In re Almost Family Inc. Sec. Litig.
| Decision Date | 10 February 2020 |
| Docket Number | Civil Action No. 3:18-CV-00040-RGJ |
| Citation | 572 F.Supp.3d 346 |
| Parties | IN RE ALMOST FAMILY INC. SECURITIES LITIGATION. |
| Court | U.S. District Court — Western District of Kentucky |
This matter is before the Court on Defendants', Almost Family, Inc. ("Almost Family" or the "Company"), LHC Group, Inc. ("LHC") and Defendants' Henry M. Altman, Jr., Steven B. Bing, Jonathan D. Goldberg, Clifford S. Holtz, Donald G. McClinton, W. Earl Reed, III, Tyree G. Wilburn, and William B. Yarmuth (the "Individual Defendants" and collectively with Almost Family and LHC, the "Defendants"), Motion to Dismiss [DE 31] and Motion to Strike the Affidavit of Plaintiff's Purported Expert [DE 32]. Responses [DE 35, 36], replies [DE 37, 38], and supplemental authority [DE 40, 41, 42] were filed. These matters are ripe. For the reasons below, the Motion to Dismiss [DE 31] and Motion to Strike the Affidavit of Plaintiff's Purported Expert [DE 32] are GRANTED . Finally, because the Court is granting Defendants' Motion to Dismiss, it need not decide Plaintiffs' Motion for Substitution of Party for Deceased Defendant Steven B. Bing [DE 43]. Plaintiffs' Motion for Substitution of Party for Deceased Defendant Steven B. Bing [DE 43] is DENIED as MOOT .
Plaintiffs filed an Amended Complaint ("FAC") alleging violations of Section 14(a), 20(a), and breach of fiduciary duties. [DE 26]. Defendants now move to dismiss the FAC. [DE 31]. This matter stems from an agreement and plan of merger ("Merger Agreement") between Almost Family and LHC. [DE 26 at 320, ¶¶1–2]. The Merger Agreement proposed a $2.4 billion merger, in which Almost Family shareholders would receive 0.9150 shares of LHC stock for each existing share of Almost Family stock. [DE 31-1 at 414]. Plaintiffs allege that the merger consideration was inadequate given Almost Family's performance and prospects for further growth. [DE 26 at 330, ¶36]. Plaintiffs allege that Defendants' proxy statement ("the Proxy") violated Section 14(a) of the Securities Act. [Id. at 320, ¶¶3–4]. Plaintiffs assert that the financials in the Proxy were materially misleading and the Proxy was otherwise misleading because it omitted necessary financial information that would allow shareholders to understand the financial figures and fairness opinion provided with the Proxy. [Id. at 320, ¶4; 322, ¶¶8–9]. Plaintiffs also allege control person liability for the Individual Defendants. [Id. at 360–62, ¶¶145–52]. Finally, Plaintiffs assert that the Individual Defendants breached their duties of loyalty and good faith by allowing dissemination of the allegedly misleading Proxy. [Id. at 362, ¶¶153–57].
Almost Family distributed the Proxy to shareholders. [DE 26 at 320, ¶3]. The Proxy includes two fairness opinions, one prepared by Jefferies LLC on behalf of LHC and one prepared by Guggenheim Securities LLC ("Guggenheim") on behalf of Almost Family. [DE 31-2, the Proxy, at Annex C, D]. Both fairness opinions recommend the merger. [Id. ]. The Proxy also includes a letter from the Board of Directors of both LHC and Almost Family asserting unanimous approval of the Merger Agreement and request for the shareholders of both companies to approve the various agreements and carry out the merger. [Id. at 442–48]. The Proxy, under the heading "Certain Almost Family Unaudited Prospective Financial Information," also includes financial projections for the years 2017 through 2022. [Id. at 553–54]. The Proxy discloses that the financial projections "were not prepared with a view toward public disclosure or soliciting proxies, nor were they prepared with a view toward compliance with GAAP." [Id. at 553]. The Proxy includes the below table and projections.
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Along with the financial projections, the Proxy includes several paragraphs disclaiming the accuracy of the projections and explaining their limited use. For example, the Proxy states that "[i]n connection with the Almost Family board of directors' consideration of the proposed merger, Almost Family management prepared certain non-public unaudited prospective financial information regarding Almost Family's anticipated future performance on a stand-alone basis for fiscal years 2017 through 2022[.]" [Id. at 553]. It informs shareholders that "financial projections were provided to, and reviewed and approved by, the Almost Family board of directors and provided to (i) Almost Family's financial advisor for its use and reliance in connection with its financial analyses and opinion" and were not "prepared with a view toward compliance with GAAP[.]" [Id. ]. The Proxy disclaims that "neither Almost Family nor LHC views the Almost Family financial projections as material because of the inherent risks and uncertainties associated with such long-term projections." [Id. at 554]. It further states that:
[t]he Almost Family financial projections are summarized in this joint proxy statement/prospectus solely to give stockholders access to information that was made available to Almost Family's board of directors and financial advisor and to LHC and its financial advisor in connection with their respective evaluations of the merger, and are not included in this joint proxy statement/prospectus in order to influence any Almost Family stockholder or LHC stockholder to make any investment or voting decision with respect to the merger.
[Id. at 553].
The Proxy also includes a Summary of Financial Analyses, a 14 page "summary of the principal financial analyses performed by Guggenheim Securities and presented to Almost Family's board of directors in connection with Guggenheim Securities' rendering of its opinion." [Id. at 540–50].
The full fairness opinion is included, as well. [Id. at Annex D]. That said, the Proxy does not include all the financial data and figures which Guggenheim relied on in preparing the fairness opinion.
Before the closure of the merger, several Plaintiffs filed separate actions alleging substantially the same claims as those in the FAC. [DE 21-2 at 161–63]. Plaintiffs also filed for a preliminary injunction to stop the merger based on substantially the same arguments as the FAC. [Id. ]. This Court denied the motion for preliminary injunction because it found that Plaintiffs did not demonstrate a strong likelihood of success on the merits. Stein v. Almost Family, Inc. , No. 3:18-CV-129-TBR, 2018 WL 1440841, 2018 U.S. Dist. LEXIS 46910 (W.D. Ky. Mar. 22, 2018). The Merger closed. [DE 31-1 at 416]. This Court consolidated the several cases into the instant class action and allowed Plaintiffs to file an amended complaint. [DE 25].
In considering a motion to dismiss, the Court accepts as true all factual allegations set forth in the complaint and makes all reasonable inferences in favor of the non-moving party. Davis v. Prison Health Servs. , 679 F.3d 433, 440 (6th Cir. 2012). To survive a motion to dismiss, the plaintiff must allege "enough facts to state a claim to relief that is plausible on its face." Traverse Bay Area Intermediate Sch. Dist. v. Mich. Dep't of Educ. , 615 F.3d 622, 627 (6th Cir. 2010) (internal quotation marks omitted) (quoting Bell Atl. Corp. v. Twombly , 550 U.S. 544, 570, 127 S.Ct. 1955, 167 L.Ed.2d 929 (2007) ). A claim becomes plausible "when the plaintiff pleads factual content that allows the court to draw the reasonable inference that the defendant is liable for the misconduct alleged." Ashcroft v. Iqbal , 556 U.S. 662, 678, 129 S.Ct. 1937, 173 L.Ed.2d 868 (2009) (citing Twombly , 550 U.S. at 556, 127 S.Ct. 1955 ). A complaint will be dismissed "if no law supports the claim made, if the facts alleged are insufficient to state a claim, or if the face of the complaint presents an insurmountable bar to relief." Southfield Educ. Ass'n v. Southfield Bd. of Educ. , 570 F. App'x 485, 487 (6th Cir. 2014) (citing Twombly , 550 U.S. at 561–64, 127 S.Ct. 1955 ).
Claims alleging that misleading statements have violated securities laws face a heightened pleading standard under the Private Securities Litigation Reform Act (the "PSLRA"). 15 U.S.C. § 78u-4(b)(1) ; see Kugelman v. PVF Capital Corp. , 972 F. Supp. 2d 993, 999 (N.D. Ohio 2013). Such complaints "shall specify each statement alleged to have been misleading, the reason or reasons why the statement is misleading, and, if an allegation regarding the statement or omission is made on information and belief, the complaint shall state with particularity all facts on which that belief is formed." 15 U.S.C. § 78u-4(b)(1). The purpose of this heightened pleading standard is "to curb frivolous, lawyer-driven litigation, while preserving investors' ability to recover on meritorious claims." Tellabs, Inc. v. Makor Issues & Rights, Ltd. , 551 U.S. 308, 322, 127 S.Ct. 2499, 168 L.Ed.2d 179 (2007).
Plaintiffs allege that the Proxy violates Section 14(a) of the Securities Act because the financial projections in the Proxy were materially misleading as they were not prepared in accordance with GAAP. [DE 26 at 331–39]. Plaintiffs also assert that the Proxy omits necessary financial information that would allow shareholders to understand the financial figures and fairness opinion provided, thereby, making those financial figures and the fairness opinion materially misleading. [Id. at 339–56].
Plaintiffs also allege control person liability for the Individual Defendants, [id. at 360–62] and allege that the Individual Defendants breached their duties of loyalty, good faith, and due care by allowing distribution of the allegedly misleading Proxy, [id. at 362]. Defendants have moved to dismiss the FAC because it fails to state a claim upon which relief can be granted. [DE 31, 31-1]. Because Plaintiffs' Section 20(a) and breach of fiduciary duty claims depend, at least in part, on whether there was an underlying violation of Section 14(a), the Court will begin its analysis...
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