Ansfield v. Omnicare, Inc. (In Re Omicare, Inc. Securities Litigation)
769 F.3d 455
| 6th Cir. | 2014Background
- KBC filed a Consolidated Amended Complaint on May 11, 2012 alleging securities fraud under §10(b) and Rule 10b-5 against Omnicare and several officers for misrepresentations and omissions about compliance with Medicare/Medicaid rules during 2007–2010.
- Allegations center on Wave I/II audits and a Pharmacy Audit showing non-compliance and false billing; Stone (internal auditor) conducted audits and allegedly shared findings with Omnicare leadership.
- Executive defendants Gemunder (CEO), Froesel (CFO), Workman (CFO), and Hodges (Secretary) allegedly knew of non-compliance yet helped prepare and certify SEC filings.
- Confidential witnesses and former Chief Compliance Officer Fitzpatrick supported claims that the company knew of compliance failures.
- District court dismissed under the PSLRA’s pleading standards for misrepresentation/omission and scienter; KBC appealed.
- This court affirmatively limited the complaint to the allegations in the pleadings and governing Rule 12(b)(6) standards, adopting a middle-ground theory of corporate scienter.
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Material misrepresentation or omission pleaded | KBC pleads misstatements about compliance in 10-Ks and omissions of audit findings. | Omnicare argues statements concern soft information and lacked true falsity or duty to disclose. | Yes, pleaded material misrepresentation/omission (objectively false/misleading or duty to disclose shown). |
| Scienter pleaded against individuals | Stone’s knowledge could be imputed to Omnicare; corporate scienter claimed. | Insufficient tying of Stone/Fitzpatrick/Keefe to statements; PSLRA requires particularized facts. | Individual defendants failed to plead strong inference of scienter; district court affirmed." |
| Collective corporate scienter standard | Corporation could be liable for collective knowledge of officers. | scienter must be shown for individuals or a narrowed corporate-knowledge theory. | Court adopts middle-ground: states of mind of certain linked actors (agents who issued/prepared statements or ratified them) are probative; collective scienter limited to those connected to the misrepresentation. |
| Materiality standard for soft information | Audits undermined statements about material compliance; audits material to investors. | Materiality unclear given boilerplate nature of 10-Ks; context matters. | Materiality found plausible; Wave II/Pharmacy Audit results could render statements false or misleading. |
| Duty to disclose post-audit information | Omnicare allegedly had a duty to update disclosures after audit results. | Soft information does not mandate disclosure. | Omission theory viable; disclosure duty found where new audit results conflicted with prior statements. |
Key Cases Cited
- City of Monroe Emps.' Ret. Sys. v. Bridgestone Corp., 399 F.3d 651 (6th Cir. 2005) (materiality and falsity standards for misrepresentations/soft information)
- Omnicare, Inc. v. Cities of Monro(e), 583 F.3d 935 (6th Cir. 2009) (soft information; initial framework for scienter)
- Omnicare, Inc. v. City of Monro(e), 719 F.3d 498 (6th Cir. 2013) (abrogates/clarifies collective scienter framework under PSLRA)
- Tellabs, Inc. v. Makor Issues & Rights, Ltd., 551 U.S. 308 (U.S. 2007) (three-part test for pleading scienter; strong inference standard)
- Basic, Inc. v. Levinson, 485 U.S. 224 (U.S. 1988) (materiality and ultimate investor consideration standard)
- Sofamor Danek Grp., Inc. v. Murfreesboro, 123 F.3d 394 (6th Cir. 1997) (distinguishes hard vs. soft information under misrepresentation rule)
- In re Credit Suisse First Boston Corp. Sec. Litig., 431 F.3d 36 (1st Cir. 2005) (merger of scienter and falsity for soft information; approach influence)
- City of Monroe Emps.' Ret. Sys. v. Bridgestone Corp., 399 F.3d 651 (6th Cir. 2005) (reiteration of materiality and falsity standards (distinct from later cases))