Ansfield v. Omnicare, Inc. (In re Omnicare, Inc. Secs. Litig.), No. 13–5597.

CourtUnited States Courts of Appeals. United States Court of Appeals (6th Circuit)
Writing for the CourtKAREN NELSON MOORE, Circuit Judge.
Citation769 F.3d 455
PartiesIn re OMNICARE, INC. SECURITIES LITIGATION. Paul Ansfield, et al., Plaintiffs, KBC Asset Management N.V., Plaintiff–Appellant, v. Omnicare, Inc.; Joel Gemunder; David W. Froesel, Jr.; John L. Workman; Cheryl D. Hodges, Defendants–Appellees.
Decision Date10 October 2014
Docket NumberNo. 13–5597.

769 F.3d 455

In re OMNICARE, INC. SECURITIES LITIGATION.

Paul Ansfield, et al., Plaintiffs
KBC Asset Management N.V., Plaintiff–Appellant
v.
Omnicare, Inc.; Joel Gemunder; David W. Froesel, Jr.; John L. Workman; Cheryl D. Hodges, Defendants–Appellees.

No. 13–5597.

United States Court of Appeals, Sixth Circuit.

Argued: Jan. 30, 2014.
Decided and Filed: Oct. 10, 2014.


769 F.3d 460

ARGUED:Andrew M. McNeela, Kirby McInerney LLP, New York, New York, for Appellant. Richard W. Reinthaler, Winston & Strawn LLP, New York, New York, for Appellees. ON BRIEF:Andrew M. McNeela, Ira M. Press, J. Brandon Walker, Kirby McInerney LLP, New York, New York, Gary J. Sergent, O'Hara, Ruberg, Taylor, Sloan & Sergent, Crestview Hills, Kentucky for Appellant. Richard W. Reinthaler, John E. Schreiber, Winston & Strawn LLP, New York, New York, William T. Robinson III, Michael E. Nitardy, Frost Brown Todd LLC, Florence, Kentucky, Mark Alan Vander Laan, Amanda P. Lenhart, Dinsmore & Shohl, LLP, Cincinnati, Ohio, for Appellees.

Before: BOGGS and MOORE, Circuit Judges; BARRETT, District Judge.*

OPINION

KAREN NELSON MOORE, Circuit Judge.

On May 11, 2012, KBC Asset Management N.V. (“KBC”) filed a Consolidated Amended Complaint (“Complaint”), on behalf of Paul Ansfield and other similarly situated shareholders, against Omnicare, Inc. (“Omnicare”) and several of its current and former officers (collectively, “the Individual Defendants”): Joel Gemunder, former President and Chief Executive Officer; David W. Froesel, Jr., former Chief Financial Officer; John L. Workman, current President and Chief Financial Officer; and Cheryl D. Hodges, former Senior Vice

769 F.3d 461

President and Secretary. In the Complaint, KBC alleged that the defendants had committed securities fraud in violation of § 10(b) of the Securities Exchange Act of 1934 (“1934 Act”), codified at 15 U.S.C. §§ 78j(b) and 78t(a), as well as Securities and Exchange Commission (“SEC”) Rule 10b–5, codified at 17 C.F.R. § 240.10b–5. Specifically, KBC charged the defendants with making various material misrepresentations and omissions between January 10, 2007 and August 5, 2010 (“the Class Period”) in public and in SEC filings regarding Omnicare's compliance with Medicare and Medicaid regulations. Omnicare moved to dismiss the suit for failure to state a valid claim, and the district court granted Omnicare's motion. KBC now appeals.

The elephant-sized boulder blocking KBC's suit is the Private Securities Litigation Reform Act of 1995 (“PSLRA”), Pub.L. No. 104–67, 109 Stat. 737, codified at 15 U.S.C. § 78u–4, which created heightened pleading standards for securities-fraud cases. To satisfy this heavier, statutorily created burden, plaintiffs must identify each misleading or false statement and explain how it is misleading. 15 U.S.C. § 78u–4(b)(1)(B). In addition, plaintiffs must “state with particularity facts giving rise to a strong inference that the defendant[s] acted with the required state of mind.” § 78u–4(b)(2)(A). These requirements are not easily satisfied. In this case, we must answer whether plaintiffs have cleared these hurdles and what allegations can be considered in making that determination. Our ultimate answers do not favor KBC, and thus, we AFFIRM the dismissal of the Complaint.

I. BACKGROUND

The actors and allegations in the Complaint are many and muddled. By way of clarification: KBC is an asset-management company, located in Brussels, Belgium, that bought and held Omnicare stock during the Class Period. Its opponent, Omnicare, is the nation's largest provider of pharmaceutical care for the elderly, operating in forty-seven states, the District of Columbia, and Canada.

Gemunder was the President, the CEO, and a director of Omnicare from May 20, 1981 to August 2, 2010. He allegedly had responsibility for overseeing the company and making various certifications to the SEC. R. 94 at 7–9 (Compl. at ¶ 11) (Page ID # 831–33). Moreover, KBC claimed that Gemunder had knowledge that Omnicare was not compliant with federal healthcare regulations and misled investors to believe otherwise. Id.

Froesel was a Senior Vice President and the CFO of Omnicare from March 1996 to November 2009. Id. at 9 ¶ 12 (Page ID # 833). KBC alleged that he assisted in preparing various SEC filings and approving their content, which materially misrepresented Omnicare's compliance with federal regulations. Id. at 9–10 ¶ 12 (Page ID # 833–34).

Workman joined Omnicare in November 2009 as CFO and has been the President of the company since February 2011. Id. at 10 ¶ 13 (Page ID # 834). Similarly to Froesel, Workman allegedly helped prepare and approved SEC filings, which KBC alleged contained material false and misleading statements regarding Omnicare's compliance with federal healthcare regulations. Id.

Hodges was a Senior Vice President and the Secretary of the company from 1994 until August 2, 2010. Id. at 10 ¶ 14 (Page ID # 834). Beforehand, Hodges served as a director of Omnicare. Id. KBC also alleged that she assisted in the preparation and certification of SEC filings containing false information. Id. at 10–11 ¶ 14 (Page ID # 834–35).

769 F.3d 462

A. Allegations

Until December 2008, John Stone served as Omnicare's Vice President of Internal Audit, a position that required him to monitor and report on the company's compliance with Medicare and Medicaid regulations. As part of this job, Stone conducted an audit of Omnicare's “previously submitted Medicare and Medicaid claims for ‘ancillary services' ” from 2000 to 2005, including the provision of durable medical equipment (“DME”). Id. at 18–19 ¶¶ 38–42 (Page ID # 842–43). Completed in 2007, this audit was known internally as “the Wave I Audit.” Id. at 19 ¶ 42 (Page ID # 843). It examined eighteen of Omnicare's pharmacy facilities that provided ancillary services, and it looked into thirty-nine claims at each facility. Id. According to the Complaint, the Wave I Audit revealed “pervasive fraud” at each of the facilities. Id. Specifically, the Wave I Audit revealed that each of the Omnicare facilities submitted false reimbursement claims to DME Regional Carriers and several states. Id. at 19–20 ¶ 43 (Page ID # 843–44). KBC alleged that Stone shared the results of this audit with Omnicare's Internal Audit and Corporate Compliance Committees. Id. at 21 ¶ 46 (Page ID # 845). Additionally, the Complaint stated that “[o]n information and belief, the information was immediately given to defendants Gemunder, Froesel, and Hodges, and received by defendant Workman when he started at [Omnicare] in November 2009.” Id.

In 2008, Omnicare's Executive Vice President and Chief Operating Officer, Pat Keefe, commissioned a second audit—known as “the Wave II Audit”—to show that the irregularities found in the Wave I Audit were limited or non-existent. Id. at 21 ¶ 49 (Page ID # 845). Again, Stone conducted the audit using a limited sample: he examined thirty claims submitted in 2008 from each of fifteen pharmacies. Id. at 21–22 ¶ 49 (Page ID # 845–46). The Wave II Audit revealed that the examined facilities also had submitted numerous claims without the proper documentation and that an Omnicare subsidiary had billed some Medicaid patients at a higher rate than non-Medicaid patients. Id. at 22 ¶¶ 49–50 (Page ID # 846). Again, KBC averred that “[o]n information and belief, Stone presented the results of the Wave II [A]udit to Omnicare's Internal Audit and Corporate Compliance Committees and the results were immediately given to defendants Gemunder, Froesel, and Hodges and received by defendant Workman when he started at [Omnicare] in November 2009.”Id. at 22 ¶ 51 (Page ID # 846). In response to these audits, Stone claimed that Omnicare tried to conceal its fraud by repaying the DME Regional Carriers for the false claims, leaving the state Medicaid claims unaddressed. Id. at 23 ¶ 52 (Page ID # 847).

After conducting the Wave I and Wave II Audits, Omnicare charged Stone with conducting yet another audit, this time of the company's newly acquired pharmacies. Id. at 24 ¶ 55 (Page ID # 848). Known as the “Pharmacy Audit,” this investigation sought to determine whether the pharmacies complied with Medicare and Medicaid requirements. Id. Stone found that they did not totally comply because of “order processing errors and control test failures.” Id. The Complaint claims that “[a]ccording to Stone, Omnicare was ‘fully aware of the [ ] deficiencies and that their wholly owned, operated and controlled pharmacies were submitting false and fraudulent Medicare and Medicaid claims.’ ” Id. at 24 ¶ 56 (Page ID # 848) (second alteration in original). In particular, KBC averred that “Stone shared with Gemunder the results of the [Pharmacy] Audit....” Id. at 87 ¶ 193 (Page ID # 911). The Complaint also states that

769 F.3d 463

“[o]n information and belief” these results were given to all of the Individual Defendants. Id. at 25 ¶ 61 (Page ID # 849).

Following Stone's presentation of the Pharmacy Audit's results to the Internal Audit Committee, Stone claimed that “ ‘[a]s a direct and proximate cause of [his] presentation to [Omnicare's] Internal Audit Committee, [defendant...

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2 practice notes
  • Jones v. Perry, No. 3:16-cv-02631
    • United States
    • United States District Courts. 6th Circuit. United States District Court of Middle District of Tennessee
    • June 23, 2020
    ...notice pleadings or testimony as true simply because these statements are filed with the court.'" In re Omnicare, Inc. Secs. Litig., 769 F.3d 455, 468 (6th Cir. 2014) (quoting 21B Charles Alan Wright et al., Federal Practice and Procedure § 5106.4 (2d ed. 2005)). The Court will consider all......
  • Jones v. Perry, No. 3:16-cv-02631
    • United States
    • United States District Courts. 6th Circuit. United States District Court of Middle District of Tennessee
    • November 20, 2020
    ...notice pleadings or testimony as true simply because these statements are filed with the court.'" In re Omnicare, Inc. Secs. Litig., 769 F.3d 455, 468 (6th Cir. 2014) (quoting 21B Charles Alan Wright et al., Federal Practice and Procedure § 5106.4 (2d ed. 2005)). The Court will consider all......
2 cases
  • Jones v. Perry, No. 3:16-cv-02631
    • United States
    • United States District Courts. 6th Circuit. United States District Court of Middle District of Tennessee
    • June 23, 2020
    ...notice pleadings or testimony as true simply because these statements are filed with the court.'" In re Omnicare, Inc. Secs. Litig., 769 F.3d 455, 468 (6th Cir. 2014) (quoting 21B Charles Alan Wright et al., Federal Practice and Procedure § 5106.4 (2d ed. 2005)). The Court will consider all......
  • Jones v. Perry, No. 3:16-cv-02631
    • United States
    • United States District Courts. 6th Circuit. United States District Court of Middle District of Tennessee
    • November 20, 2020
    ...notice pleadings or testimony as true simply because these statements are filed with the court.'" In re Omnicare, Inc. Secs. Litig., 769 F.3d 455, 468 (6th Cir. 2014) (quoting 21B Charles Alan Wright et al., Federal Practice and Procedure § 5106.4 (2d ed. 2005)). The Court will consider all......

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