James Hayes v. Accretive Health, Incorporated
773 F.3d 859
7th Cir.2014Background
- Accretive Health provided revenue-cycle and cost-control services; two large contracts with Fairview were central to the complaint.
- ISPBS (lead plaintiff) alleged Accretive used unlawful, aggressive collection practices and misrepresented compliance and contractual performance, inflating stock price.
- Public disclosures in early 2012 (Minnesota AG lawsuit and report; Accretive announcements) caused Accretive stock to drop sharply.
- ISPBS sued under §§ 10(b) and 20(a); Accretive moved to dismiss. Before the court ruled, the parties mediated and agreed to a $14 million settlement.
- The district court preliminarily and finally approved the settlement and plan of distribution; attorneys’ fees (30%) and expenses were awarded. Only one opt-out and one objector (Hayes) appeared.
Issues
| Issue | Plaintiff's Argument (Hayes) | Defendant's Argument (Accretive/ISPBS response) | Held |
|---|---|---|---|
| Whether PSLRA or policy bars approval of a low-percentage recovery settlement | Settlement recovers too little; PSLRA aims to curb abusive suits and low recoveries reflect abuse | Low recovery alone does not make a suit frivolous; court should apply fairness factors | Affirmed: low percentage recovery not per se barred; district court properly applied fairness factors |
| Whether court erred by approving settlement without quantifying net expected value (per Reynolds) | Court should have quantified damages/net expected value before approval | Expert damages proof would have been contested and expensive; court relied on established fairness factors and mediation | Affirmed: no abuse of discretion; quantitative valuation not required given arm’s-length mediation and other factors |
| Whether plan of distribution improperly pays class members lacking loss causation (sold before first corrective disclosure) | Plan is overbroad and pays persons who cannot prove loss causation (Dura) | Distribution formula yields zero for pre-disclosure sellers; only those with loss causation receive payment | Affirmed: plan’s formula ensures pre-disclosure sellers’ claims per share compute to zero |
| Whether additional arguments (approval before ruling on motion to dismiss; per-share fee deduction; replace lead plaintiff) warrant relief | Court should have ruled on motion to dismiss first; adopt per-share fee deduction; replace lead plaintiff with named plaintiff/Hayes | These issues were not preserved/raised below and are waived on appeal | Affirmed: arguments waived for failure to raise below; meritless in any event |
Key Cases Cited
- Synfuel Technologies, Inc. v. DHL Express (USA), Inc., 463 F.3d 646 (7th Cir. 2006) (court’s role in settlement approval is exacting; apply fairness factors)
- Isby v. Bayh, 75 F.3d 1191 (7th Cir. 1996) (review settlement approval for abuse of discretion)
- Reynolds v. Beneficial Nat’l Bank, 288 F.3d 277 (7th Cir. 2002) (district court generally should attempt to quantify net expected value of continued litigation)
- Dura Pharmaceuticals, Inc. v. Broudo, 544 U.S. 336 (U.S. 2005) (plaintiff must prove loss causation for securities fraud damages)
- Tellabs, Inc. v. Makor Issues & Rights, Ltd., 551 U.S. 308 (U.S. 2007) (PSLRA’s goals and pleading/scienter standards)
- Gautreaux v. Pierce, 690 F.2d 616 (7th Cir. 1982) (factors for assessing fairness of class settlements)
- In re Gen. Motors Corp. Engine Interchange Litig., 594 F.2d 1106 (7th Cir. 1979) (strength of plaintiffs’ case vs. settlement amount is the most important factor)
- Neitzke v. Williams, 490 U.S. 319 (U.S. 1989) (definition of frivolous claim)