Omnicare Decision Revives Deutsche Bank Class Action

Case: Belmont Holdings Corp., et al. v. Deutsche Bank AG, et al.

Issue: Whether the U.S. Supreme Court’s decision in Omnicare affects Deutsche Bank AG’s (Deutsche Bank) liability for allegedly misrepresenting its exposure to its subprime mortgage-backed securities (MBS) in its offering materials.

Case Summary: The U.S. Supreme Court revived a shareholder class action alleging that Deutsche Bank made misleading and false statements in its offering materials concerning its $22.5 billion exposure to MBS by vacating the Second Circuit’s judgment and remanding for further consideration based on its recent decision in Omnicare v. Laborers Dist. Council Construction Industry Pension Fund.

The investor plaintiffs brought the suit alleging that Deutsche Bank’s offering materials were false and misleading because the bank did not adequately disclose its $22.5 billion exposure to MBS in violation of Section 11 of the Securities Act of 1933. The Manhattan district court ruled in favor Deutsche Bank, holding that the bank’s estimates of its MBS exposure were statements of opinion and not based on knowingly false information and therefore not considered misstatements under Section 11. On appeal, the Second Circuit affirmed.

The investor plaintiffs filed a certiorari petition asking the U.S. Supreme Court to review the Second Circuit decision, but after the Court issued its decision in Omnicare. The investor plaintiffs argued their appeal addressed the same issue of issuer liability for misstatements under Section 11 being decided under Omnicare.

On March 24, 2015, the Supreme Court ruled in Omnicare that a statement of opinion is not a misstatement under Section 11 if the issuer believed the statement to be true. However, the Supreme Court also held that a misstatement may violate Section 11 if the omission of material facts makes the statement at issue misleading to a reasonable investor.

In light of its Omnicare decision, the Supreme Court granted the investor plaintiffs’ petition, vacated the lower court’s decision and remanded for further consideration.

Bottom Line: In March 2015, the Supreme Court revived a class action against INV Groep by ordering the Second Circuit to reconsider its decision to dismiss the class action in light of the Omnicare decision. Similarly, the Second Circuit will evaluate the class action against Deutsche Bank under the same standard of liability laid out in Omnicare.

About Thomas Pinder

Thomas Pinder
Thomas Pinder is senior vice president and senior counsel for litigation in the office of ABA's general counsel.
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