Indiana State District Council of Laborers & HOD Carriers Pension & Welfare Fund v. Omnicare, Inc.
2013 U.S. App. LEXIS 10385
| 6th Cir. | 2013Background
- Omnicare investors sued under §11 for alleged misstatements and omissions in the December 2005 Registration Statement for an offering of 12.8 million Omnicare shares.
- The district court dismissed the §11 claim for failure to plead knowledge of falsity; loss causation was treated as an issue for other claims and not for §11.
- This Court previously held in Omnicare I that loss causation is an affirmative defense, not an element of §11, and remanded for further analysis.
- The Third Amended Complaint asserts two §11 theories: misstatements/omissions about legal compliance and GAAP-based misstatements.
- The court must decide whether §11’s strict liability applies to alleged misstatements of legal compliance and whether Rule 9(b) pleading standards apply to these §11 claims.
- The panel reverses the district court on the legal compliance §11 claims and remands; it affirms the GAAP-based §11 claims.
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Whether §11 claims based on legal compliance require knowledge of falsity | Pls argue §11 is strict liability; no knowledge needed | Omnicare asserts §11 knowledge may be required via case law | Knowledge of falsity not required for §11 legal-compliance claims |
| Whether Rule 9(b) applies to §11 claims sounding in fraud | Rule 9(b) applies given fraud-like allegations | Defendants contend heightened pleading not necessary if strict liability | Rule 9(b) applies; pled with particularity and sufficiency of confidential witnesses |
| Whether GAAP-based §11 claims can proceed without pleading knowledge of falsity | GAAP misstatements are hard facts; do not require knowledge | GAAP claims require knowledge-like pleading | GAAP-based claims do not require pleading knowledge of falsity; remain subject to Rule 9(b) |
| Whether loss causation should dismiss §11 claims as an evident defense on the face of the complaint | Loss causation is not an element of §11; no dismissal on face-pleading | Loss causation appears as an affirmative defense that may be evident on face of pleadings | Remanded for district court to evaluate loss causation as needed; not dispositive at this stage |
Key Cases Cited
- Herman & MacLean v. Huddleston, 459 U.S. 375 (Supreme Court 1983) (§11 strict liability framework; no scienter requirement)
- Omnicare, Inc. v. Ind. State Dist. Council, 583 F.3d 935 (6th Cir. 2009) (loss causation not element of §11; relates to pleading standard)
- In re Sofamor Danek Grp. Inc., 123 F.3d 394 (6th Cir. 1997) (soft vs hard information; pleading standards for disclosures)
- Helwig v. Vencor, Inc., 251 F.3d 540 (6th Cir. 2001) (soft information and duty to disclose; extent of duty limited by certainty)
- Kushner v. Beverly Enterprises, Inc., 317 F.3d 820 (8th Cir. 2003) (knowledge of falsity required to trigger liability for disclosures in §10(b))
- Virginia Bankshares, Inc. v. Sandberg, 501 U.S. 1083 (Supreme Court 1991) (knowledge of falsity discussion linked to scienter; limited application to §11)
- Fait v. Regions Financial Corp., 655 F.3d 105 (2d Cir. 2011) (discussion of objective and subjective falsity for §11 in opinions)
- Konkol v. Diebold, Inc., 590 F.3d 390 (6th Cir. 2009) (post-pleading analysis; reliance on government investigations discussed)
- Adams v. Standard Knitting Mills, Inc., 623 F.2d 422 (6th Cir. 1980) (§14(a) pleading standards influencing discussion of scienter)