Tuesday, April 07, 2015

Amedisys Asks Justices to Fix Circuit Split on Loss Causation

By Mark S. Nelson, J.D.

Lawyers for Amedisys, Inc. recently asked the Supreme Court to once again take up the issue of loss causation in order to fix a burgeoning circuit split that prompted the Fifth Circuit to revive a securities class suit that had been tossed by the district judge because the plaintiffs failed to plead loss causation. The company said this is an “ideal” case for the justices to revisit the Court’s Dura opinion in the context of FRCP 9(b). Amedisys said the federal appeals courts are just as divided on this point as they were over the issues in the Amgen and Halliburton I cases, both of which the Court decided (Amedisys, Inc. v. Public Employees’ Retirement System of Mississippi, March 30, 2015).

According to Amedysis’s petition, the specific question is this: Does FRCP 9(b) require particularized pleading of loss causation? The plaintiffs, a group of public pension funds, had sued Amedisys for allegedly misleading investors by omitting details about a Medicare billing scheme from the company’s SEC filings and other public statements. The lower courts both applied FRCP 8(a)’s lower hurdle, but the district judge ended up dismissing the case, while the Fifth Circuit brought it back to life.

The Fifth Circuit said that five separate disclosures (revealed over two years) cited by the plaintiffs may collectively function as a corrective disclosure that is sufficient to meet the plaintiffs’ burden of pleading loss causation. Specifically, the appeals court characterized as too strict the “actual fraud” test the district judge had used to evaluate the alleged corrective disclosures. The Fifth Circuit described its holding as one in which “the whole is greater than the sum of its parts.”

Amedisys’s petition to the Supreme Court emphasized how it believes the Fifth Circuit’s whole-greater-than-the-parts theory got it wrong. For one, the company said the Fifth Circuit’s opinion left too much to the imagination regarding the “when” of the corrective disclosures there. The five-year class period and the 25-month duration of the alleged series of corrective disclosures could make it more likely that other factors pushed Amedisys’s stock price down.

Amedisys also said that imposing FRCP 9(b)’s heightened pleading requirement would help to give companies better notice of the loss causation allegations to which they must respond in securities class suits. Amedisys said the vagaries inherent in FRCP 8(a)’s lower plausibility standard hinder its ability to prepare a defense. Moreover, Amedisys said a decision on whether loss causation requires plausible or particularized pleading would be “outcome-determinative” because, at least in the company’s view, the complaint here would fail under the tougher standard used by the Fourth and Ninth Circuits.

The case is No. 14-1200.

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