Opinion ID: 3009719
Heading Depth: 2
Heading Rank: 2

Heading: The Omissions Claim

Text: The district court granted summary judgment for Arvey on all claims to the extent that they alleged liability for omissions of material fact. The court reasoned that attorneys cannot be held liable for omissions in an opinion letter unless plaintiffs can demonstrate that the attorneys had a duty to disclose to them the information that was omitted. Id. at 55051. Because it concluded that plaintiffs did not show the existence of a fiduciary or other relationship which would give rise to such a duty, the court held that plaintiffs could not proceed with their claims based on Arvey's alleged omissions. 0 We note, however, that we do not decide at this time whether such a disclaimer would be effective. One court has noted that it would appear that the doctrine does not apply unless the projection at issue reflects an honestly held belief. Gurfein v. Sovereign Group, 826 F.Supp. 890, 908 (E.D.Pa. 1993) (Pollak, J.). Judge Pollak further remarked that if the rule were otherwise one could construct a completely inaccurate and fraudulent offering memorandum, yet be shielded from a fraud claim as long as there was language in the document cautioning investors of the specific risks. To the extent that such a rule would allow, if not encourage, fraud and non-disclosure on the part of corporate actors, it clearly is not a viable application of the bespeaks caution doctrine. Id. at 908 n.20. 24 We believe the district court's analysis misapprehends the issues presented by this case. We are dealing here with a situation in which Arvey, by authoring its opinion letters, has elected to speak regarding the transactions at issue. Plaintiffs allege that this speech was misleading because Arvey failed to include in its opinion letters information that, if included, would have undermined the conclusions reached in those letters. In contrast, the cases cited by the district court, as well as those cited by Arvey, for the proposition that attorneys may not be held liable for omissions absent a duty to disclose concern the question of whether a law firm or similar entity has a duty to blow the whistle on its client. See Fortson v. Winstead, McGuire, Sechrest & Minick, 961 F.2d 469 (4th Cir. 1992); Abell v. Potomac Ins. Co., 858 F.2d 1104 (5th Cir. 1988), cert. denied sub nom. Abel v. Wright, Lindsey & Jennings, 492 U.S. 918 (1989); Barker v. Henderson, Franklin, Starnes & Holt, 797 F.2d 490 (7th Cir. 1986). That is, those cases concerned situations where the alleged omissions were unrelated to the validity of the law firm's opinion letter or similar communication. Fortson, for example, concerned a suit against a law firm that had prepared a tax opinion letter that was included in the private placement memorandum used in the offering of interests in a real estate limited partnership. Plaintiffs sought to recover from Winstead on the ground that the firm breached its duty under federal securities laws and state common law by failing to inquire into and ensure complete and accurate disclosure. Fortson, 961 F.2d at 471. Plaintiffs did not 25 allege that the tax opinion was inaccurate. Instead, they challenge[d] the sufficiency of the information provided to them as potential investors and contend[ed] that Winstead had a responsibility to ensure full and accurate disclosure. Id. at 472. The court refused to impose this obligation on law firms in the absence of a fiduciary relationship between the law firm and the plaintiffs. Id. at 472-74. To do so, the court remarked, would be to make attorneys guarantors of integrity in all commercial transactions, whether the context be one of raising capital, marketing a product, or negotiating a contract. Lawyers, in short, would function in the business world as designated watchdogs. Id. at 475. See also Barker, 797 F.2d at 496 (When the nature of the offense is a failure to 'blow the whistle', the defendant must have a duty to blow the whistle. And this duty does not come from § 10(b) or Rule 10b-5; if it did the inquiry would be circular. The duty must come from a fiduciary relation outside securities law.). This case, in contrast, presents the question of whether, once a law firm has chosen to speak, it may omit facts material to its non-confidential opinions. Here, unlike Fortson, the allegedly omitted facts bear directly on the accuracy of the tax opinion. Thus, this situation closely resembles that before the Seventh Circuit in Ackerman v. Schwartz, 947 F.2d 841 (7th Cir. 1991). In Ackerman investors brought suit against a law firm that wrote an opinion letter concluding that the investors were entitled to certain deductions for their investments in a tax shelter. The opinion letter recited facts that made the 26 transaction seem legitimate, but were fictitious. The letter cautioned that the firm had relied on unnamed persons for unspecified facts, id. at 843, and added that '[w]e have not made an attempt to independently verify the various representations.' Id. The court held that the district court's grant of summary judgment in favor of the law firm was improper. Under Rule 10b-5 ... the lack of an independent duty does not excuse a material lie. A subject of a tender offer or merger bid has no duty to issue a press release, but if it chooses to speak it must tell the truth about material issues. Although the lack of duty to investors means that Schwartz had no obligation to blow the whistle, and none to correct a letter he had not authorized to be circulated in the first place ... Schwartz cannot evade responsibility to the extent he permitted the promoters to release his letter. Id. at 848 (citations omitted). This analysis flows naturally from Eisenberg. There we held that an opinion is actionable if issued with a lack of a genuine belief that the information disclosed was accurate and complete in all material respects. 766 F.2d at 776. Indeed, when the foundations of an opinion suggest that they cannot be relied on without further inquiry, then the failure to investigate further may 'support an inference that when the defendant expressed the opinion it had no genuine belief that it had the information on which it could predicate that opinion.' Id. (citations omitted). Thus, this court has adopted a limited duty to investigate and disclose when, by the drafter's omission, a public opinion could mislead third parties. 27 This limited duty not to omit was particularly wellarticulated in Rose v. Arkansas Valley Envtl. & Util. Auth., 562 F.Supp. 1180, 1206-08 (W.D.Mo. 1983). The Rose court, in holding that an attorney's failure to disclose material facts in a bond opinion letter formed the basis of an actionable securities fraud claim, explained that when a professional undertakes the affirmative act of communicating or disseminating information, there is a general obligation or duty to speak truthfully; or, alternatively stated, a duty not to communicate something which is known to be untrue (or, perhaps, in which the defendant has so little basis for honest belief that the requisite degree of recklessness is involved). And encompassed within that general obligation is also an obligation or duty to communicate any additional or qualifying information, then known, the absence of which would render misleading that which was communicated. While this latter duty might loosely be described as a duty to disclose, I would prefer, for purposes of distinguishing it from a true duty to disclose, ... to label it as a duty not to omit. In reality, it is simply one facet of the general obligation to speak truthfully, arising out of and because of an affirmative act by the defendant in communicating. Id. at 1207 (citations omitted). The record contains evidence sufficient to preclude summary judgment on the omissions claim. Arvey received inquiries concerning its opinion letter from potential investors prior to issuing its second letter and was explicitly told prior to issuing its third letter that First Western was distributing copies of its letters along with brochures describing the 28 program. Plaintiffs have alleged that Arvey failed to disclose the SEC and State of Minnesota investigations as well as the IRS investigation into the analogous Price trading program. This evidence creates genuine issues of material fact sufficient to defeat Arvey's motion for summary judgment. Finally, we must address Arvey's argument that a duty not to omit runs against the ethical standards of attorney conduct. This argument is unpersuasive. Privileges and ethical rules cannot be relied on to perpetrate fraud. See Clark v. United States, 289 U.S. 1, 15 (1933) (The privilege takes flight if the relation is abused. A client who consults an attorney for advice that will save him in the commission of a fraud will have no help from the law. He must let the truth be told.).