Singh v. Cigna Corp.
918 F.3d 57
2d Cir.2019Background
- Cigna acquired HealthSpring, a large regional Medicare insurer, in 2012 to expand into Medicare; HealthSpring quickly became a major revenue source for Cigna.
- Between Feb 2014 and Feb 2015, Cigna made public statements (2013 and 2014 Form 10-Ks and a 2014 Code of Ethics pamphlet) saying it had policies/procedures and would allocate significant resources to regulatory compliance.
- From April 2014–Dec 2015 Cigna received over 75 CMS notices for Medicare compliance infractions; in Jan 2016 CMS audited Cigna and concluded it had "substantially failed to comply," imposing sanctions including suspension of Medicare enrollment.
- Cigna disclosed the CMS letter in an 8-K on Jan 22, 2016; Cigna stock dropped thereafter and later after further disclosures; plaintiffs filed a securities class action covering Feb 27, 2014–Jan 21, 2016 (later extended to Aug 2, 2016).
- The district court dismissed the amended complaint for failure to plead a materially false statement and scienter; the Second Circuit affirmed, focusing on materiality.
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Whether Cigna's public statements about compliance were materially misleading under §10(b)/Rule 10b-5 | Singh: Generic statements (policies/procedures; allocating resources; Code of Ethics) implied satisfactory legal compliance and were misleading given numerous CMS violations | Cigna: Statements were generic/puffery and framed with caution about regulatory complexity; not representations of current compliance | Held: Statements were non-actionable puffery/tentative; a reasonable investor would not rely on them as assurances of compliance, so not materially misleading |
| Whether plaintiffs sufficiently pleaded scienter | Singh: The extent and timing of CMS notices and sanctions support an inference of recklessness/intent | Cigna: Even if regulatory failures occurred, plaintiffs failed to identify actionable misstatements to support scienter; allegations insufficiently particularized | Held: Court did not reach scienter because dismissal was warranted on materiality grounds |
Key Cases Cited
- Tellabs, Inc. v. Makor Issues & Rights, Ltd., 551 U.S. 308 (court reviews pleadings for strong inference of scienter)
- Meyer v. Jinkosolar Holdings Co., 761 F.3d 245 (2d Cir. 2014) (detailed, specific compliance descriptions can be actionable assurances)
- ECA, Local 134 IBEW Joint Pension Tr. of Chicago v. JP Morgan Chase Co., 553 F.3d 187 (2d Cir. 2009) (materiality standard and Basic cited)
- Basic Inc. v. Levinson, 485 U.S. 224 (materiality as substantial likelihood a reasonable investor would consider the information important)
- Fink v. Time Warner Cable, 714 F.3d 739 (2d Cir. 2013) (pleading standards on a motion to dismiss)