Opinion ID: 1267160
Heading Depth: 4
Heading Rank: 4

Heading: Legal Compliance

Text: Finally, Plaintiffs seek recovery based on Omnicare's claims of legal compliance. Defendants argue that its statements regarding legal compliance are not actionable because companies have no duty to opine about the legality of their own actions. As a general matter, that is true. Such information is considered soft and, therefore, disclosure is not required. In re Sofamor Danek Group, Inc., 123 F.3d 394, 401-02 (6th Cir.1997). But Plaintiffs object to application of this rule because Omnicare did not stay completely silent; instead, it made several general statements that it complied with state law and regulations and had a policy of complying with the law. [6] Thus, Plaintiffs argue that liability can be imposed based on these statements and that Omnicare had a duty to disclose its involvement in illegal activities. We disagree. In Kushner v. Beverly Enterprises, Inc., the Eighth Circuit reviewed a case very similar to this: a company made a general assertion that it complied with Medicare regulations but was later embroiled in a large Medicare fraud investigation. 317 F.3d 820, 824-25, 830-31 (8th Cir.2003). Relying on this Court's decisions in Sofamor Danek and Helwig, the Eighth Circuit assumed that liability could attach to a company's general assertion of legal compliance, but only where the complaint adequately pleaded that the defendants knew the statements were untruthful. Id. at 831. Since no such allegations were made, the pleading was deemed inadequate. Id. This case is no different. Although Plaintiffs claim that Omnicare's legal compliance claim was made with knowledge of its falsity, few factual allegations support this claim. Indeed, although three confidential witnesses reported various drug-handling practices that they considered illegal, only the allegations of CW6 suggest any knowledge on the part of any of the defendants. In particular, CW6 asserted that Froesel would contact Regional CFOs twice each quarter to implement the therapeutic interchange program where the more expensive branded drugs were substituted for the cheaper and less profitable.... But this does little to aid the Plaintiffs. First, no information is given regarding CW6 except the title of his position. As a result, any inferences drawn from his accusations must be steeply discounted. Ley, 543 F.3d at 811. Second, the allegations of illegality in this case relate to drug recycling and an alleged scheme to change forms of dosages (e.g., capsules for tablets), not branded drugs being substituted for generic drugs. [7] Hence, there is a disconnect between what Froesel allegedly knew (branded-for-generic drugs) and what was allegedly revealed to the market (dosage substitutions and recycling). Further, even if this statement did involve drug recycling or dosage substitution, it still fails to show falsity because no allegations establish when the defendants were aware of the wrongdoing or, for that matter, when the wrongdoing was occurring. Thus, as in Kushner, the complaint fails specifically to allege that defendants knew their statements of legal compliance were false when made. Nor did Omnicare have a duty to disclose its illegal operations based on its legal compliance claim. In Zaluski, we dealt with a statement claiming not legal compliance, but rather that the company complied with provisions of a contract. Zaluski, 527 F.3d at 568. The defendant in that case (the parent company of Omnicare) had a contract with the state of Tennessee, prohibiting payments to Tennessee officers or employees; violations could result in fines or the termination of the entire contract. Despite these potential consequences, the defendant made a large number of monthly payments to a Tennessee senator. When the scheme began to unravel, the defendants issued a press release claiming that the payments were made for out-of-state consulting. Id. at 567-70. We found that the press release in Zaluski was an affirmative misleading statement, but nevertheless held that Omnicare did not have to disclose that the payments constituted a breach of contract: The April 15 press release ... is an affirmative misleading statement.... However, Plaintiffs do not allege simply that the payment was made, but that the making of the payment created a voidable contract or the possibility of fines and sanctions by the State of Tennessee. Thus, Plaintiff's allegation refers to the consequences of the payment, not the payment itself.... These consequences are the type of predictions and soft information that do not give rise to a duty of disclosure. Id. at 575-76. We also noted in Zaluski that the statements regarding the contract, though misleading, did not require further disclosures: In City of Monroe, once the company chose to speak regarding an objective fact, it was required to qualify that representation with known information undermining (or seemingly undermining) the claim. This objective fact did not turn on decisions made by external parties, such as whether to fine the company for violations of safety standards, but on a statement that was directly in conflict with data in the company's possession. In City of Monroe, the defendants issued a statement that `the objective data clearly reinforces our belief that these are high-quality, safe tires'; the defendants in fact had data that indicated the opposite. In contrast, the complained-of omission in this case is that payments made to [the Senator] could have resulted in Tennessee's decision to void the contract or fine the company. There is no evidence that [defendant] believed either of these actions to be forthcoming. Id. at 576. The Zaluski misrepresentation was that the payments to the Senator were for out-of-state work; in other words, the payments to the Senator complied with the contract. Here, Omnicare said even less, merely making a generic claim that they complied with the law without providing any specifics and generally refusing to discuss the case. As such, additional disclosures of potential legal findings and consequences would be even less justified here than in Zaluski. Further, as in Zaluski, the materiality of the alleged omission derives solely from predictions regarding the actions of third parties, particularly whether fines or other sanctions would be brought based on findings of regulatory violations. This information is soft, and no disclosure is required despite the generalized claim of legal compliance. In sum, the complaint does not sufficiently establish that defendants actually knew that the legal compliance statements were false when made. Nor did the generic claim of lawfulness, in the absence of any specifics, require the disclosure of the allegedly illegal activities. Therefore, we find that the district court properly dismissed this claim as well.