Universal Am. Corp. v. Partners Healthcare Solutions Holdings, L.P.

• Decision Date: 31 March 2016
• Docket Number: Civil Action No. 13–1741–RGA
• Parties: Universal American Corp., Plaintiff, v. Partners Healthcare Solutions Holdings, L.P., GTCR Golder Rauner II, L.L.C., GTCR Partners IX, L.P., GTCR Fund IX/A, L.P., GTCR Fund IX/B, L.P., GTCR Co–Invest III, L.P., David Katz, Gregory Scott, Jerome Vaccaro, and John McDonough, Defendants.
• Court: U.S. District Court — District of Delaware

176 F.Supp.3d 387

Universal American Corp., Plaintiff,

v.Partners Healthcare Solutions Holdings, L.P., GTCR Golder Rauner II, L.L.C., GTCR Partners IX, L.P., GTCR Fund IX/A, L.P., GTCR Fund IX/B, L.P., GTCR Co–Invest III, L.P., David Katz, Gregory Scott, Jerome Vaccaro, and John McDonough, Defendants.

Civil Action No. 13–1741–RGA

United States District Court, D. Delaware.

Signed March 31, 2016

Blake Rohrbacher, Esq., Kelly E. Faman, Esq., Katharine C. Lester, Esq., Richards, Layton & Finger, P.A., Wilmington, DE; Andrew J. Levander, Esq. (argued), Linda C. Goldstein, Esq., Paul C. Kingsbery, Esq., Dechert LLP, New York, NY; Stuart T. Steinberg, Esq., Elisa T. Wiygul, Esq., Dechert LLP, Philadelphia, PA, attorneys for Plaintiff Universal American Corp.

Jon E. Abramczyk, Esq., Ryan D. Stottman, Esq., Morris, Nichols, Arsht & Tunnell LLP, Wilmington, DE; Scott A. McMillin, Esq. (argued), Richard U.S. Howell, Esq., Reed S. Oslan, Esq., Kirkland & Ellis LLP, Chicago, IL, attorneys for Defendants Partners Healthcare Solutions Holdings, L.P., et al.

MEMORANDUM OPINION

ANDREWS

, UNITED STATES DISTRICT JUDGE:

Before the Court is Defendants' Motion to Dismiss Universal's First Amended and Supplemental Complaint. (D.I.44). The motion has been fully briefed (D.I.45, 48, 49). The Court heard oral argument. (D.I.54). For the reasons that follow, Defendants' motion to dismiss is GRANTED IN PART and DENIED IN PART.

I. BACKGROUND

This dispute arises out of a merger between plaintiff Universal American Corporation and Partners Healthcare Solutions, Inc. (“APS”). Universal provides insurance and health benefits mainly to enrollees in the federal Medicare program. (D.I. 39 ¶ 30). APS offers specialty health care solutions that enable its customers, primarily state Medicaid agencies, to improve the quality of care and decrease costs. These services include case management and care coordination, clinical quality and utilization review, and behavioral health services. (Id. ¶¶ 31–32).

APS's post-merger performance fell substantially short of both parties' expectations. Universal claims this was due to an organized fraud scheme, and filed suit against the individuals and entities that it claims were in charge of APS. Prior to the merger, APS was a portfolio company of GTCR Golder Rauner II (“GTCR”), a private equity firm. David Katz was a Managing Director of GTCR, which is the general partner of GTCR Co–Invest and GTCR Partners IX. (Id. ¶¶ 15, 18). GTCR Partners IX, in turn, is the general partner of GTCR Fund IX/A and GTCR Fund IX/B.¹ (Id. ¶ 16). GTCR Co–Invest, GTCR Fund IX/A, and GTCR Fund IX/B are all limited partners of Partners Healthcare Solutions Holdings, L.P. (“APSLP”),² a Delaware limited partnership that was formed to hold APS. (Id. ¶¶ 17, 19). The leadership of APS was organized as follows: Gregory Scott served as the CEO, Jerome Vaccaro as the President and COO, and John McDonough as the CFO. (Id. ¶¶ 21–23, 41). McDonough, Scott, and Vaccaro³ are all named defendants in this case, and served as limited partners of APSLP. (Id. ¶ 19). Defendants Katz and Scott also sat on APS's five-member board. (Id. ¶ 39).

Universal asserts fifteen counts ranging from securities fraud and common law fraud to aiding and abetting and unjust enrichment. Defendants have moved to dismiss Counts I–XI, XIII, and XV of Universal's First Amended and Supplemental Complaint for failure to state a claim upon which relief can be granted. (D.I.44). Each relevant count will be addressed below.

II. LEGAL STANDARD

Rule 8(a) requires “a short and plain statement of the claim showing that the pleader is entitled to relief.” Fed. R. Civ. P. 8(a)(2)

. Rule 9(b) requires that “a party must state with particularity the circumstances constituting fraud.” Fed. R. Civ. P. 9(b).

When reviewing a motion to dismiss pursuant to Fed. R. Civ. P. 12(b)(6)

, the court must accept the complaint's factual allegations as true, but may disregard any legal conclusions. Fowler v. UPMC Shadyside, 578 F.3d 203, 210–11 (3d Cir.2009). The factual allegations do not have to be detailed, but they must provide more than labels, conclusions, or a “formulaic recitation” of the claim elements. Bell Atl. Corp. v. Twombly, 550 U.S. 544, 555–56, 127 S.Ct. 1955, 167 L.Ed.2d 929 (2007). There must be sufficient factual matter to state a facially plausible claim to relief. Ashcroft v. Iqbal, 556 U.S. 662, 678, 129 S.Ct. 1937, 173 L.Ed.2d 868 (2009). The facial plausibility standard is satisfied when the complaint's factual content “allows the court to draw the reasonable inference that the defendant is liable for the misconduct alleged.” Id. (“Where a complaint pleads facts that are merely consistent with a defendant's liability, it stops short of the line between possibility and plausibility of entitlement to relief.” (quotation marks omitted)).

III. DISCUSSION

A. Securities Fraud Under Section 10(b) (Count I)

Universal alleges that Scott, Vaccaro, McDonough, and APSLP committed securities fraud under Section 10(b) of the Securities Exchange Act of 1934. In order to state a claim under Section 10(b), the plaintiff must allege: “(1) a material misrepresentation or omission by the defendant; (2) scienter; (3) a connection between the misrepresentation or omission and the purchase or sale of a security; (4) reliance upon the misrepresentation or omission; (5) economic loss; and (6) loss causation.” Amgen Inc. v. Conn. Ret. Plans & Tr. Funds, ––– U.S. ––––, 133 S.Ct. 1184, 1191–92, 185 L.Ed.2d 308 (2013)

(quoting Matrixx Initiatives, Inc. v. Siracusano, 563 U.S. 27, 36–38, 131 S.Ct. 1309, 179 L.Ed.2d 398 (2011) ). Pursuant to Federal Rule of Civil Procedure 9(b), the above elements must be pled “with particularity,” and, under the Private Securities Litigation Reform Act (“PSLRA”), the pled facts must give “rise to a strong inference that the defendant[s] acted with the required state of mind.” 15 U.S.C. § 78u–4(b)(2) ; Institutional Inv'rs Grp. v. Avaya, Inc., 564 F.3d 242, 253–54 (3d Cir.2009) ; see also

In re Rockefeller Ctr. Props., Inc. Sec. Litig., 311 F.3d 198, 217 (3d Cir.2002) ( “Rule 9(b) requires, at a minimum, that plaintiffs support their allegations of securities fraud with all of the essential factual background that would accompany ‘the first paragraph of any newspaper story’—that is, the ‘who, what, when, where and how’ of the events at issue.”). A strong inference of scienter “is one that is ‘cogent and at least as compelling as any opposing inference of nonfraudulent intent.’ ” Avaya, 564 F.3d at 267 (quoting Tellabs, Inc. v. Makor Issues & Rights, Ltd., 551 U.S. 308, 314, 127 S.Ct. 2499, 168 L.Ed.2d 179 (2007) ).

Defendants argue that Universal has failed to plead with particularity that specific misrepresentations or omissions were “made.” Defendants also contend that Universal has failed to allege facts that give rise to a strong inference of scienter, and that Universal has failed to plead the element of reliance. These arguments are addressed separately.

i. Particularity in Alleging Misrepresentations

In the opinion granting Defendants' first Motion to Dismiss, the Court held that “[t]he amended complaint should lay out, with particularity, each fraudulent statement or representation, its materiality, which specific defendant made the representation, when it was made, why it was false or misleading, scienter, and explain how Universal relied on it.” (D.I. 36 at 6). Defendants argue that Universal has failed to do this. (D.I. 45 at 20–24). Specifically, Defendants argue that by grouping certain Defendants together in its complaint, Universal relies on “ ‘catch-all’ or ‘blanket’ assertions that do not live up to the particularity requirements of the [PSLRA].” Rockefeller, 311 F.3d at 224 n. 19

(quoting Fla. State Bd. of Admin. v. Green Tree Fin. Corp., 270 F.3d 645, 660 (8th Cir.2001) ). I disagree.

“The PSLRA requires [a plaintiff] to specify the role of each defendant, demonstrating each Defendant's involvement in misstatements and omissions.” Winer Family Tr. v. Queen, 503 F.3d 319, 335–36 (3d Cir.2007)

. In suits involving multiple defendants, “securities fraud plaintiffs [must] distinguish among those they sue and enlighten each defendant as to his or her part in the alleged fraud.” In re MicroStrategy, Inc. Sec. Litig., 115 F.Supp.2d 620, 649 n. 57 (E.D.Va.2000) (quotation marks omitted). Only the “maker” of a fraudulent statement may be held liable under Section 10(b). Janus Capital Grp., Inc. v. First Derivative Traders, 564 U.S. 135, 131 S.Ct. 2296, 2301, 180 L.Ed.2d 166 (2011). The maker of a statement is a “person or entity with ultimate authority over the statement, including its content and whether and how to communicate it.” Id. at 2302. “Nothing in Janus precludes a single statement from having multiple makers.” Glickenhaus & Co. v. Household Int'l, Inc., 787 F.3d 408, 427 (7th Cir.2015) ; see also

City of Pontiac Gen. Emps. Ret. Sys. v. Lockheed Martin Corp., 875 F.Supp.2d 359, 374 (S.D.N.Y.2012).

The Court concludes that the complaint adequately alleges particular misrepresentations with respect to APSLP, Scott, and McDonough. For each, the complaint lays out “each fraudulent statement ..., which specific defendant made the representation, [and] when it was made.” (D.I. 36 at 6). Universal alleges that Scott “signed the Merger Agreement on behalf of both APSLP and APS” and that he signed the Officer's Certificate, certifying the representations on behalf of APS, while also acting as the agent of APSLP. (D.I. 39 ¶¶ 90–91, 107). The complaint further lays out how the various representations within the Merger Agreement and the Officer's Certificate were fraudulent. With respect to McDonough, the complaint specifically alleges that McDonough made numerous oral misrepresentations on December 13, February 14, and February 29. (Id. ¶¶ 139, 147).

Defendants contend, relying on Janus,

that McDonough cannot be the “maker” of his statements because the complaint provides that these...