Ninth Circuit Extends Omnicare to Section 10(b) Overturning Prior Falsity Standard for Opinion Statements

May 12, 2017

As popular targets for investor suits, officers and directors of public companies have another tool to defend against securities class actions, and specifically claims relating to the recording of goodwill. On May 5, 2017, in City of Dearborn Heights Act 345 Police & Fire Retirement System v. Align Technology, Inc., et al., No 14-16814 (9th Cir. 2017), the Ninth Circuit handed down a significant ruling and joined the Second Circuit in extending the standard for pleading falsity of opinion statements under Section 11 of the Exchange Act, as set forth by the Supreme Court in Omnicare, Inc. v. Laborers District Council Construction Industry Pension Fund, 135 S. Ct. 1318 (2015), to claims brought under Section 10(b). As a result, the Ninth Circuit held that its prior standard for pleading falsity by alleging that there is “no reasonable basis for the belief” under a material misrepresentation theory of liability was “‘clearly irreconcilable’ with Omnicare.” By extending Omnicare’s reach, the decision creates a considerable obstacle for securities plaintiffs seeking to bring suit on the basis of opinion statements.

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