The Ninth Circuit affirmed a district court's decision to dismiss a pension fund's putative securities class action in City of Dearborn Heights Act 345 Police & Fire Retirement System v. Align Technology, Inc. in May (see Arnold & Porter Kaye Scholer's Advisory). The plaintiffs, purchasers of Align Technology, Inc. stock, alleged that the defendant violated Sections 10(b) and 20(a) of the Securities Exchange Act of 1934, and SEC Rule 10b-5, by making seven materially false and misleading statements regarding Align's goodwill valuation of its subsidiary, Cadent Holdings, Inc.
The parties disputed the proper standard for pleading falsity of opinion statements in claims under Section 10(b) of the Securities Exchange Act. Following a close examination of the Supreme Court's 2015 Omnicare decision, the Court held that Omnicare's three different standards for pleading falsity of opinion statements also apply to Section 10(b) claims.
Under these standards, when a plaintiff relies on the theory that a statement of fact contained in an opinion statement is materially misleading, the plaintiff must allege that "the supporting fact [the speaker] supplied [is] untrue." Here, plaintiffs' complaint contained no allegations of subjective falsity (i.e., that the speaker did not honestly hold the opinion when the statement was made), and plaintiffs failed to plead sufficient facts that would allow the Court to infer subjective falsity. Thus, the Ninth Circuit ultimately found that the pleadings relating to the alleged misstatements did not satisfy the high falsity standard set forth in Omnicare.
With this decision, the Ninth Circuit joins the Second Circuit in applying the heightened Omnicare falsity standard to statement of opinion Securities Exchange Act 10(b) claims.
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