In re Gentiva Securities Litigation
2013 U.S. Dist. LEXIS 42102
E.D.N.Y2013Background
- Consolidated securities fraud class action on Gentiva investors from July 31, 2008 to October 4, 2011; defendants moved to dismiss, granted.
- Gentiva provided home health services under Medicare’s HH PPS; payments tied to physician plans of care, OASIS data, and case-mix classifications.
- Care was allegedly driven by threshold-based Medicare bonuses (6, 14, or 20 visits) and recertification for additional episodes, affecting revenue.
- Plaintiffs rely on confidential witnesses describing management pressure to increase visits and to upcode or otherwise inflate Medicare reimbursements.
- Two identified witnesses (McComas, Shah) described coding and pressure dynamics; multiple CWs described systemic pressure across regions.
- SFC and SEC investigations (2010-2011) and the SFC Report alleged shifts in patient visits following threshold changes; internal emails discussed maximizing reimbursements.
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Section 10(b)/Rule 10b-5 claim viability | Plaintiff asserts misstatements/omissions and scienter based on Medicare billing pressures. | Defendants argue no actionable misstatements with particularity; many claims are puffery or non-actionable. | 10(b) claims survive only with specific scienter; court grants dismissal for lack of strong inference. |
| Scienter sufficiency under PSLRA | Plaintiff contends internal emails and CWs show knowledge or reckless disregard. | Defendants contend CWs insufficiently link to executives; emails do not prove intentional falsehoods. | Court finds no strong inference of scienter; holistic view insufficient to meet PSLRA standard. |
| Section 20(a) control person liability | Corporate officers’ control and participation could render Gentiva liable. | If primary 10(b) claim fails, control person liability should fail; scienter lacking. | Section 20(a) claim dismissed. |
| Section 11 standing and merits (1933 Act) for the Offering | LACERS has standing to pursue Section 11 on the bond offering; injury can be traced. | LACERS lacks direct purchase of 11.5% notes; standing problem; misstatements contested. | Lead Plaintiff lacks standing; Section 11 claims dismissed with prejudice; time-bar and damages issues noted. |
| Section 11 substantive viability (fraud vs negligence under 1933 Act) | Allegations resemble 10(b) fraud; Section 11 sounds in fraud; Rule 9(b) implications. | Fraud-oriented pleading not properly separated; negligence/strict liability not adequately pled. | Section 11 sounds in fraud; Rule 9(b) not satisfied; dismissal with prejudice. |
Key Cases Cited
- Tellabs, Inc. v. Makor Issues & Rights, 551 U.S. 308 (U.S. 2007) (strong inference of scienter standard; holistic view required)
- Slayton v. American Express Co., 604 F.3d 758 (2d Cir. 2010) (heightened PSLRA pleading; well-pled facts required)
- Ganino v. Citizens Utilities Co., 228 F.3d 154 (2d Cir. 2000) (materiality assessed in light of total financial picture)
- In re CitiGroup Inc. Secs. Litig., 723 F. Supp. 2d 568 (S.D.N.Y. 2010) (statements must be timely and specific; historical facts used)
- In re Wachovia Equity Sec. Litig., 753 F. Supp. 2d 344 (S.D.N.Y. 2010) (Confidential witnesses require particularity; holistic view)