasonable basis for a statement of opinion or belief-for example, that the statement was the product of a deliberative process and information from subject matter experts-summary judgment must be granted for all defendants on a Section 11 claim, even if there is evidence that a different or contradictory opinion also had a reasonable basis. One reason is reason enough.

• If the Court reaches the issue, it may hold that there is no Section 11 liability for sincerely held, reasonably based, but erroneous opinions.