Massachusetts Retirement Systems v. CVS Caremark Corp.
2013 U.S. App. LEXIS 10543
| 1st Cir. | 2013Background
- Merger: CVS and Caremark merged in 2006 to form CVS Caremark, aiming to offer integrated retail and PBM services.
- Executives' statements: post-merger statements claimed seamless integration and strong service; Ryan repeatedly touted competitive advantage and integration progress.
- Claims: plaintiffs allege misrepresentations under Section 10(b) and 20(a) and Rule 10b-5, tied to the failed integration and service issues.
- District court: dismissed the complaint for lack of loss causation, except for one forward-looking forecast deemed PSLRA-protected.
- Procedural posture: Retirement Systems appealed; First Circuit vacated dismissal and remanded for further proceedings.
- Key factual pivot: November 5, 2009 earnings call revealed substantial contract losses and raised questions about integration and service, potentially causing a market reaction.
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Whether loss causation is plausibly pleaded | Retirement Systems allege that the November 5 call revealed misrepresentations about integration and service, causing stock drop. | Defendants contend the drop was due to forecast miss and independent factors, not corrective disclosures. | Loss causation plausibly pled; expert-like analysis of call and market response supports causation. |
| Whether the November 5 call disclosed the truth about integration | Call revealed systemic integration failures and service issues. | Statements focused on separate, client-specific issues; no integrated-failure disclosure. | Plaintiff-state plausible that call conveyed integration problems. |
| Role of analyst reports in establishing loss causation | Analyst reports reflect market interpretation of statements and corroborate loss causation. | Analyst reports are not direct statements; cannot alter the call's content. | Analyst reports properly considered as contemporaneous market reaction evidence. |
| Whether forward-looking statements foreclose liability | Other misstatements apart from forward-looking guidance are actionable. | Forward-looking forecast was PSLRA-protected; cannot be basis for liability. | District court correctly treated the forecast as protected; liability rests on other misstatements. |
Key Cases Cited
- Dura Pharm., Inc. v. Broudo, 544 U.S. 336 (U.S. 2005) (six elements of a Section 10(b) claim; loss causation required)
- FindWhat Investor Grp. v. FindWhat.com, 658 F.3d 1282 (11th Cir. 2011) (loss causation with corrective disclosures and market reactions)
- Alaska Elec. Pension Fund v. Flowserve Corp., 572 F.3d 221 (5th Cir. 2009) (corrective disclosure need not be a mirror image of falsity; partial disclosures may suffice)
- In re Omnicom Grp., Inc. Sec. Litig., 597 F.3d 501 (2d Cir. 2010) (public knowledge of contract losses; market reaction to disclosures considered)
- In re Williams Sec. Litig.—WCG Subclass, 558 F.3d 1130 (10th Cir. 2009) (loss causation framework; proximity of price drop to disclosure)
- Sparling v. Daou Systems, Inc., 411 F.3d 1006 (9th Cir. 2005) (illustrates price drop tied to misstatements and later confirmations)
- eSpeed, Inc. Sec. Litig., 457 F. Supp. 2d 266 (S.D.N.Y. 2006) (pricing disclosures and market reaction as loss causation evidence)