U.S. Supreme Court justices raised doubts on Monday about an appeals court ruling that revived securities class-action claims against Omnicare Inc over whether the top U.S. provider of pharmacy services to the elderly misled investors prior to a public stock offering.
The legal question before the court is whether, under section 11 of the Securities Act, the plaintiffs need only to show that a statement expressing an opinion turned out to be untrue or whether they also need to show the company had reason to believe it was false.
Judging from questions posed during an hour of oral arguments, the most likely outcome is that the nine justices will throw out the appeals court decision.
But it is not clear whether they might allow the plaintiffs who say the company made untrue statements before the $765 million public offering in December 2005 to have a second chance to pursue their claims.
Plaintiffs who subscribed to the offering sued after whistleblower lawsuits claimed the company had paid kickbacks to nursing homes and received kickbacks from drug companies.
Several justices appeared to agree that the May 2013 ruling by the Cincinnati-based 6th U.S. Circuit Court of Appeals would need to be thrown out. But they seemed to differ over what standard the courts should adopt in weighing such claims. The appeals court said the plaintiffs had to claim only that the statement was objectively untrue.
Justice Samuel Alito said that the high court should "at a minimum" send the case back to the lower court even if it falls short of giving Omnicare a full victory. Justice Stephen Breyer said the appeals court ruling was wrong on two counts.
The U.S. government, which filed a friend-of-the-court brief, also urged the court to send the case back to lower courts.
Omnicare paid just under $150 million to settle the whistleblower claims. The subsequent securities lawsuit filed by several pension funds focused on statements the company had made saying it was in compliance with the law.
A federal judge in the Eastern District of Kentucky dismissed the plaintiffs' lawsuit in February 2012, saying they had failed to allege that Omnicare had knowingly made an untrue statement.
Business groups, including the U.S. Chamber of Commerce, backed Omnicare, saying the appeals court ruling makes it too easy for investors to bring securities class-action claims.
A ruling is due by the end of June.
The case is Omnicare v. Laborers District Council, U.S. Supreme Court, 13-435.
