Making the Reform Act’s Safe Harbor Safe Again
Doug Greene
National Practice Leader, Securities and Governance Litigation Team at BakerHostetler
My career is devoted to helping corporate officers and directors safely navigate securities and governance lawsuits alleging that they made false or misleading statements or breached fiduciary duties. A recurring type of claim alleges that executives made false or misleading statements about an opinion or belief, including forward-looking opinions or projections about the future. Statements of opinion abound in financial reporting and investor communications: officers and directors routinely make statements about progress toward business goals, the results of clinical trials, earnings guidance, accounting estimates, and the adequacy of internal controls, among other things.
Plaintiffs’ attacks on opinion statements feel especially unfair to executives, since opinions are judgment calls, and attacks occur with the 20/20 vision of hindsight. Although logic suggests the legal hurdles for plaintiffs to challenge an opinion should be high, courts have had trouble reaching fair and predictable results. This is because (1) the law governing what makes a statement of opinion false or misleading was a tangle until the U.S. Supreme Court’s 2015 decision in Omnicare, Inc. v. Laborers District Council Construction Industry Pension Fund, 135 S. Ct. 1318 (2015), and (2) despite Congress enacting a safe harbor for forward-looking opinions in the Private Securities Litigation Reform Act of 1995, many judges navigate around it.
Protecting executives’ statements of opinion from unfair attacks is a point of pride for me. Throughout my career, I have worked hard to understand why my client believed what he or she said, and then provide factual context that helps the judge understand that the statement was true and fair. A judge who concludes a defendant tried to tell the truth can almost always find a way to dismiss the case, so assembling a record showing my clients’ good faith -- in other words, finding a way to tell my clients' stories -- is central to the art of securities litigation defense.
To make a bigger difference -- to change the law on opinions beyond just the cases I defend -- I have worked on a number of amicus (“friend of the court”) briefs authored with Washington Legal Foundation (WLF), a public interest organization dedicated to free enterprise.
In 2014, we filed an amicus brief that influenced the Supreme Court’s groundbreaking 2015 Omnicare decision on what makes a statement of opinion false or misleading. As I wrote in a 2016 WLF Working Paper, courts generally are faithfully applying Omnicare to protect statements of opinion from unfair challenge:
In 2018, we filed an amicus brief in support of Quality Systems’ petition asking the Supreme Court to decide the scope of protection under the Reform Act’s safe harbor for forward-looking statements. In our brief, we advocated for a standard that would solve the problem of judicial avoidance of the safe harbor, and encourage companies to improve their disclosure of the real risks associated with achieving their projections.
The Quality Systems case settled as the Supreme Court was deciding whether to accept review. In hopes that companies and their defense counsel would advocate our proposed standard in future cases, WLF invited us to submit an article. Here is the article, authored by my BakerHostetler colleagues Jessie Gabriel, Tiffany Miao, and Chardaie Charlemagne, and me:
“Making the Reform Act’s Safe Harbor Safe Again”
We very much hope companies will seek Supreme Court review of this key issue in the right cases. In the meantime, we hope our article will promote adoption of our proposed standard by lower courts -- which would improve safe-harbor protection and, in turn, result in better disclosure of projections and the real risks companies face in achieving them.