Tuesday, March 31, 2015

Supreme Court on Facts and Opinions

A new Supreme Court ruling covers what companies can say, in particular about their own status and prospects, when they are selling stock to the public. This is important because if they mislead potential investors, lots of money can be made or lost. The case is Omnicare v. Laborers District Council Construction Industry Pension Fund.

In this case, the issue revolved around opinions versus facts and errors of commission versus errors of omission.  And what the Justices decided is that companies can say any opinion they have.  But they are not allowed to omit and relevant factual information that might go with it.  So for example, they can say that they “believe their new product will dominate the market” as long as there is no evidence (beyond reasonable doubt) that they don’t really believe this. And according to the reports I have read, it is virtually impossible to prove that someone did not believe a subjective opinion like this. 

BUT, here is the key.  If there is evidence to the contrary, such as an internal market research study, they are not permitted to keep this quiet.  So what they would have to say is that they “believe their new product will dominate the market, although our market research has some data suggesting otherwise.”  Or “we believe that we will will the lawsuit against us, despite the fact that our attorneys are not so sure.”  Or whatever.

Lawsuits will still be common because there can be disputes about whether a fact is relevant enough to be required or how companies link the two together.  For example if a third party market research study, funded by an independent organization, says their product may not be dominant, do they have to include that?  And what if they “include” it by using a very small superscript with a footnote that references the study but not linked in any way? 

There might be more complete details about these latter nuances in the full opinions (there were two – seven Justices gave the main ruling and two combined on a concurring opinion).  But it is the main distinction that I thought was interesting.
·         You can provide facts, but you can’t omit them or lie about them.  And you don’t have to give your subjective opinions about them.
·         You can give your subjective opinion almost without scrutiny, but only if you also give relevant facts.

This is new law.  Before, there was no legal requirement to include any relevant facts as long as you were presenting an opinion.  The only problem was if your opinion turned out to be wrong – and then you could be sued.  Now, you can be sued for the omission, but not for the future counterevidence.  This makes sense because companies should not be presenting opinions where they have related counterevidence without at least warning investors about it. But they also shouldn’t be held liable if they have an opinion and where they have no related counterevidence at the moment, even if some later emerges.