On 5 May 2017, in City of Dearborn Heights Act 345 Policy & Fire Retirement Sys. v. Align Technology, Inc., the federal appeals court based in California affirmed a lower court's dismissal of securities fraud claims because the plaintiff's allegations failed to meet the falsity standard for statements of opinion established by the US Supreme Court in 2015 in Omnicare, Inc. v. Laborers District Council Construction Industry Pension Fund, 135 S. Ct. 1318 (2015). In affirming the lower court's decision that the defendants' comments about the "goodwill" on the company's financial statements were inactionable statements of opinion, the court joined the federal appeals court based in New York in applying the Omnicare standard to claims brought under Section 10(b) of the Exchange Act.

The plaintiff here alleged that Align Technology, Inc. ("Align"), an orthodontics and dental products maker, violated Section 10(b) by misleading investors about the goodwill valuation of a business unit of a company that Align had recently purchased. Align attributed a large portion of the purchase price of that company to goodwill, which is "the amount of the purchase price exceeding the fair value of the net assets of the acquired company". The plaintiff alleged that Align deliberately overvalued the goodwill when it conducted its annual goodwill impairment test in 2011 and that it ignored the need to perform interim impairment tests until October 2012. In affirming the district court's dismissal of the complaint, the court here determined that the standard for liability that the Supreme Court established in Omnicare for opinion statements under Section 11 of the Securities Act also applies to claims brought under Section 10(b) of the Exchange Act. In order for a plaintiff to plead that a statement of opinion is a material misrepresentation under Omnicare, the plaintiff must allege both that "the speaker did not hold the belief she professed" (i.e., subjective falsity) and that the belief is objectively untrue. The court here ruled that to the extent that its pre-Omnicare standard permitted plaintiffs to plead that opinion statements are material misrepresentations by alleging that "there is no reasonable basis for the belief," that standard is "clearly irreconcilable with Omnicare, and is therefore overruled."

The court here explained that statements related to goodwill valuations are statements of opinion because they "are inherently subjective and involve management's opinion regarding fair value". The plaintiff failed to allege the subjective falsity of the defendants' statements because the complaint did not allege any basis to infer that the defendants believed that goodwill was impaired in 2011 or that they were required to perform additional impairment testing.

In determining that Omnicare's standard of liability for statements of opinion applies to Section 10(b) of the Exchange Act, the court followed the reasoning of the federal appeals court based in New York, which the court here noted is the only other federal appeals court to have considered the issue. This decision thus further clarifies the scope of liability for statements of opinion under the Exchange Act after Omnicare.

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