779 F.Supp.3d 951
M.D. Tenn.2025Background
- This is a securities class action brought by Sheet Metal Workers Local No. 33 Pension Fund on behalf of investors who purchased Tivity Health, Inc. stock between March 8, 2019 and February 19, 2020.
- Plaintiffs allege Tivity and its executives misled investors regarding the success of Tivity’s acquisition of Nutrisystem, Inc., and the accounting/valuation of goodwill and the Nutrisystem tradename throughout 2019.
- The alleged nondisclosures involve failing to report an $8.3 million pre-acquisition aEBITDA loss in Nutrisystem and overstating the value of goodwill and the Nutrisystem tradename in financial filings.
- After corrective disclosures in February 2020—including the impairment of goodwill and tradename and related poor financial performance—Tivity’s stock price dropped by over 45%.
- Plaintiffs brought claims under Sections 10(b) and 20(a) of the Securities Exchange Act for fraud and control person liability, and also advanced a scheme liability claim under Rule 10b-5.
- The decision addresses defendants’ motion for summary judgment on all claims, along with a request to shorten the class period.
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Duty to Disclose Nutrisystem Loss | Omission of the $8.3M Stub Period loss was materially misleading | No duty to disclose pre-acquisition loss; not required by GAAP/SEC | Genuine dispute of fact; summary judgment denied |
| Goodwill/Tradename Valuation | Values were knowingly overstated to mislead investors | Accounting followed GAAP and outside auditor guidance | Genuine dispute; summary judgment denied |
| Scienter (Fraudulent Intent) | Executives acted recklessly or knowingly concealed poor results | No intent; no stock sales; auditors confirmed treatment | Jury could find scienter; summary judgment denied |
| Loss Causation | Stock drop was due to fraud revelation in corrective disclosures | Expert failed to disaggregate fraud and non-fraud impacts | Fact dispute remains; except as to Zier's departure damages |
| Control Person Liability (20a) | Section 20(a) claim is viable if 10(b) claims survive | No underlying 10(b) liability thus no 20(a) liability | Survives as 10(b) claim survives |
| Scheme Liability | Separate, actionable deceptive scheme beyond nondisclosure | Scheme claim duplicates misstatement claim; no intent proven | Fact disputes remain; summary judgment denied |
| Damages for Zier’s Departure | Departure “within zone of risk” concealed by fraud | Departure unrelated to fraud; not pled as fraud-related loss | Not causally tied to fraud; summary judgment granted |
| Shortening Class Period | No basis to cut class period on record | Portions of period merit exclusion due to lack of fraud | No factual basis; summary judgment denied |
Key Cases Cited
- Anderson v. Liberty Lobby, Inc., 477 U.S. 242 (summary judgment standards; genuine dispute test)
- Basic Inc. v. Levinson, 485 U.S. 224 (materiality in securities fraud—reasonable investor standard)
- Matrixx Initiatives, Inc. v. Siracusano, 563 U.S. 27 (elements of securities fraud under Section 10(b))
- TSC Industries, Inc. v. Northway, Inc., 426 U.S. 438 (materiality is a mixed question for the trier of fact)
- La. Sch. Emps.’ Ret. Sys. v. Ernst & Young, LLP, 622 F.3d 471 (Sixth Circuit test for Section 10(b) / Rule 10b-5 claims)
- In re Omnicare, Inc. Sec. Litig., 769 F.3d 455 (elements of securities fraud; materiality analysis)
- Frank v. Dana Corp., 547 F.3d 564 (scienter in securities fraud)
- City of Monroe Emps. Ret. Sys. v. Bridgestone Corp., 399 F.3d 651 (duty to correct earlier misleading statements)
- Doshi v. Gen. Cable Corp., 823 F.3d 1032 (definition and proof of scienter)
- Helwig v. Vencor, Inc., 251 F.3d 540 (factors relevant to scienter in fraud)
- Ohio Pub. Emps. Ret. Sys. v. Fed. Home Loan Mortg. Corp., 830 F.3d 376 (loss causation in securities fraud)
- Lentell v. Merrill Lynch & Co., 396 F.3d 161 (loss must be attributable to the concealed risk)
- Janus Capital Grp. v. First Derivative Traders, 564 U.S. 135 (“maker” of statements under Rule 10b-5)
- SEC v. Merch. Cap., LLC, 483 F.3d 747 (scienter as a mixed question of law and fact)