No. 13-435

IN THE

>upr£me (Enuri nf lip ffiniith Jiiates

Omnicare, Inc. et al.,Petitioner,

-v.-

The Laborers District Council Construction

Industry Pension Fund and The Cement Masons

Local 526 Combined Funds,Respondents.

ON petition for writ of certiorari to theunited states court of appeals for the sixth circuit

BRIEF IN OPPOSITION TO

PETITION FOR A WRIT OF CERTIORARI

Kevin L. Murphy

Graydon Head

& Ritchey, LLP2400 Chamber Center Drive,

Suite 300

Fort Mitchell, Kentucky 41017(859) 282-8800

Darren J. Robbins

Eric Alan Isaacson

(Counsel of Record)erici@rgrdlaw. com

Henry Rosen

Steven F. Hubachek

Amanda M. Frame

Robbins Geller Rudman

& Dowd LLP

655 West Broadway,

Suite 1900

San Diego, California 92101(619) 231-1058

QUESTION PRESENTED

Section 11 of the Securities Act of 1933, 15 U.S.C.§77k, provides an express remedy for purchasers of aregistered security if the security's registrationstatement "contained an untrue statement of material

fact or omitted to state a material fact required to bestated therein or necessary to make the statementtherein not misleading."

Omnicare, Inc. issued securities pursuant to aregistration statement asserting that the provider ofpharmaceuticals to elderly residents of long-term carefacilities believed that it operated within the law -when in truth Omnicare operated by paying andreceiving illegal kickbacks, illegally promotingproducts such as Johnson & Johnson's Risperdal fordangerous off-label uses, and submitting false claimsto Medicaid and Medicare. To settle governmentalclaims against it, Omnicare eventually paid roughly$150-million (plus interest), agreeing to enter a five-year corporate-integrity rehabilitation program.

Asserting that the legality of Omnicare's conduct -including kickbacks, fraudulent billing, andpromotion of pharmaceuticals for unauthorized off-label use - amounts merely to a matter of "opinion,"Petitioners ask this Court to decide:

"For purposes of a Section 11 claim, may a plaintiffplead that a statement of opinion was 'untrue' merelyby alleging that the opinion itself was objectivelywrong, as the Sixth Circuit has concluded, or mustthe plaintiff also allege that the statement wassubjectively false — requiring allegations that thespeaker's actual opinion was different from the oneexpressed - as the Second, Third, and Ninth Circuitshave held?"

11

PARTIES TO THE PROCEEDINGS ANDCORPORATE DISCLOSURE STATEMENT

Petitioners are Omnicare, Inc. ("Omnicare"), Joel F.Gemunder, David W. Froesel, Jr., Cheryl D. Hodges,the estate of the late Edward L. Hutton, and SandraE. Laney.

Respondents are the Laborers District CouncilConstruction Industry Pension Fund and the CementMasons Local 526 Combined Funds.

In addition to the above-listed parties, IndianaState District Council of Laborers and Hod CarriersPension Fund was originally a named plaintiff in thedistrict court.

Pursuant to Supreme Court Rule 29.6,Respondents disclose that neither the LaborersDistrict Council Construction Industry Pension Fundnor the Cement Masons Local 526 Combined Fundshas a parent corporation, issues stock, or is owned orcontrolled by a publicly traded corporation.

Ill

TABLE OF CONTENTS

Page

QUESTION PRESENTED i

PARTIES TO THE PROCEEDINGS ANDCORPORATE DISCLOSURE STATEMENT ii

STATEMENT OF THE CASE 1

I. Nature of the Case 1

II. Statement of Facts 5

III. The Proceedings Below 12

A. From Filing Through InitialAppeal 12

B. On Remand: Dismissal of Strict-Liability §11 Claims for Failure toPlead Particularized FactsDemonstrating Each Defendant'sKnowledge of Falsity 14

C. The Sixth Circuit SustainsRespondents' §11 Claims BecauseKnowledge of Falsity is Not anElement of Prima Facie Liability 16

REASONS FOR DENYING THE WRIT 18

IV

TABLE OF CONTENTS—Continued

Page

I. The Petition is Grounded in a Misreading ofVirginia Bankshares 20

II. Ambiguity In Other Circuits' Decisions RaisesNo Clear Conflict Warranting this Court's Review...26

III. The Sixth Circuit's Opinion Comports with The1933 Act's Statutory Text and With This Court'sDecisions Interpreting that Text 32

IV. This Is A Poor Test Case as at Least ThreeDefendants' Subjective Disbelief is Manifest from theFacts Alleged, and as the Case Presently Involves NoAccounting Issues of the Sort Implicated by Fait 35

CONCLUSION 37

V

TABLE OF AUTHORITIES

Page

CASES

Amgen Inc. v. Connecticut Retirement Plans & Tr.Funds,133 S. Ct. 1184 (2013) 35

City of Omaha Nebraska Civ. Empl. Ret. Sys. v.CBS Corp.,679 F.3d 64 (2d Cir. 2012) 29

Costa v. Neimon,366 N.W. 2d 896 (Wis. Ct. App. 1985) 24

Crawford-El v. Britton,523 U.S. 574 (1998) 23

Crossland Sav. FSB v. Rockwood Ins. Co.,700 F. Supp. 1274 (S.D.N.Y. 1988) 24

Ernst & Ernst v. Hochfelder,425 U.S. 185 (1976) passim

Fait v. Regions Financial Corp.,655 F.3d 105 (2d Cir. 2011) passim

Franklin Sav. Bank v. Levy,551 F.2d 521 (2d Cir. 1977) 19, 28

Freeman Group v. Royal Bank of ScotlandGroup PLC,No. 12-3642-cv, 2013 U.S. App. LEXIS 19571(2d Cir. Sept. 25, 2013) 29

Freidus v. Barclays Bank PLC,734 F.3d 132 (2d Cir. 2013) 29

VI

TABLE OF AUTHORITIES—ContinuedPage

Freidus v. ING Groep, N.V.,No. 12-4514-cv, 2013 U.S. App. LEXIS 23489(2d Cir. Nov. 22, 2013) 29

FSLIC v. TexasReal Estate Counsellors,955 F.2d 261 (5th Cir. 1992) 24

Fullmer v. Wohlfeiler & Beck,905 F.2d 1394 (10th Cir. 1990) 24

Gilchrist Timber Co. v. ITTRayonier,696 So. 2d 334 (Fla. 1997) 25

Gomez v. Toledo,446 U.S. 635 (1980) 23

Haberman v. WPPSS,744 P.2d 1032 (Wash. 1987) 25

Hemmer Grp. v. Sw. Water Co.,No. 11-56154, 2013 U.S. App. LEXIS 11517(9th Cir. June 7, 2013) 27

Herman & MacLean v. Huddleston,459 U.S. 375 (1983) passim

Hildes v. Arthur Anderson LLP,734 F.3d 854 (9th Cir. 2013) 27

In re Donald J. Trump Casino Sees., Litig.,7F.3d 357 (3d Cir. 1993) 30> 31

Kleinman v. Elan Corp.,706 F.3d 145 (2d Cir. 2013) 29

Vll

TABLE OF AUTHORITIES—Continued

Page

Lawyers Title Ins. Corp. v. Baik,55 P.3d 619 (Wash. 2002) 25

Levine v. Wiss & Co.,478 A.2d 397 (N.J. 1984) 24

Litwin v. Blackstone Grp., L.P.,634 F.3d 706 (2d Cir. 2011) 29

Lone Star Ladies Inv. Club v. Schlotzsky's Inc.,238 F.3d 363 (5th Cir. 2001) 4

Matrixx Initiatives, Inc. v. Siracusano,131 S. Ct. 1309 (2011) 35

Merrill v. William E. Ward Ins.,622 N.E. 2d 743 (Ohio App. 1993) 25

Milwaukee Partners v. Collins Eng.,485 N.W. 2d 274 (Wis. Ct. App. 1992) 25

Press v. Chemical Inv. Servs. Corp.,166 F.3d 529 (2d Cir. 1999) 28

Press v. Quick & Reilly Inc.,218 F.3d 121 (2d Cir. 2000) 28

Private Mortgage Inv. Servs. v. Hotel & Club Assocs.,296 F.3d 308 (4th Cir. 2002) 24, 25

Rhode Island Hosp. Trust Nat'l Bank v. Swartz,Bresenoff Yavner & Jacobs,455 F.2d 847 (4th Cir. 1972) 24

Vlll

TABLE OF AUTHORITIES—Continued

Page

Rubke v. Capitol Bancorp Ltd.,551 F.3d 1156 (9th Cir. 2009) passim

Shatterproof Glass Corp. v. James,466 S.W. 2d 873 (Tex. Civ. App. 1971) 24

State ex rel. Nichols v. Safeco Ins. Co.,671 P.2d 1151 (N.M. App. 1983) 25

Tellabs, Inc. v. Makor Issues &Rights, Ltd.,551 U.S. 308 (2007) 5; n

Touche Ross & Co. v. Comm. Union Ins. Co.,514 So. 2d 315 (Miss. 1987) '. 24

Travelers Cas. & Sur. Co. ofAm. v. Ernst &Young LLP,542 F.3d 475 (5th Cir. 2008) 24

TSCIndus., Inc. v. Northway Inc.,426 U.S. 438 (1976) 35

United States v. Louisiana,363 U.S. 1 (1960) n

UnitedStates v. Pink,315 U.S. 203 (1942) 10

Vance v. Terrazas,444 U.S. 252 (1980) 23

Virginia Bankshares, Inc. v. Sandberg,501 U.S. 1083 (1991) passim

IX

TABLE OF AUTHORITIES—Continued

Page

Wafra Leasing Corp. 1999-A-l v. Prime Capital Corp.,192 F. Supp. 2d 852 (N.D. 111. 2002) 24

STATUTES, RULES AND REGULATIONS

15U.S.C.

§77k passim§77k(a) 3, 19, 22, 32§77k(a)(l) 3§77k(a)(2) 3§77k(a)(4) 3§77k(a)(5) 3§77k(b)(3) passim§77k(b)(3)(A) 23,34§77k(b)(3)(B) 37§77Z 28§77z-l(a)(3)(A) 12§78j(b) passim§78u-4(a)(3)(A) 12

42 U.S.C.

§1320a-7b(b) 8

Federal Rules of Civil Procedure

Rule 9(b) 14, 15Rule 12(b)(6) 11

SECONDARY AUTHORITIES

2 Thomas Lee Hazen, Treatise on the Law ofSecurities Regulation (6th ed. 2009)§7.4[2] 23

TABLE OF AUTHORITIES—ContinuedPage

Restatement (Second) ofTorts (1977)§552 24'25

STATEMENT OF THE CASE

I. Nature of the Case

This case concerns Petitioners' liability under §11of the Securities Act of 1933 ("Securities Act" or "1933Act"), for issuing Omnicare, Inc. securities in aDecember 2005 public offering pursuant to aRegistration Statement that described Omnicare as acompany that operates within the law to providepharmaceutical products and services that arecarefully tailored to elderly patients' needs.

The truth was otherwise. The nation's largestprovider of pharmaceutical-care services for elderlyresidents of long-term care facilities was in factpaying and receiving illegal kickbacks, systematicallyswitching patients from suitable medications to moreexpensive (and thus more lucrative) pharmaceuticalproducts, illegally promoting unapproved off-labeluses of dangerous psychoactive drugs, and submittingfalse claims for reimbursement to Medicaid andMedicare. Omnicare engaged with Johnson &Johnson, in particular, in an unlawful program ofbribes and kickbacks, while illegally promotingJohnson & Johnson's Risperdal for inappropriate andunapproved off-label uses, despite the grave risksposed to elderly patients' health. See infra at 5-12.

Caught red-handed in systematic misconduct,Omnicare eventually entered settlements with federaland state authorities. One made Omnicare "pay $98million plus interest ... to the federal governmentand the participating states and the District ofColumbia," and required Omnicare to enter arehabilitative five-year "Amended and RestatedCorporate Integrity Agreement (CIA) with the

Department of Health and Human Services, whichexiled "training and oversight to demonstrate ;Omnicare's commitment to comply with tneapplicable laws and regulations governingpharmacies." R138-6(Omnicare press release) ADepartment of Justice ("DOJ") press releaseexplained that the settlement 'provided forprocedures and reviews to be put in place to avoid andpromptly detect conduct similar to that which ga^eSse to these matters." R134-5(TAC Ex.5, DOJ Press

Omnicare has acknowledged that anothersettlement resolved "billing issues under theMichigan Medicaid program" by requiring Omnicareto "pay approximately $49.0 million to the State ofMichigan." R59-17(Omnicare press release).

More recently, the DOJ announced that Johnson &Johnson too has entered settlements - paying $2L2billion to resolve both criminal and civil claimsagainst it for, among other things, promotingRisperdal for impermissible off-label uses and forpaying kickbacks inducing Omnicare to submit falseclaims to federal healthcare programs. See infra 10-12.

Investors who acquired Omnicare's registeredsecurities issued pursuant to the December-2005Registration Statement, with its mislead ngdescription of Omnicare's operation, sought reliefunder §ll(a)'s provision that anyone acquiring aregistered security may sue if "any part of theregistration statement . . . contained an untruestatement of a material fact or omitted to state amaterial fact required to be stated therein or

necessary to make the statements therein notmisleading." 15 U.S.C. §77k(a).

This Court holds that §11 imposes strict liability onthe security's issuer, if its registration statement is inany material respect incomplete or misleading:"Liability against the issuer of a security is virtuallyabsolute, even for innocent misstatements." Herman& MacLean v. Huddleston, 459 U.S. 375, 382 (1983);see Ernst & Ernst v. Hochfelder, 425 U.S. 185, 208(1976) ("the issuer of the securities is held absolutelyliable").

Other defendants against whom §11 authorizes suitinclude every person who signed the registrationstatement or was a director of the issuer, 15 U.S.C.§77k(a)(l), (2), as well as "every underwriter withrespect to such security," 15 U.S.C. §77k(a)(5), andevery "accountant, engineer, or appraiser," or otherprofessional who provides an expert opinion and withits consent was "named as having prepared orcertified any part of the registration statement, or ashaving prepared or certified any report or valuationwhich is used in connection with the registrationstatement." 15 U.S.C. §77k(a)(4).

Defendants other than the issuer - which remainsstrictly liable - may avoid liability by pleading andproving an affirmative defense of "due diligence,"requiring each to demonstrate that it "had, afterreasonable investigation, reasonable ground tobelieve and did believe" that what the registrationstatement said was "true and that there was no

omission to state a material fact required to be statedtherein or necessary to make the statements thereinnot misleading." 15 U.S.C. §77k(b)(3); seeHuddleston, 459 U.S. at 382; Hochfelder, 425 U.S. at

90S- ,ee Lone Star Ladies Inv. Club v. SchlotzskfsTo' 238 F3d 363, 369 (5th Cir. 2001) ("thisis «JIffirmative defense that must be pleaded andproved").

This Court's precedents interpreting §11 thusclearly hold that" the issuer is strictly hable ifaregistration statement contains materially misleadingSements, while other defendants *£%Xof proving as an affirmative defense that <achboth

believed the statements made and after diligentinstigation actually had a™bk, basis fo^ hatbelief. See Huddleston, 459 U.S. at 382, Hochfelder,425 U.S. at 208.

Though their principal brief below did not even citeit)"ners now contend that this Court's decisionn Virginia Bankshares, Inc. v. Sandberg, 501 U.S.1083 1991), holding that corporate directorssubiect vely alse statements of opinion or belief mustXtly misleading to be actable under§14(a) of the Securities Exchange A* dM*34("'Securities Exchange Act or i»o<± ^ j,Stave compelled the Sixth Circuit to hold thatnlaintiffs seeking to state a 1933 Act §11 claim mustplead and p'ove defendants' subjective disbehef martgbtratto statement's objectively misleadingstatements of opinion.

II. Statement of Facts1

Defendant Omnicare, whose stock trades publiclyon the New York Stock Exchange under the symbolOCR, is the country's largest provider ofpharmaceutical-care services to elderly patients oflong-term care facilities ("LTCFs"), servicing morethan 1.4 million LTCF patients nationwide.Rl34(TAC1JH2-3, 16). But Omnicare's mode ofconducting business, when the RegistrationStatement for its December 2005 registered offeringbecame effective, was seriously at odds with thepicture painted by the Registration Statement. TheRegistration Statement falsely told prospectiveinvestors that the company soliciting their moneyoperated within the law, serving the needs of elderlypatients in LTCFs. In truth, Omnicare generated itsrevenues by systematically switching patients tomore-expensive pharmaceutical products whether ornot in the patients' interest, by illegally promotingpharmaceuticals' dangerous off-label uses, by takingunlawful kickbacks for promoting pharmaceuticals -in direct violation of the Federal Anti-Kickbackstatute - and by submitting false claims to Medicareand Medicaid. R134(TACW-11).

1 This Statement of Facts is based on the operative

complaint's allegations which, on a motion to dismiss, must betaken as true, along with materials that are properly subject tojudicial notice. See Tellabs, Inc. v. Makor Issues & Rights, Ltd.,551 U.S. 308, 322-23 (2007). Though the pleading was styled asthe "Second Amended Complaint," see Rl34("Second AmendedComplaint"), the district court subsequently dubbed it a "ThirdAmended Complaint" or "TAC." Pet. App. at 31a n.2. This briefemploys the district court's preferred terminology.

The Registration Statement falsely representedthat Omnicare operated by ethically and lawfullypursuing elderly patients' best interests.2 In truth,Omnicare's so-called "therapeutic initiatives" weredesigned not to benefit LTCF patients, but rather toswitch them from effective but inexpensive low-profitpharmaceuticals to far more-expensive high-profitdrugs - overriding the patients' real interests in orderto inflate Omnicare's reimbursements from payorssuch as Medicare and Medicaid. R134(TACf129-45).David Kammerer, who was Omnicare's Director ofMedicaid Reimbursements until 2002, has reportedthat his duties included generating profit forecastsbased on "how much Omnicare market share could bemoved from one drug (or drug form) to another drug(or drug form)." Rl34(TAC1f3l). A former executiveassistant in Omnicare's Midwest RegionalHeadquarters between 1998 and 2005 has reportedthat Omnicare's CFO directed the creation of bogus"clinical case studies" to justify switching patients to

2 For example, Omnicare told investors that through itsPharmacy Services division, "in accordance with ourpharmaceutical care guidelines, we also provide for patient-specific therapeutic interchange of more efficacious and/or saferdrugs for those presently being prescribed," andthat Omnicare'sconsultant pharmacists offered "monthly drug regimen reviewsfor each resident in the facility to assess the appropriateness andefficacy of drug therapies." R134(TAC1U10, 27). Omnicare saidits consultant physicians offered "monthly drug regimen reviewsfor each resident in the facility to assess the appropriateness andefficacy of drug therapies, including a review of the resident'scurrent medication usage, monitoring drug reactions to otherdrugs or food, monitoring lab results and recommendingalternate therapies, dosing adjustments or discontinuing |unnecessary drugs." R134(TAC127). j

i

7

the more-expensive drugs. R134(TAC134). Accordingto Kammerer, moreover, Omnicare falsely instructedits pharmacists and physicians that the more-profitable drugs had equal or superior efficacy, andoffered cost savings for the ultimate payors.3

The Registration Statement prominently featuredOmnicare's misleading assertions that "[w]e believethat our contracts with pharmaceuticalmanufacturers are legally and economically validarrangements," and that "our contract arrangementswith other healthcare providers . . . are in compliance

3 R134(TACH37). Omnicare's "Ranitidine Initiative," forexample, was designed to needlessly switch patients to a more-expensive form of the drug Ranitidine, the second-most-prescribed drug to LTCF patients. R134(TACHl40-45).Kammerer developed spreadsheets showing that Omnicare'sprofitability could be increased by switching patients'prescriptions from inexpensive tablets to much more-expensivecapsules, in order to evade the price limit imposed on tablets bythe federal Health Care Financing Administration, now knownas the Center for Medicare and Medicaid Services.

R134(TACHH40-41). Though the tablets' price was regulated,the capsules' price was not, as capsules were rarely prescribed,generally being needed only for patients who are intubated.R134(TAC1]41). Bernard Lisitza, a licensed pharmacist andsupervisor at Omnicare's Jacobs Healthcare between 1992 and2001, reports that Omnicare instructed clerical personnel toalter prescriptions and to enter the altered orders on patients'Physician Order Sheets, which their doctors would sign off onwithout noticing the change. R134(TAC1H42-43). Lisitza hasestimated that switching patients to the more-expensivecapsules produced two to four times the revenue that Omnicareshould have received from Ranitidine sales. R134(TAC^H38,

41).

8

with applicable federal and state laws."Rl34(TACt46). The TAC details how those contractsin fact violated the federal Anti-Kickback Statute, 42U.S.C. §1320a-7b(b), which prohibits payments toinduce the purchase —or even the recommendation —of pharmaceuticals to be paid for by a federallyfunded health-care program. R134(TACH147-90).The TAC sets out particularized allegations,identifying specific companies involved, and theproducts for which Omnicare arranged to receiveillegal kickbacks. E.g., Rl34(TACtf77-90).

Violations of the Anti-Kickback Statute can have

serious consequences, including legal liability.Violators also are potentially subject to exclusionfrom participation in federal healthcare programs,such as Medicaid and Medicare. R134(TACf50).State laws, moreover, condition Medicaidreimbursements on certifications of legal compliance.R134(TAC!50).

The Registration Statement affirmatively (butfalsely) advised investors that Omnicare conducted itsbusiness in a lawful and ethical manner, assertingthat its consultant pharmacist services "help clientscomply with the federal and state regulationsapplicable to nursing homes," rendering particular"assistance to the nursing facility in complying withstate and federal regulations as they pertain to druguse." R134(TAC1J91). Yet, Omnicare was in truthviolating the Federal Anti-Kickback Statute, workingwith pharmaceutical manufacturers to promote drugsfor off-label use in violation of the Food, Drug andCosmetic Act, working with pharmaceuticalmanufacturers to evade "Best Price" detection in

violation of the Medicaid Drug Rebate Statute, andviolating the federal False Claims Act with

9

fraudulently inflated billings to Medicare andMedicaid. Rl34(TACtU92-98).

Omnicare arranged with Johnson & Johnson, inparticular, to promote Risperdal - a powerful anddangerous atypical antipsychotic drug - for off-labeluse that the FDA had specifically rejected.Rl34(TAC1f1f6-8, 67-71). Because only 1% of theelderly population suffers from schizophrenia, for thetreatment of which Risperdal had FDA approval,Omnicare and Johnson & Johnson togetherimplemented an initiative promoting the dangerousantipsychotic for far more extensive unapproved off-label use by patients suffering from dementia -thereby violating FDA regulations and endangeringLTCF patients. R134(TACW, 69). Omnicare's off-label promotion of Risperdal was linked to increasedincidence of cerebrovascular adverse events amongthose patients, including stroke and death.Rl34(TACf7).

Omnicare's misconduct with Johnson & Johnsonresulted in qui tarn complaints on behalf of theUnited States against Omnicare, R134(TACf5), andagainst Johnson & Johnson. R134(TAC1f16-7).

The TAC details how Omnicare eventually entereda settlement with the DOJ to resolve extensiveallegations of wrongdoing, by attaching (and thusincorporating by reference) the DOJ's press releasedescribing how Omnicare had systematically"solicited or paid a variety of kickbacks." R134-5(TACEx.5, DOJ Press Release). The DOJ explained thatOmnicare had, for example, "allegedly solicited andreceived kickbacks from a pharmaceuticalmanufacturer, Johnson & Johnson (J&J), in exchangefor agreeing to recommend that physicians prescribeRisperdal, a J&J antipsychotic drug, to nursing home

10

patients." R134-5(TAC Ex.5). "J&J's kickbacks toOmnicare took multiple forms, including rebates thatwere conditioned on Omnicare engaging in an ActiveIntervention Program' for Risperdal and paymentsdispensed as data purchase fees, educational grants,and fees to attend Omnicare meetings." Id.

Omnicare's illegal conduct had by no means endedthere. "The government further alleged thatOmnicare regularly paid kickbacks to nursinghomes," and also "that Omnicare solicited, and IVAXpaid, $8 million in kickbacks in exchange forOmnicare's agreement to purchase $50 million mdrugs from IVAX." Id.

'"The defendants broke the law to take advantageofour nation's most vulnerable citizens - the elderlyand the poor,"' explained the Assistant AttorneyGeneral for the DOJ's Civil Division. Id. Andtaxpayers had to foot the bill, through programs suchas Medicare and Medicaid.

Although it is not part of the record below, thisCourt may judicially notice the fact that Johnson &Johnson on November 4, 2013, entered settlementstotaling $2.2 billion that covers its misconduct withrespect to Risperdal and payment of illegal kickbacksto Omnicare.4

4 The DOJ's November 4, 2013, press release and theterms of the settlements it describes are a matter of publicrecord and are available online. Seehttp://www.nistir.fi.gov/opa/pW9.013/Novemhern 3-ag-1170.html(DOJ press release) (last visited Jan. 6, 2014);http://www.iustice.gov/ow/n-pc-docs.html Ginks to court filings)Cast visited Jan. 6, 2014). That courts may judicially noticepublic documents and court records is well established. SeeUnited States v. Pink, 315 U.S. 203, 216 (1942) (noticing record

11

The DOJ announced on November 4, 2013, that"healthcare giant Johnson & Johnson (J&J) and itssubsidiaries will pay more than $2.2 billion to resolvecriminal and civil liability," for promoting Risperdal(and two other drugs) "for uses not approved as safeand effective by the Food and Drug Administration(FDA)," and also for "payment of kickbacks tophysicians and to the nation's largest long-term carepharmacy provider" - that is, to Omnicare.5 "Thecivil settlement also resolves allegations that, infurtherance of their efforts to target elderly dementiapatients in nursing homes, J&J and Janssen paidkickbacks to Omnicare, Inc., the nation's largestpharmacy specializing in dispensing drugs to nursinghome patients."6 The DOJ explained that J&J and itsJanssen subsidiary "have agreed to pay $149 millionto resolve the government's contention that thesekickbacks caused Omnicare to submit false claims to

federal health care programs," noting that "[i]n 2009,Omnicare paid $98 million to resolve its civil liabilityfor claims that it accepted kickbacks from J&J andJanssen, along with certain other conduct."7

in another proceeding); see also United States v. Louisiana, 363

U.S. 1, 12-13 (1960) (noticing "a massive array of historical

documents"). Courts may take judicial notice in connection witha Rule 12(b)(6) motion. Tellabs, 551 U.S. at 322-23.

5 United States DOJ press release, Johnson & Johnson toPay More than $2.2 Billion to Resolve Criminal and Civil

Investigations, Nov. 4, 2013, available online at

http://www.iustice.gov/opa/pr/2013/November/13-ag-1170.html

(last visited Jan. 6, 2014).

6 Id.

7 Id.

12

Petitioners nonetheless insist that the December2005 Registration Statement's assurances concerningthe character and legality of Omnicare's operationwere merely a matter of "opinion," and that what theRegistration Statement said cannot be deemedmaterially misleading under §11 absent allegationsdemonstrating each defendant's personal subjectiveknowledge of falsity.

III. The Proceedings Below

A. From Filing Through InitialAppeal

This litigation began in 2006, with the filing ofclass-action complaints alleging scienter-basedsecurities-fraud claims under 1934 Act §10(b), 15U.S.C. §78j(b), and was styled as "a securities fraudclass action on behalfofall purchasers of the publiclytraded securities of Omnicare, Inc. . . . betweenAugust 3, 2005 and January 27, 2006."Rl(ComplaintUl).

Consolidating two related cases, the district courtappointed Laborers District Council to serve as LeadPlaintiff, under the procedures implemented by thePrivate Securities Litigation Reform Act of 1995("PSLRA") as codified in 1934 Act §2lD(a)(3)(A), 15USC §78u-4(a)(3)(A), and in 1933 Act §27(a)(3)(A),15 U.S.C. §77z-l(a)(3)(A). R22(Order). The LeadPlaintiff then filed a Consolidated AmendedComplaint ("CAC"), on July 20, 2006, still assertingclaims only "for violations of §§10(b) and 20(a) of theSecurities Exchange Act of1934." R27(CAC HD-

The district court granted leave on January 26,2007, R51(Order), to file what was captioned as the"First Amended Consolidated Complaint" ("FACC"),

13

that added the Cement Masons Local 526 CombinedFunds as an additional named plaintiff, and thatasserted a further claim under the strict-liabilityprovision of 1933 Act §11, 15 U.S.C. §77k, on behalf ofthose putative class members who had acquiredshares issued pursuant to Omnicare's December 2005registered offering. R52(FACC1f1fl, 33, 249-256).

On defendants' motion, the district court dismissedthat complaint with prejudice. R93(Order) at 29,reported as Ind. State Dist. Council of Laborers v.Omnicare, Inc., 527 F. Supp. 2d 698, 712 (E.D. Ky.2007). After setting forth the special statutorypleading requirements for 1934 Act §10(b) claims, thedistrict court proceeded to dismiss both fraud-based1934 Act claims and strict-liability 1933 Act claims onthe ground that plaintiffs had not pleaded theelements of prima facie liability under 1934 Act§10(b). R93(Order) at 9-26 & n.8.

Although neither scienter nor loss causation is anelement of prima facie liability for the §11 claims, thedistrict court in a footnote dismissed them on thebasis that Respondents had not pleaded the loss-causation element necessary to state a prima facieclaim for intentional securities fraud under §10(b).R93(Order) at 17 n.8.

The district court also dismissed 1934 Act §10(b)claims based on statements concerning Omnicare'slegal-compliance policies which had appeared outsideOmnicare's 1933 Act Registration Statement, in anews article and press release, and which thereforewere not asserted as 1933 Act claims. R93(Order) at21-26. The district court dismissed those §10(b)securities-fraud claims because "plaintiffs do notplead facts which support an inference thatdefendants knew these two statements to be false at

14

the time they were made," R93(Order) at 23-24, andentered judgment. R94(Judgment).

The Sixth Circuit affirmed the district court'sdismissal of 1934 Act §10(b) claims for whichinvestors must plead facts showing both scienter andloss causation. Pet. App. at 42a-67a. But it reversedthe district court's dismissal of 1933 Act claims,because loss causation is not an element of primafacie liability for a 1933 Act claim, but rather apotential affirmative defense. Pet. App. at 66a-67a.Holding that Rule 9(b) applies to any allegations offraud that may underlie §11 claims, the Sixth Circuitremanded, leaving "the application of Rule 9(b)standards to the district court." Pet. App. at 67a.

B. On Remand: Dismissal ofStrict-Liability §11 Claims forFailure to PleadParticularized FactsDemonstrating EachDefendant's Knowledge ofFalsity

On remand, the district court granted Respondentsleave to file a further amended complaint thatdropped fraud-based 1934 Act allegations and focusedexclusively on stating strict-liability 1933 Act claimsfor the December 2005 Registration Statement's falseand misleading statements and omissions. SeeR133:9(Order). The TAC drew on governmentinvestigations, other court proceedings, settlements ofgovernmental claims, and confidential witnesses.R134(TACff4-11, 26-167).

The district court dismissed plaintiffs' §11 claimswith prejudice, however, on the ground that plaintiffsfailed to particularize facts demonstrating each

15

defendant's knowledge of falsity. Pet. App. at 28a-41a.

Although a defendant's state of mind is not anelement of §11 liability, see Huddleston, 459 U.S. at382, and although Rule 9(b) expressly permits state ofmind to be "alleged generally," the district court heldthat when misleading statements of opinion are atissue, §11 plaintiffs must plead particularized factsdemonstrating each defendant's subjective disbelief ofthe statements made. See Pet. App. at 34a-35a.

It then dismissed Respondents' strict-liability 1933Act §11 claims on the ground that the TAC did notparticularize facts demonstrating each defendant'sfraudulent intent. Pet. App. at 35a-37a (dismissingallegations of accounting violations); Pet. App. at 38a-40a (dismissing allegations relating to legalcompliance).

Asserting that "statements regarding a company'sbelief as to its legal compliance are considered 'soft'information and are generally not actionable," Pet.App. at 38a, the district court held that absentallegations demonstrating each defendant's personalknowledge of falsity, 1933 Act §11 liability cannotattach to the Registration Statement's misleadingstatements and omissions relating to the conduct,character, and legality of Omnicare's businessoperations. Pet. App. at 38a-40a. Saying it found nobasis for "inferring that the company's officers knewthey were violating the law," the district courtdismissed the strict-liability claims with prejudice.Pet. App. at 39a.

16

C. The Sixth Circuit SustainsRespondents' §11 ClaimsBecause Knowledge of Falsityis Not an Element of PrimaFacie Liability

The Sixth Circuit reversed in substantial part thedistrict court's dismissal of Respondents' strict-liability §11 claims, observing that the district courthad erroneously "held that Plaintiffs were required toplead that Defendants knew that the statements oflegal compliance were false at the time they weremade." Pet. App. at 11a. "Because the court foundthat Plaintiffs failed to plead knowledge of falsity, itdismissed the complaint for failure to state a claim."Pet. App. at 11a.

Following this Court's decision in Huddleston, 459U.S. at 381-82, the Sixth Circuit reversed because"Section 11 provides for strict liability, and does notrequire a plaintiff to plead a defendant's state ofmind." Pet. App. at 12a.

"Section 10(b) and Rulel0b-5 require a plaintiff toprove scienter," the Sixth Circuit observed, while "§11is a strict liability statute." Pet. App. at 15a. Thus, ifa registration statement "includes a materialmisstatement," or is otherwise materially misleading,"that is sufficient" to state a prima facie claim, "and acomplaint may survive a motion to dismiss withoutpleading knowledge of falsity." Pet. App. at 16a.

The Sixth Circuit noted that citing this Court'sVirginia Bankshares decision on liability under 1934Act §14(a), the Second Circuit in Fait v. RegionsFinancial Corp., 655 F.3d 105 (2d Cir. 2011), had

held "when a plaintiff asserts a claimunder section 11 . . . based upon a belief

17

or opinion alleged to have beencommunicated by a defendant, liabilitylies only to the extent that the statementwas both objectively false anddisbelieved by the defendant at the timeit was expressed." Id. at 110 (citingVirginia Bankshares, Inc. v. Sandberg,501 U.S. 1083, 1095-96 (1991)).

Pet. App. at 16a (quoting Fait, 655 F.3d at 111).

The Sixth Circuit concluded that to the extent that

the Second Circuit's decision in Fait, and NinthCircuit's in Rubke v. Capitol Bancorp Ltd., 551 F.3d1156, 1162 (9th Cir. 2009), might be read to requireplaintiffs to allege each defendant's subjectiveknowledge of falsity or disbelief in order to state a §11claim, they "have read more into Virginia Banksharesthan the language of the opinion allows and havestretched to extend this §14(a) case into a §11context." Pet. App. at 17a.

The Sixth Circuit explained: "Reserving thequestion of whether scienter is necessary to make outa §14(a) claim, the Supreme Court held in VirginiaBankshares that a plaintiff may bring a claim under§14(a) of the Securities Exchange Act of 1934 for amaterial misstatement or omission even if the

statement is vague and conclusory." Pet. App. at 17a."The Court furthermore held that a defendant's

disbelief in his own statement is not enough, on itsown, for a plaintiff to make out a claim for a materialmisstatement under §14(a)." Pet. App. at 17a. A§14(a) claimant must "plead objective falsity in orderto state a claim; pleading belief of falsity alone is notenough." Pet. App. at 17a.

18

"In the instant case, the Plaintiffs have pleadedobjective falsity," the Sixth Circuit observed. PetApp at 17a. "The Virginia Bankshares Court was notfaced with and did not address whether a plamtilimust additionally plead knowledge of falsity m orderto state a claim" under §14(a), let alone under 1933Act 511, which expressly imposes liability whenever aregistration statement contains a false or misleadingstatement. Pet. App. at 17a.

REASONS FOR DENYING THE WRIT

Petitioners ask this Court to decide whether a §11plaintiff may "plead that a statement of opinion was'untrue' merely by alleging that the opinion itself wasobjectively wrong, as the Sixth Circuit has concludedor must the plaintiff also allege that the statementwas subjectively false - requiring allegations that thespeaker's actual opinion was different from the oneexpressed" - that is to say, that the defendantactually disbelieved the opinion expressed. But thisCourt's review is unwarranted.

Petitioners suggest the decision below conflictswith this Court's holding in Virginia Bankshares, adecision that their merits brief below did not evencite and which does not address 1933 Act hability,but'merely holds that false expressions of opinionmust be objectively misleading in order to beactionable under 1934 Act §14(a). In Virgin^Bankshares, this Court assumed.that the,1934 Actdefendants subjectively disbelieved their ownrepresentations that a proposed merger was lairand the value obtained "high." This Court then heldthat statements must be objectively misleading -notmerely subjectively disbelieved - to impose liabilityunder §14(a). But if statements are objectively

19

misleading, §ll's statutory standard of liability issatisfied - whether or not any particular defendantpersonally disbelieved them. 15 U.S.C. §77k(a);Huddleston, 459 U.S. at 382. Virginia Banksharesnever suggests, let alone holds, that an objectivelymisleading statement of opinion cannot be actionableunder §11 unless each defendant's subjective disbeliefin the statement is also alleged. Infra at 20-26.

Though the Sixth Circuit's decision in this casesays it departs from decisions of the Second andNinth Circuits, the possibility of nascent conflict doesnot warrant this Court's premature intervention. Theentire conflict comes down to a single sentenceunaccompanied by real analysis in the Ninth Circuit'sdecision in Rubke, and the Second Circuit's singularlygarbled opinion in Fait. Other Second Circuitdecisions clearly hold that statements of opinion maybe materially misleading, and thus actionable underthe 1933 Act, "no matter how honestly but mistakenlyheld." Franklin Sav. Bank v. Levy, 551 F.2d 521, 527(2d Cir. 1977). While the Second Circuit may need toresolve confusion about what contradictorystatements in Fait really mean, this Court'simmediate attention would be premature. Infra at26-32.

In the meantime, the lower courts can be expectedto continue to apply §ll's text as written, and tofollow this Court's decisions in Huddleston and

Hochfelder, just as the Sixth Circuit has done. Giventhe clarity of §ll's text, and of this Court's opinionsconcerning its meaning, the likelihood of seriousconflict developing seems remote. Infra at 32-35.

This case is, moreover, a poor vehicle for resolvingwhatever problems Fait might conceivably pose. For

20

one thing, Respondents allege sufficient facts to inferthe subjective disbelief of at least three defendants:Omnicare, its CEO Joel F. Gemunder, and its CFODavid W. Froesel. Infra at 35-36. Perhaps moreimportant, this case presents little opportunity forreviewing and correcting Faifs suggestion that anissuer may be insulated from liability for its false andmisleading financial statements absent allegationsshowing its subjective disbelief in the accuracy offinancial results it reports. Accounting rules oftenrequire the exercise of judgment, and auditedfinancial results are accompanied by an "auditopinion." But in this case no auditor is named as adefendant, and the Sixth Circuit has affirmeddismissal of Respondents' claims of accountingviolations. Alleged "accounting-based misstatements"thus are, Petitioners themselves concede, "notpertinent to this petition." Pet. at 4 n.l. This casethus presents a remarkably poor vehicle foraddressing whatever problems the Second Circuit'sopinion in Fait might hypothetically engender. Infraat 35-37.

I. The Petition is Grounded in a

Misreading of Virginia Bankshares

The Petition is grounded in a misreading ofVirginia Bankshares, a decision that Petitioners didnot even cite in their principal brief below, and whichholds that in the context of formal securities filings,statements of opinion "are reasonably understood torest on a factual basis that justifies them as accurate,the absence of which renders them misleading."Virginia Bankshares, 501 U.S. at 1093 (emphasisadded).

21

Petitioners attribute to Virginia Bankshares anentirely different holding, asserting:

The Court concluded that such astatement is actionable only as "amisstatement ofthe psychological fact ofthe speaker's belief in what he says "501 U.S. at 1095. To establish that sucha statement was a materialmisstatement, therefore, the plaintiffmust show that the speaker in fact "didnot hold the beliefs or opinionsexpressed." Id. at 1090.

Pet. at 1. But that clearly is not what VirginiaBankshares held. As a matter of fact, this Courtexpressly disclaimed any ruling that subjectiveknowledge of falsity is required to support a §14(a)claim, Virginia Bankshares, 501 U.S. at 1091 n 5 andits opinion emphasizes that a specific statement maybe either "knowingly false or misleading^ incomplete,even when stated m conclusory terms." Id at 1095(emphasis added).

Virginia Bankshares involved claims under 1934Act §14(a), and the defendants' subjective disbelief inthe opinions they had expressed was assumedbecause it had been proved below to a jury'ssatisfaction. This Court explained that a jury hadtound that the directors' statements of belief andopinion were made with knowledge that the directorsdid not hold the beliefs or opinions expressed, and weconfine our discussion to statements so made"Virginia Bankshares, 501 U.S. at 1090. This Courtconfined itself to those facts - expressly reservingthe question [of] whether scienter was necessary" to

22

state a §14(a) claim. Id. at 1091 n.5. The question tobe decided was whether the statements might beactionable under §14(a) even if they were notobjectively misleading.

With subjective falsity or scienter assumed^ thisCourt held that where a statement ofbelief or opinionis at issue, a defendant's mere subjective "disbelief orundisclosed motivation, standing alone, [is]insufficient" for §14(a) liability. Virginia Bankshares,501 U.S. at 1096. Statements of opinion must beobjectively misleading to be actionable. See id. ThisCourt clearly did not hold that an objectivelymisleading statement of opinion cannot be actionableunder §14(a), let alone that it cannot be actionableunder §ll's strict-liability standard, absent a showingof subjective falsity or scienter.

Virginia Bankshares never suggests that ifstatements are in fact objectively misleading,investors must also allege defendants' subjectivedisbelief to state a strict-liability 1933 Act claim. Thedecision very clearly states that in the context offormal securities-law filings, statements of opinion"are reasonably understood to rest on a factual basis,that justifies them as accurate, the absence of whichrenders them misleading." Virginia Bankshares, 501U.S. at 1093. And §11 very clearly imposes liability ifa registration statement "contained an untruestatement" or omitted any material fact "necessary tomake the statements therein not misleading." 15U.S.C. §77k(a).

Virginia Bankshares does not purport to insert anew state-of-mind requirement in §ll's text, which byits express terms requires anyone invoking its due-diligence defense to "sustain the burden of proof that

23

each "had, after -enable—ation, rea—^nV° SelenTbectl etctive, "that theregistration statement was n0statements therein were true and ^ ^^omission to state ama enaHa t^ thereintherein or necessary to m*eto ^ ^^

to invoke it.9mvoKe il. ,

Virginia Bankshares does notju^^1933 Act P^cedentS such as ^Huddleston, which ho thaU ^ otherliability on a security s issver,w P ving ^defendants the ^^^tV registrationeach both actually believed wn for g0statement said and had :^asonaWe | ^believing. Huddleston, 459 U.S. at425 U.S. at 208.

, a Viveinia Bankshares disparage theNor does Virginia na contexts,

numerous precedents, arising from ma ^SK rthr^tia^actionahle, absent

2 Thomas Lee Hazen,flotation §7.4[2], at 239-41 (6th ed. 2009).

cn,r S77k(b)(3). This Court's precedentsSee 15 U.S.C §™b)W facts inpreclude shifting to plants th ^aJord-El , Br*a»,avoidance of such a defense. See, e.g. UQ

(1980); Vance v. lerrazab, *-*•*

24

allegations of scienter. Accountants may be liable fornegligent audit opinions.™ Appraisers may be liablefor negligent opinions as to value.11 Lawyers, too,may be liable for professional negligence if they offera false opinion on a point oflaw.12

The Restatement (Second) of Torts confirms thatopinions may be negligently misleading. Section 552,for example, provides that one with a pecuniaryinterest who "supplies false information for theguidance of others in their business transactionsmay be liable "if he fails to exercise reasonable care orcompetence in obtaining or communicating theinformation." Restatement (Second) of Torts §552(1)

io See e.g., Travelers Cas. &Sur. Co. of Am. v. Ernst &Young LLP, 542 F.3d 475, 481-84 (5th Cir. 2008) (Mississippicommon law); Rhode Island Hosp. Trust Natl Bank v. Swartz,Bresenoff, Yavner &Jacobs, 455 F.2d 847, 848-53 (4th Cir. 1972)(Rhode Island law); Fullmer v. Wohlfeiler &Beck, 905 F.2d 1394,1395-96 (10th Cir. 1990) (Utah law); Touche Ross & Co. v.Comm. Union Ins. Co., 514 So. 2d 315, 322 (Miss. 1987);Shatterproof Glass Corp. v. James, 466 S.W. 2d 873, 874-80 (Tex.Civ. App. 1971).

ii See eg., Private Mortgage Inv. Servs. v. Hotel &ClubAssocs., 296 F.3d 308, 315 (4th Cir. 2002) (South Carolinacommon law); FSLIC v. Texas Real Estate Counsellors, 955 F.2d261 265 &n.6 (5th Cir. 1992) (Texas law); Levine v. Wiss &Co.,478A.2d 397, 247-48 (N.J. 1984); Costa v. Neimon, 366 N.W. 2d896, 898 (Wis. Ct. App. 1985).

See, e.g., Wafra Leasing Corp. 1999-A-l v. Prime CapitalCorp 192 F. Supp. 2d 852, 873-74 (N.D. 111. 2002); CrosslandSav. 'FSB v. Rockwood Ins. Co., 700 F. Supp. 1274, 1284(S.D.N.Y. 1988).

25

(1977). This "applies not only to information given asto the existence of facts but also to an opinion givenupon facts equally well known to both the supplierand the recipient."13

A statement of opinion clearly may be misleading,and thus actionable under §11, even if it was notsubjectively disbelieved by the persons that thestatute makes accountable for a registrationstatement's misleading statements and omissions.

Justice Scalia's Virginia Bankshares concurrenceby no means suggests a different conclusion. JusticeScalia wrote that the directors' statement of opinionthat a proposed merger provided "high value" was onethat, under 1934 Act §14(a), "would not produceliability if in fact it was not a high value but thedirectors honestly believed otherwise." VirginiaBankshares, 501 U.S. at 1109. The Sixth Ciruitrecognized it would be unreasonable to employ thisconcurring dictum on 1934 Act §14(a) liability, from acase assuming that §14(a) may require scienter, see

13 Id., §552, cmt. b (emphasis added); see, e.g., PrivateMortgage, 296 F.3d at 314; Lawyers Title Ins. Corp. v. Baik, 55P.3d 619, 624 OWash. 2002); Milwaukee Partners v. Collins Eng,485 N.W. 2d 274, 277 (Wis. Ct. App. 1992). Liability fornegligent misrepresentation exists even "[w]hen there is nointent to deceive but only good faith coupled with negligence,"as those who offer opinions to guide others are bound to exerciseboth honesty and due care. Rest. (Second) Torts § 552, cmts. aand i; see, e.g., Gilchrist Timber Co. v. ITT Rayonier, 696 So. 2d334, 337 (Fla. 1997); State ex rel. Nichols v. Safeco Ins. Co., 671P.2d 1151, 1154 n.l (N.M. App. 1983); Merrill v. William E.Ward Ins., 622 N.E. 2d 743 (Ohio App. 1993); Haberman v.WPPSS, 744P.2d 1032, 1067 (Wash. 1987).

26

supra at 21-22, to rewrite 1933 Act §11. Nothing inJustice Scalia's concurrence concerning the scope ofimplied liability under §14(a) suggests that the Courtshould disregard §ll's clear text, which creates anexpress right of action and places on specificdefendants the burden of demonstrating that they notonly did believe" the statements made, but also thatthey had a reasonable basis for that belief 15 US C§77k(b)(3).

II. Ambiguity In Other Circuits'Decisions Raises No Clear ConflictWarranting this Court's Review

Petitioners emphasize that the Sixth Circuit'sopinion below says it rejects decisions of the Secondand Ninth Circuits that can be read to say statementsol opinion are not actionable under §11 unlessplaintiffs allege facts showing that the defendantssubjectively disbelieved them. See Pet. App. at 16aBut the mtercircuit conflict is neither so extensivenor so clear, as Petitioners contend.

The Ninth Circuit's decision in Rubke surely affordsno basis for this Court's immediate interventionwhen it rather casually states that allegedlymisleading opinions "can give rise to a claim undersection 11 only if the complaint alleges withparticularity that the statements were bothobjectively and subjectively false or misleading"Rubke, 551 F.3d at 1162. The Ninth Circuit offers noreasoned analysis or rationale for this conclusorystatement of an idea entirely at odds both withstatutory text and with this Court's settledprecedents.

27

Subsequent Ninth Circuit decisions adhere to thisCourt's holdings in Huddleston and Hochfelder, that1933 Act claims do not require plaintiffs to allegedefendants' subjective state of mind.14 Resolving anyresulting tensions in the Ninth Circuit's case lawshould be left to that court, given the paucity ofanalysis in Rubke and its lack of significant impact onsubsequent decisions.

The Second Circuit's decision in Fait, concerning§11 claims based on allegedly misleading statementsabout an issuer's goodwill and loan-loss reserves, isaltogether too muddled to produce a clear conflictrequiring this Court's immediate attention.Acknowledging that under this Court's settledprecedents "claims under sections 11 and 12 do notrequire allegations of scienter," the Second Circuit'sopinion in Fait nonetheless asserts that statementsconcerning valuation of goodwill and the adequacy ofrequired accounting reserves involve opinion, andthus can be actionable under §11 only if "bothobjectively false and disbelieved by the defendant atthe time it was expressed." 655 F.3d at 109-10(emphasis added).

The Second Circuit's analysis concerning valuationof goodwill is conceptually incoherent, asserting thata §11 claimant must "plausibly allege that defendantsdid not believe the statements regarding goodwill atthe time they made them," while simultaneously

14 See, e.g., Hildes v. Arthur Anderson LLP, 734 F.3d 854,

860 (9th Cir. 2013) ("Section 11 lacks a scienter requirement");Hemmer Grp. v. Sw. Water Co., No. 11-56154, 2013 U.S. App.LEXIS 11517, at *3-*4 (9th Cir. June 7, 2013) ("Section 11 is astrict liability statute and does not require fraudulent intent.").

28

insisting that this "does not amount to a requirementof scienter." Id. at 112 & n.5. This is puzzling, to saythe least. For a defendant's subjective disbelief in itsown statements amounts to knowing falsity. And theSecond Circuit has long held that '"[t]he scienterneeded in connection with securities fraud is intent to

deceive, manipulate or defraud, or knowingmisconduct.'" Press v. Quick & Reilly Inc., 218 F.3d121, 130 (2d Cir. 2000) (quoting Press v. ChemicalInv. Servs. Corp., 166 F.3d 529, 538 (2d Cir. 1999))(emphasis added).

Fait's analysis concerning loan-loss reserves startsby indicating that the plaintiff failed to allegeobjective falsity: "Plaintiff does not point to anobjective standard for setting loan loss reserves." 655F.3d at 113. Yet the court then concludes: "Because

the complaint does not plausibly allege subjectivefalsity, it fails to state a claim." Id. If the statementsat issue were not objectively misleading, because noobjective standards were violated, then there was noreason for the Second Circuit also to delve into

whether they were subjectively misleading. And hadthere been sufficient facts to show objective falsity,the Second Circuit may well have found those factssufficient for pleading subjective falsity, too.

As a consequence, Fait may be little more than a"one-off decision. Other Second Circuit precedentsclearly hold that statements of opinion may beactionably misleading under the 1933 Act, whether ornot their makers genuinely believed them. InFranklin Savings Bank, 551 F.2d at 527, whichinvolved claims under 1933 Act §12, 15 U.S.C. §77Z,the Second Circuit held: "If Goldman, Sachs failed toexercise reasonable professional care in assemblingand evaluating the financial data, particularly in view

29

of the worsening condition of Penn Central, then itsrepresentation that the paper was credit worthy andhigh quality was untrue in fact and misleading nomatter how honestly but mistakenly held." And inLitwin v. Blackstone Grp., L.P., 634 F.3d 706, 715-16(2d Cir. 2011), the Second Circuit held thatdefendants' alleged negligence relating solely tomatters of opinion about known trends' likely futureimpact sufficiently stated a §11 claim.

Nor can Petitioners say that Fait has had muchimpact. Relatively few decisions have even cited it.The Second Circuit did so in a couple ofnonprecedential summary orders, both lackingserious analysis ofwhat Fait means.15 Two publishedopinions that cite Fait involve claims arising under1934 Act §10(b), for which knowledge of falsity orscienter is an element of liability, and thus cast littlelight on how Fait will be applied to strict-liability1933 Act claims.16 A single published decisioninvolving 1933 Act claims, Freidus v. Barclays BankPLC, 734 F.3d 132 (2d Cir. 2013), allows the plaintiffleave to replead on remand in order to meet Fait'srequirement that a statement of opinion be bothobjectively false and disbelieved bythe defendant. Id.

is See, e.g., Freidus v. ING Groep, N.V., No. 12-4514-cv,2013 U.S. App. LEXIS 23489, at *4 (2d Cir. Nov. 22, 2013)(nonprecedential summary order); Freeman Group v. Royal BankofScotland Group PLC, No. 12-3642-cv, 2013 U.S. App. LEXIS19571, at *7 (2d Cir. Sept. 25, 2013) (nonprecedential summaryorder).

is Kleinman v. Elan Corp., 706 F.3d 145, 147, 153 (2d Cir.2013); City of Omaha Nebraska Civ. Empl. Ret. Sys. v. CBSCorp., 679 F.3d 64, 66-67 (2d Cir. 2012).

30

*n \' %1decision notes Faifs assertions "thatallegations of disbelief of subjective opinions are notthe same as allegations of fraud," id., and that "thePleading required for beliefs and opinions 'does notZTTJv L requirement of scienter,"' id. (quotingvait, 655 F.3d at 112 n.5).

But the Second Circuit has yet to explain howrequiring a defendant's subjective disbelief in thetruth of its own statements amounts to somethingother than requiring scienter. It should be permittedto do so before the issue demands this Court'sattention.

Hoping to create the impression of a moreextenswe, and perhaps serious, precedential conflictPetitioners say that in In re Donald J. Trump CasinorCS"-+ I't I R3d 35? (3d Cir- 1993)> the ThirdCircuit held that statements of opinion cannot bedeemed misleading unless defendants subjectivelydisbelieved them. But this is what Trump Casinoactually says:

We have squarely held that opinionspredictions and other forward-lookingstatements are not per se inactionableunder the securities laws. Rather, suchstatements of "soft information" may beactionable misrepresentations if thespeaker does not genuinely andreasonably believe them.

Trump Casino, 7F.3d at 368 (emphasis added).

The Third Circuit thus clearly contemplatesliability may he in §11 cases if statements were not

31

both "genuinely and reasonably believe[d]." Id.(emphasis added).

Reasonable belief clearly is a negligence standard,not a requirement that plaintiffs demonstrate eachdefendant's subjective disbelief concerning an offeringdocument's representations. As this Court noted inHochfelder, §ll's "due diligence" affirmative defenseimplicates "a negligence standard," by requiring anydefendant invoking it to show "that 'after reasonableinvestigation' he had 'reasonable ground[s] to believe'that the statements for which he was responsiblewere true and there was no omission of a materialfact." Hochfelder, 425 U.S. at 208 (quoting 15 U.S.C.§77k(b)(3)). Again, the statute squarely places ondefendants seeking to invoke this defense the burdenof demonstrating that they both genuinely andreasonably believed what the Registration Statementsaid. See id.; 15 U.S.C. §77k(b)(3). It clearly does notmake the defendants' subjective disbelief orknowledge of falsity an element of prima facieliability that plaintiffs must plead in order to state aclaim.

Trump Casino notes that Virginia Bankshares"held that statements of opinion or belief may beactionable when they expressly or impliedly assertsomething false or misleading about their subjectmatter." Trump Casino, 7 F.3d at 372. Yet TrumpCasino never interprets Virginia Bankshares to holdthat when its requirement of objective falsity issatisfied, a plaintiff must also prove defendants'subjective disbelief to state a §11 claim. TrumpCasino never suggests that defendants mustsubjectively disbelieve a registration statement'sobjectively misleading statements of opinion or belief

32

in order for those misleading statements to beactionable under §11.

In sum, although the Second Circuit's decision inFait and the Ninth Circuit's decision in Rubke eachunquestionably contains some confusing language,the job of clearing up what those decisions reallymean is better left to the Second Circuit and NinthCircuit - which should be afforded an opportunity towork through any dissonance that exists in their owndecisions before this Court's intervention is required.

III. The Sixth Circuit's OpinionComports with The 1933 Act'sStatutory Text and With ThisCourt's Decisions Interpreting thatText

Despite confusing statements in Rubke and Fait,other circuits can be expected to honor this Court'sprecedents, and to apply §11 as written - just as theSixth Circuit has. The statutory text, and thisCourt's decisions concerning that text, are sufficientlyclear that serious precedential conflict is unlikely todevelop.

Petitioners breeze past §ll's text, which imposesstrict liability on an issuer of securities withoutregard to its state of mind, and which squarely placeson others involved in the offering process (includingthe issuer's directors and anyone who signed theregistration statement) the burden of demonstratingthat each reasonably believed the registrationstatement contained no false or misleadingstatements. See 15 U.S.C. §77k(a), §77k(b)(3).

33

In framing express remedies under the federalsecurities laws, Congress "clearly specified whetherrecovery was to be premised on knowing orintentional conduct, negligence, or entirely innocentmistake." Hochfelder, 425 U.S. at 207. "For example,§11 of the 1933 Act unambiguously creates a privateaction for damages when a registration statementincludes untrue statements of material facts or failsto state material facts necessary to make thestatements therein not misleading." Id. at 207-08."Within the limits specified by §11(e), the issuer ... isheld absolutely liable for any damages resulting fromsuch misstatement or omission." Id. at 208. Others"such as accountants who have prepared portions ofthe registration statement are accorded a 'duediligence' defense." Id. "In effect, this is a negligencestandard." Id. "The express recognition of a cause ofaction premised on negligent behavior in §11 standsin sharp contrast to the language of §10(b)," (id.),which imposes liability only if a defendant acted withscienter, "a mental state embracing intent to deceive,manipulate, or defraud." Id. at 193 n.12; see alsoHuddleston, 459 U.S. at 381-82.

Though Petitioners say expressions of opinioncannot possibly be misleading unless their authorspersonally disbelieved them, the 1933 Act expresslyrequires defendants other than the issuer to show, asan affirmative defense, not only that they believedassertions in a registration statement - including anyopinions and valuations - but also that they had areasonable basis to so believe. A defendant otherthan the issuer must "sustain the burden of proofthat it had "after reasonable investigation, reasonableground to believe and did believe . . . that thestatements therein were true and that there was no

34

omission to state a material fact required to be statedtherein or necessary to make the statements thereinnot misleading." 15 U.S.C. §77k(b)(3)(A), (B). If theRegistration Statement contains the "report orvaluation of an expert" opining on the issuer'soperations or assets, the affirmative defense requiresdefendants claiming to rely on the expert's opinion todemonstrate that each "had no reasonable ground tobelieve" that the statement of opinion was inaccurateor misleading. 15 U.S.C. §77k(b)(3)(C).

The statutory text makes no sense if, as Petitionerscontend, such statements cannot be misleading in thefirst place absent a showing that specific defendantspersonally disbelieved them.

It is easy to imagine cases where an issuer's ChiefExecutive Officer or its Chief Financial Officer knowthat something a registration statement says is false,or misleadingly incomplete, and yet reasonablydiligent underwriters and outside directors remainunaware of the falsity. In this case, for example, itmight turn out at trial that Omnicare's CEO and CFOeach knew that what the Registration Statement saidabout legal compliance was false. Yet, it isconceivable that an outside director still could carrythe burden of demonstrating the affirmative defense -by showing that he or she remained innocentlyignorant, and actually believed what the RegistrationStatement said.

According to Petitioners' views, then, it appearsthat one and the same statement would be bothmaterially misleading, and not materially misleading,at the very same time, apparently depending on thesubjective state of mind of each defendant. It ismaterially misleading to the extent that plaintiffs can

35

show the CEO or CFO disbelieved it. But it is notmaterially misleading because other defendants wereunaware of the problem. This makes little sense Foras this Court has repeatedly stated, materiality mustj>e judged "according to an objective standard"looking not to any defendant's state of mind, butfocusing instead on '"the significance of an omitted ormisrepresented fact to a reasonable investor'"Amgen Inc. v. Connecticut Retirement Plans & TrFunds 133 SCt. 1184, 1191, 1195-96 (2013) (quotingfiavJw ' V- Northway I™., 426 U.S. 438, 445qi oi, S6e MatHxX Initiati^s, Inc. v. Siracusano,

131S. Ct. 1309, 1318(2011).

All in all, it is quite unlikely that any seriousprecedential conflict will develop in the circuit courts.IV. This Is A Poor Test Case as at Least

Three Defendants' SubjectiveDisbeliefis Manifest from the FactsAlleged, and as the Case PresentlyInvolves No Accounting Issues ofthe Sort Implicated by Fait

Were it necessary to wade into the issueshypothetically created by an extravagant reading oftait, this case would be a poor vehicle for doing so.

For one thing, this case should survive even undera subjective-disbelief standard. If knowing falsitywere truly §ll's standard, the facts pleaded raise ateast a plausible inference that Omnicare and its two

top officers knew of Omnicare's misconduct. CEOGemunder and CFO Froesel not only knew ofOmnicare s undisclosed practices, they were directlyinvolved m coordinating and implementing themoverseeing and orchestrating the execution of

36

therapeutic initiatives and contracts entailing illegalrebates.

Gemunder personally approved therapeuticinitiatives designed to push high-profit drugs onnursing home patients, R134(TAC^|31), and Froeselwas responsible for directing Omnicare's RegionalCFOs to initiate measures to switch patients'prescriptions from lower-priced to higher-priceddrugs. R134(TACTO4-38). Gemunder personally tolda Johnson & Johnson executive that Omnicare wouldsupport a therapeutic initiative to steer patientstowards Risperdal by promoting the drug for off-labeluses.17 Corporate documents also reveal thatGemunder negotiated contracts providing the"rebates" Omnicare received for promotingmanufacturers' drugs - including those related toOmnicare's Risperdal Initiative. R134(TAC^[51, 87-90 & Ex. 21 at JNJ011362-64). Gemunder alsomisled Omnicare's attorneys in order to get their"approval," or simply ignored the attorneys' adviceconcerning the transactions. Rl34(TAC1fH87-90, 122,124). Accordingly, Froesel and Gemunder, at least,likely knew that Omnicare's statements affirming thelegality of Omnicare's practices were false.

Perhaps more important, Petitioners themselvesconcede that this case presents no opportunity toevaluate Fait's potential impact on cases involvingmisstated financial results. Fait, which involvedalleged accounting violations, might arguably haveseriously deleterious consequences were it broadlyapplied whenever a company's reported financial

" R134(TAC"H67-71). The individual responsible forpreparing "clinical spin," Lisa Welford, reported directly todefendant Gemunder. R134(TACf 36 & Ex. 17 at JNJ351935).

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results are based on accounting judgments, or whenan auditor's report is framed as an "audit opinion."

The valuation of goodwill and the taking of reservesfor doubtful accounts can directly affect a company'sreported assets and earnings. Does Fait thus meanthat when a company reports that it earned fifty centsa share, this is nothing more than an expression ofopinion? Does Fait mean that when auditors consentto inclusion of an "audit opinion" in an issuer'sregistration statement, they cannot be liable unlessplaintiffs allege and prove the auditors' subjectivedisbelief-thereby inverting §ll(b)(3)'s provision thatan auditor must demonstrate that it "had, afterreasonable investigation, reasonable ground tobelieve and did believe" that its audit opinion was"true and that there was no omission to state amaterial fact required to be stated therein ornecessary to make the statements therein notmisleading"? 15 U.S.C. §77k(b)(3)(B)(i); seeHochfelder, 425 U.S. at 208.

Depending on how the case law develops, thosemight turn out to be important questions. But this isnot a case that raises them. Petitioners concede thatwith the dismissal of the TACs "accountingmisstatements . . . affirmed by the circuit court," theyare "not pertinent to this petition." Pet. at 4. This isnot a proper case in which to consider Fait's potentialimpact.

CONCLUSION

The Petition for a Writ of Certiorari should bedenied.

Respectfully submitted,Darren J. Robbins

Eric Alan Isaacson

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(Counsel ofRecord)erici@rgrdlaw.com

Henry Rosen

Steven F.HubachekAmanda m. Frame

Robbins Geller Rudman& Dowd LLP

655 WestBroadway, Suite1900San Diego, CA 92101

Telephone: 619/231-1058619/231-7423 (fax)

Kevin L. Murphy

GraydonHead&Ritchey, LLP2400 Chamber Center Drive,Suite 300

Fort Mitchell, KY 41017

Telephone: 859/282-8800859/525-0214 (fax)

DATED: January 9, 2014 Attorneys for Respondents

I:\EricI\Omnicare cert petition\Supreme CourtOpposition Brief for WritPetition, docx