Wade v. Wellpoint, Inc.

• Decision Date: 31 August 2012
• Docket Number: No. 1:08–cv–00357–SEB–DKL.,1:08–cv–00357–SEB–DKL.
• Citation: 892 F.Supp.2d 1102
• Parties: Dorothy WADE, on Behalf of Herself and All Others Similarly Situated, Plaintiff, v. WELLPOINT, INC., et al, Defendants.
• Court: U.S. District Court — Southern District of Indiana

892 F.Supp.2d 1102

Dorothy WADE, on Behalf of Herself and All Others Similarly Situated, Plaintiff,

v.WELLPOINT, INC., et al, Defendants.

No. 1:08–cv–00357–SEB–DKL.

United States District Court,

S.D. Indiana,

Indianapolis Division.

Aug. 31, 2012.

Anne L. Box, San Deigo, CA, David A. Rosenfeld, Mario Alba, Jr., Melville, NY, Deborah Ruth Gross, Law Office of Bernard M. Gross PC, Robert Paul Frutkin, Philadelphia, PA, Irwin B. Levin, Richard E. Shevitz, Scott D. Gilchrist, Indianapolis, IN, Sarah Renee Holloway, X. Jay Alvarez, San Francisco, CA, for Plaintiff.

Christopher G. Scanlon, Faegre Baker Daniels LLP, Matthew Thomas Albaugh, Indianapolis, IN, J. Jorge Deneve, Lindsay L. Geida, Michael M. Maddigan, Seth Aronson, Los Angeles, CA, for Defendants.

ORDER DENYING PLAINTIFF'S MOTION FOR LEAVE TO FILE A SECOND AMENDED COMPLAINT

SARAH EVANS BARKER, District Judge.

Before the Court is Plaintiff's Motion for Leave to File a Second Amended Complaint [Docket No. 100], filed on November 8, 2010. Plaintiff's motion comes in response to this court's September 22, 2010 order [Docket No. 99] dismissing the First Amended Complaint (“FAC”) without prejudice. At that time, we found that the FAC fell short of the heightened pleading requirements applicable to securities fraud litigation, and we granted Plaintiff forty-five days within which to seek leave to amend the FAC to conform to our ruling. Wade v. Wellpoint, Inc., 740 F.Supp.2d 994, 1013 (S.D.Ind.2010)( “Wade I” ). Plaintiff has petitioned for such relief, but Defendants rejoin that Plaintiff's Proposed Second Amended Complaint (“PSAC”) fails to remedy the FAC's deficiencies, rendering leave to amend futile. The instant motion is fully briefed, and the Court, being duly advised in the matter, now DENIES Plaintiff's motion.

Factual and Procedural Background¹

This lawsuit is a securities class action brought on behalf of investors in WellPoint, Inc. (“WellPoint” or “the Company”) against multiple defendants: the Company; its President, Chief Executive Officer (“CEO”), and Director, Angela F. Braly (“Braly”); its Executive Vice President and Chief Financial Officer, Wayne S. DeVeydt (“DeVeydt”); and its former CEO and Chairman of the Board of Directors, Larry C. Glasscock (“Glasscock”). Plaintiff, Dorothy Wade, alleges that Defendants violated provisions of the Securities Exchange Act of 1934 (“the Exchange Act”) by making several misrepresentations and omissions to Company investors between January 23, 2008 and March 10, 2008 (the “Original Class Period” ²), therebyartificially inflating the market price of WellPoint's common stock and causing significant harm to investors. As a result of Defendants' alleged malfeasance, Plaintiff asserts a claim for compensatory damages, including all reasonable fees and costs, in an amount to be proven at trial.

I. Plaintiff's Previous Allegations

WellPoint is a nationwide health care benefits company offering network-based managed care plans to employers, individuals, Medicaid, and senior markets. The Company is a licensee of the Blue Cross and Blue Shield Association; through its subsidiaries, it is licensed to conduct insurance operations in all fifty states. Am. Compl. ¶ 2. On January 23, 2008, WellPoint issued a press release and held a conference call announcing somewhat surprisingly positive guidance after 2007, which had been a difficult financial year for the Company. In these communications, the Company expressed confidence that many of the problems that had adversely affected WellPoint in 2007 would not impact its 2008 results. Relying in part on the statements of nineteen confidential witnesses (“CWs”), Plaintiff asserts that WellPoint's management either knew or recklessly disregarded the falsity of the Company's communications to investors. Plaintiff specifically contends that WellPoint was aware of its problems in the areas of claims processing, system integration, actuarial forecasting, enrollment trends, medical costs, and reserve levels. Accordingly, Plaintiff avers that there was no basis for WellPoint's positive projections to investors.

A. The January Press Release

WellPoint issued a press release on January 23, 2008 (“the January Press Release”) to report the Company's results for the fourth quarter of 2007 and the entire 2007 fiscal year. Am. Compl. ¶ 55. The January Press Release included an “Outlook” section, which set the following expectations for 2008:

• net income of $6.41 per share, representing growth of 15.3% over 2007;

• year-end medical enrollment of approximately 35.6 million members, representing growth of approximately 800,000 members over 2007; and

• an approximation of 81.6% for the 2008 benefit expense ratio.³

Id. ¶ 56. The January Press Release also contained the following statement issued by DeVeydt:

We remain confident in our earnings per share target of $6.41 for 2008, which represents annual growth of 15.3 percent.... We expect to continue generating strong cash flow in excess of our net income, and we plan to utilize our capital to expand product offerings, enhance services[,] and improve returns for our shareholders. We expect to repurchase more than $4.0 billion of our stock during 2008, subject to market conditions.

Id. ¶ 55. Moreover, the January Press Release expressed confidence in the projected 81.6% benefit expense ratio for 2008 despite the fact that this value had been higher in 2007 than in 2006 (an increase from 81.2% to 82.4%). Id. ¶ 57. WellPoint attributed the 2007 value to unusually higher claims costs, business mix changes, and unexpectedly less favorable reserve development, which had been caused in part by slower claims processing from system migration. The Company explained that “[a]pproximately 80 basis points of the increase was driven by the medical business of the Specially, Senior and State Sponsored Business reporting segment.” Id. WellPoint justified the remaining increase in basis points by noting that its Commercial and Consumer Business (“CCB”) segment had experienced “a business mix shift[ ], including a decline in [i]ndividual membership[ ] and less favorable than expected reserve development in 2007.” Id. According to WellPoint, its positive projection for 2008 was attributable to “the strong full year 2007 operating results in its CCB segment, its outlook for stable medical cost trends in 2008[,] and the expected improvements in its State Sponsored operations.” Id.

In the section titled “Membership,” the January Press Release boasted burgeoning enrollment—specifically, the addition of 708,000 new members over the course of 2007. Jan. Press Release at 2. The January Press Release addressed these membership developments in a few notable segments, e.g., the conversion of 144,000 members of Connecticut's Medicaid managed care programs from fully insured to self-funded policies during the fourth quarter of 2007. ⁴Id. According to the January Press Release, unless extended, the self-funded arrangement for these members was set to expire on February 29, 2008. Id.

The January Press Release also discussed WellPoint's expectations regarding medical cost trends as follows:

Medical cost trends were below 8.0 percent in 2007, with the primary driver being unit cost increases. The Company continues to expect that medical cost trends will remain below 8.0 percent in 2008[ ] and continues to price its business so that expected premium yield exceeds total cost trend, where total cost trend includes medical costs and selling, general and administrative ... expense.

Am. Compl. ¶ 58; Jan. Press Release at 3.

The last page of the January Press Release included a section entitled “Safe Harbor Statement Under The Private Securities Litigation Reform Act of 1995.” In that section, WellPoint informed its audience that the January Press Release contained forward-looking information about the Company that was “subject to certain risks and uncertainties ... that could cause actual results to differ materially from those expressed in, or implied or projected by, the forward looking information and statements.” Jan. Press Release at 15. The Company bolstered its warning by including a litany of risks, to wit:

• “trends in health care costs and utilization rates”; • “reduced enrollment, as well as a negative change in our health care product mix”;

• “changes in economic and market conditions”;

• “inability to receive and process information”; and

• “failure to effectively maintain and modernize [its] information systems.” ⁵

Id.

B. The January Call

On January 23, 2008, WellPoint also held an earnings conference call (“the January Call”) announcing its results for the fourth quarter of 2007 and the entire 2007 fiscal year. Am. Compl. ¶¶ 10, 59. Braly and DeVeydt served as spokespersons for the Company during the January Call and were joined by numerous financial analysts. Id. ¶ 59. At the start of the Call, WellPoint's Chief Accounting Officer advised listeners that some forward-looking statements would be made. Jan. Call Tr. at 2. He expressed the following warning:

Listeners are cautioned that these statements are subject to certain risks and uncertainties, many of which are difficult to predict and generally beyond the control of WellPoint. These risks and uncertainties can cause actual results to differ materially from our current expectations[,] and we advise listeners to review the risk factors discussed in our press release this morning and other periodic filings we make with the SEC.

Id.

As it had in the January Press Release, WellPoint estimated during the January Call that the Company would achieve $6.41 earnings per share (“EPS”) (constituting a 15.3% increase over 2007), an increase of 800,000 total new members, and an 81.6% benefit expense ratio. Am. Compl. ¶ 11. To justify the 2008 projections, Braly stated:

Our expected growth in 2008 and beyond results in part from a number of milestones we've accomplished during 2007. During the year, we expanded the services...