Narrow Liability Under Section 11 for Opinion Statements

In MHC Mut. Conversion Fund, L.P. v. Sandler O'Neill & Partners, L.P. (2014 WL 3765717) the Tenth Circuit maintained narrow liability under section 11 (15 U.S.C. 77k) of the Securities Act, for opinion statements concerning future events by a securities issuer. This case arose after the 2008 financial crisis. Bancorp issued a statement, reporting significant losses in mortgage-backed securities, but that it expected losses to level off and for the market to rebound shortly. The company did warn more losses were expected if the market did not improve. Bancorp issued the statement after both internal and independent expert analysis. Unfortunately, the market did not rebound, more losses resulted and the plaintiffs filed suit for violations of §11 of the Securities Act and Rule 10(b).

A cause of action exists under Section 11 if a registration statement contains an untrue statement of material fact or omits a material fact necessary to make a statement not misleading. Because Bancorp offered an opinion and the statute focuses on facts, the court addressed actionable opinions. Usually, opinions are not actionable; under this view, the plaintiffs’ claim fails. An opinion can be actionable if it is a false opinion, but the plaintiffs could not show the defendant subjectively disbelieved the opinion it published -- even though that opinion turned out to be very wrong. The court rejected the plaintiff's theory that Bancorp was liable because it provided an expert opinion with no objectively reasonable foundation was actionable, again requiring no sincere belief in the statement by the defendant.

The Court held that an objectively reasonable basis test applied, but the action would have failed under any test. The plaintiffs alleged no evidence that relying upon the statement would mislead an investor. The statement by Bancorp was definite, qualified, and provided notice that the speaker might be wrong – factors used to classify a statement as an non-actionable opinion in prior cases. The plaintiffs attempted to argue that the statement was not opinion, but actually a fact, but the court rejected this also.

The court also dismissed the plaintiff’s 10(b) claim for failing to demonstrate scienter. The complaint at most alleged motive and opportunity to mislead, not the particular facts required to demonstrate an intent to defraud or reckless disregard of the truth.

The Tenth Circuit affirmed the District Court’s decision, dismissing the complaint with prejudice.