Pension funds oppose Omnicare’s request for rehearing

Pension funds that won reinstatement of their claims that Omnicare Inc. misrepresented information provided to investors about alleged kickbacks and bogus Medicare billings are opposing the company’s petition for rehearing en banc by the 6th U.S. Circuit Court of Appeals.

Writing for the three-judge panel May 23, Circuit Judge R. Guy Cole Jr. reversed dismissal of the shareholder suit and reinstated the claims against the pharmaceutical care services company and certain officers and directors.  Ind. State Dist. Council of Laborers & Hod Carriers Pension & Welfare Fund et al. v. Omnicare Inc. et al., No. 12-5287, 2013 WL 2248970 (6th Cir. May 23, 2013).

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On June 6 Omnicare filed for rehearing by the full court, asserting the panel’s decision “represents a dramatic change in the standards for pleading ‘falsity’ under federal securities laws” (see Westlaw Journal Securities Litigation & Regulation, Vol. 19, Iss. 4).

Original allegations

The plaintiff-appellants originally asserted that Omnicare officers and directors misled investors in a 2005 registration statement about alleged kickbacks from other drug companies and false claims made to Medicare and Medicaid. These accusations were based on whistle-blower lawsuits over the alleged Medicare fraud that led to a government investigation.

The investors asserted violations of Section 11 of the Securities Act of 1933, 15 U.S.C. § 77k.

They also said the U.S. District Court for the District of Kentucky erred in requiring them to plead the defendants had knowledge of the falsity of the statements made regarding compliance with federal law because Section 11 is a strict liability provision.

Section 11 provides for strict liability when a registration statement “contains an untrue statement of a material fact,” the panel noted.

“No matter the framing, once a false statement has been made, a defendant’s knowledge is not relevant to a strict liability claim,” Judge Cole wrote.

En banc petition

In the en banc petition, Omnicare says the panel’s decision, if allowed to stand, “would create the most lenient pleading standard in the country for asserting claims under Section 11.”

(Click here to read the en banc petition on Westlaw.)

The decision subjects both issuers and underwriters to heightened liability for expressing opinions or beliefs that may be challenged by subsequent events, Omnicare argues.

The whistle-blower complaints did not result in any judgment, finding or admission of wrongdoing, the petition says.

Moreover, the initiation of any related investigations occurred after the registration statement was issued, and the suit failed to plead a materially false statement or omission was made in the offering documents, Omnicare says.

The company says the panel’s decision conflicts with rulings in the 6th, 2nd and 9th circuits as well as the U.S. Supreme Court.

Citing Virginia Bankshares Inc. v. Sandberg, 501 U.S. 1083 (1991), Omnicare says a statement is actionable where the plaintiff pleads both that the defendants’ “statements of belief and opinion were made with knowledge that the directors did not hold the beliefs or opinions expressed” and that the statements were objectively false when made.

Plaintiffs’ opposition brief

The investors maintain that Omnicare was paying and receiving illegal kickbacks and, as a result, subsequently entered into large civil settlements with various federal and state authorities.

“Defendants now contend that whether Omnicare operated lawfully as its registration statement represented, or in systematic violation of the law, was simply immaterial to its investors unless it is shown that the defendants each personally disbelieved the statements,” the opposition says.

(Click here to read the opposition brief on Westlaw.)

Moreover, the brief argues, the 6th Circuit’s reinstatement does not conflict with Virginia Bankshares.

“Virginia Bankshares does not hold that if statements are in fact objectively misleading, investors must also allege defendants’ subjective disbelief to state a strict liability 1933 act claim,” the opposition argues.

The defendants’ knowledge is not relevant to the claim, and the court should reject their invitation to rehear the dispute and establish different rules for liability, the plaintiff-appellants say.

Indiana State District Council of Laborers and Hod Carriers Pension & Welfare Fund et al. v. Omnicare Inc. et al., No. 12-5287, opposition filed (6th Cir. July 3, 2013).