Sheet Metal Workers Local 19 Pension Fund v. Proassurance Corp.

• Decision Date: 10 December 2021
• Docket Number: Civil Action Number 2:20-CV-00856-AKK
• Citation: 600 F.Supp.3d 1189
• Parties: SHEET METAL WORKERS LOCAL 19 PENSION FUND, individually and on behalf of all others similarly situated, Plaintiffs, v. PROASSURANCE CORPORATION, et al., Defendants.
• Court: U.S. District Court — Northern District of Alabama

600 F.Supp.3d 1189

SHEET METAL WORKERS LOCAL 19 PENSION FUND, individually and on behalf of all others similarly situated, Plaintiffs,

v.PROASSURANCE CORPORATION, et al., Defendants.

Civil Action Number 2:20-CV-00856-AKK

United States District Court, N.D. Alabama, Southern Division.

Signed December 10, 2021

David J. Guin, Dawn Stith Evans, Tammy McClendon Stokes, Guin Stokes & Evans LLC, Birmingham, AL, Joseph E. White, Pro Hac Vice, Lester R. Hooker, Saxena White, PA, Bailie L. Heikkinen, Pro Hac Vice, Reginald E. Janvier, Pro Hac Vice, Robbins Geller Rudman & Dowd LLP, Boca Raton, FL, Steven B. Singer, Pro Hac Vice, Kyla Grant, Pro Hac Vice, Sara M. DiLeo, Pro Hac Vice, Saxena White P.A., White Plains, NY, James Bringhurst Eubank, Wilson Daniel Miles, III, Beasley Allen Crow Methvin Portis & Miles PC, Montgomery, AL, Nathan R. Lindell, Pro Hac Vice, Robbins Geller Rudman & Dowd LLP, San Diego, CA, Roger H. Bedford, Jr., Roger Bedford, Attorney at Law, LLC, Russellville, AL, for Plaintiff Sheet Metal Workers Local 19 Pension Fund.

Janet A. Gochman, Pro Hac Vice, Jonathan K. Youngwood, Pro Hac Vice, Carl Jacob Lundqvist, Pro Hac Vice, Simpson Thacher & Bartlett LLP, New York, NY, Walter W. Bates, Cole Robinson Gresham, Jay M. Ezelle, Michael R. Lasserre, Starnes Davis Florie LLP, Birmingham, AL, for Defendants.

MEMORANDUM OPINION

ABDUL K. KALLON, UNITED STATES DISTRICT JUDGE

This federal securities case arises from a medical malpractice insurance account that, under the plaintiffs’ retelling, was doomed from the start. The lead plaintiffs, the Central Laborers’ Pension Fund and the Plymouth County Retirement System, allege that ProAssurance Corporation and several of its high-ranking officials¹ actively concealed or misstated facts regarding an unprecedently large and uniquely structured deal with a physician staffing company called TeamHealth. See doc. 44. When ProAssurance ultimately shared aspects of the TeamHealth deal and its corresponding losses with investors over the course of several months in 2020, ProAssurance's stock price apparently plummeted, and three years’ worth of income was nearly wiped out. See id. The plaintiffs thereafter filed suit, alleging federal securities law violations for misrepresentations regarding the TeamHealth account that purportedly led to the disaster. See id.

In particular, the plaintiffs plead violations of Section 10(b) of the Securities Exchange Act and SEC Rule 10b-5 against ProAssurance and the executives and violations of Section 20(a) of the Securities Exchange Act against the executives as the company's "control persons." Id. at 117–19. The defendants collectively move to dismiss the claims under Rule 12(b)(6) of the Federal Rules of Civil Procedure. Docs. 51; 53. The parties have fully briefed the motion, which is thus ready for resolution. See docs. 55; 58–59. The court finds that the motion is due to be granted only as to the § 10(b) claims against Starnes, Rand, and Hendricks altogether and as to the § 10(b) claims against Friedman, Boguski, and ProAssurance for the alleged category of omissions regarding TeamHealth's decision to purchase tail coverage instead of renewing its policy. As to all other claims, the motion is due to be denied.

I.

The court begins with the multi-layered pleading standard that private securities fraud litigants must satisfy. First, Rule 8(a)(2) of the Federal Rules of Civil Procedure requires a pleading to contain "a short and plain statement of the claim showing that the pleader is entitled to relief." FED. R. CIV. P. 8(a)(2). This pleading standard does not require "detailed factual allegations," but it demands more than unadorned accusations. Ashcroft v. Iqbal , 556 U.S. 662, 678, 129 S.Ct. 1937, 173 L.Ed.2d 868 (2009) (citing Bell Atl. Corp. v. Twombly , 550 U.S. 544, 555, 127 S.Ct. 1955, 167 L.Ed.2d 929 (2007) ). And when a complaint fails to state a claim on which relief can be granted, Rule 12(b)(6) of the Federal Rules of Civil Procedure permits the court to dismiss it. FED. R. CIV. P. 12(b)(6). Generally speaking, to survive a motion to dismiss under Rule 12(b)(6), a complaint must contain sufficient facts, taken as true, to state a claim to relief that is "plausible on its face." Iqbal , 556 U.S. at 678, 129 S.Ct. 1937.

However, like other fraud claims, securities fraud claims fall under the purview of Rule 9(b) of the Federal Rules of Civil Procedure and therefore must also "state with particularity the circumstances constituting fraud." FED. R. CIV. P. 9(b). To satisfy Rule 9(b), a complaint must set forth:

(1) precisely what statements were made in what documents or oral representations or what omissions were made, and (2) the time and place of each such statement and the person responsible for making (or, in the case of omissions, not making) same, and (3) the content of such statements and the manner in which they misled the plaintiff, and (4) what the defendants obtained as a consequence of the fraud.

Tello v. Dean Witter Reynolds, Inc. , 494 F.3d 956, 972 (11th Cir. 2007). Rule 9(b) does not require specific facts about the defendant's state of mind when the alleged statements were made; rather, conditions of a person's state of mind "may be alleged generally." FED. R. CIV. P. 9(b) ; Mizzaro v. Home Depot, Inc. , 544 F.3d 1230, 1237 (11th Cir. 2008). In short, Rule 9(b) requires plaintiffs to plead "the who, what, when, where, and how of the allegedly false statements" but allows plaintiffs to "allege generally that those statements were made with the requisite intent." Mizzaro , 544 F.3d at 1237.

The Private Securities Litigation Reform Act of 1995 layers atop these requirements a further-heightened pleading standard in private securities litigation. See 15 U.S.C. § 78a et seq. As to allegations of material misstatements and omissions, the PSLRA provides:

[A] complaint 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.

Id. § 78u-4(b)(1). In addition, the PSLRA tightens the application of Rule 9(b) ’s scienter standard, requiring that plaintiffs "state with particularity facts giving rise to a strong inference that the defendant acted with the required state of mind." Id. § 78u-4(b)(2). Thus, to survive a motion to dismiss under the PSLRA, the factual allegations must raise a "strong inference" that is " ‘cogent and compelling,’ that the named defendants acted with the requisite scienter." Mizzaro , 544 F.3d at 1235 ; Thompson v. RelationServe Media, Inc. , 610 F.3d 628, 633 (11th Cir. 2010) ("In this context, a ‘strong inference’ of scienter is one that is ‘more than merely plausible or reasonable—it must be cogent and at least as compelling as any opposing inference of nonfraudulent intent.’ ").

Taken together, the court must accept all factual allegations in the complaint as true, consider the complaint in its entirety, determine whether all of the facts alleged collectively give rise to a strong inference of scienter, and account for plausible opposing inferences. Thompson , 610 F.3d at 633–34 (citing Tellabs, Inc. v. Makor Issues & Rights, Ltd. , 551 U.S. 308, 314, 127 S.Ct. 2499, 168 L.Ed.2d 179 (2007) ). See also Carvelli v. Ocwen Fin. Corp. , 934 F.3d 1307, 1317–18 (11th Cir. 2019) (discussing "triple-layered pleading standard"); FindWhat Inv'r Grp. v. FindWhat.com , 658 F.3d 1282, 1296 (11th Cir. 2011).

II.

The 123-page amended complaint² is a putative class action alleging violations of federal securities law on behalf of shareholders who purchased or acquired ProAssurance common stock between August 8, 2018 and May 7, 2020, inclusive ("the Class Period"). Doc. 44 at ¶ 1. ProAssurance is a Birmingham, Alabama-based holding company that provides insurance, including healthcare professional liability ("HCPL") insurance, through its subsidiaries. Id. ¶¶ 3–4; doc. 53 at 4. The plaintiffs pin responsibility for alleged securities fraud on ProAssurance and several of its past and present officers: former CEO Starnes, current CEO Rand, current CFO Hendricks, former President of Healthcare Professional Liability Friedman, and current President of Specialty Property and Casualty Operations Boguski. Doc. 44 at 1, 9–10.

A.

Before describing the specific facts giving rise to this lawsuit, some background is in order. Allegedly, conservatism in underwriting and in the maintenance of loss reserves³ has historically set ProAssurance apart from its competitors. Id. ¶ 5. Before and throughout the Class Period, ProAssurance and its officers emphasized the company's "disciplined approach to business" to investors in earnings calls and in its 2015–2018 Forms 10-K,⁴ highlighting its conservative underwriting, risk-averse reserves practices, and reinsurance protection,⁵ which were designed to limit the company's liability on the insurance policies it issued. Id. ¶¶ 39–41, 50. Traditionally, professional liability policies for solo practitioners and small physician groups comprised the bulk of ProAssurance's HCPL business. Id. ¶ 51.

Beginning around 2015, the broader HCPL industry shifted toward underwriting policies for larger groups of physicians, such as hospitals and national healthcare providers. See id. For larger policies like these, appropriate underwriting and reserve-setting are of great importance, because large hospital and physician groups have the increased potential for more severe claims with higher frequency compared to solo physicians and smaller groups.⁶ See id. ¶¶ 59, 66. In 2015 or 2016, responding to this shifting HCPL landscape, ProAssurance created the "National Healthcare Team," a group of underwriters "specifically tasked with selling HCPL policies to large physician groups." Id. ¶ 51.

ProAssurance designated Friedman, then-President of Healthcare Professional...