On March 18, 2019, the Honorable Waverly D. Crenshaw Jr. of the United States District Court for the Middle District of Tennessee denied Defendants' motion to dismiss in this putative securities class action against Tivity Health, Inc. (NASDAQ: TVTY), a provider of fitness and health improvement programs in the U.S., for violations of the Exchange Act related to Tivity’s misleading statements about its relationship with United Healthcare, Inc. (UHC), one of its most important health plan customers.
Cohen Milstein is representing Oklahoma Firefighters Pension and Retirement System, as the Lead Plaintiff, and other stock purchasers of Tivity securities between March 6, 2017 – November 6, 2017.
Filed on June 4, 2018, Plaintiffs, in the operative complaint allege that Defendants misled the investing public by repeatedly representing that Tivity’s contractual relationship with UHC, one of its most important health plan customers, was on terms favorable to Tivity and portrayed that relationship in unqualifiedly positive terms, while failing to disclose significant historical facts to the contrary, including facts about the material deterioration of that relationship.
Specifically, Plaintiffs allege that for quite some time, Defendants knew there was a significant risk that UHC’s resources, combined with relatively low barriers to entry, could lead UHC to directly compete with Tivity by offering a fitness program benefit for Medicare Advantage beneficiaries similar to Tivity’s flagship product, SilverSneakers, which provides seniors enrolled in Medicare Advantage, Medicare Supplement, and Group Retiree health plans access to a network of approximately 15,000 fitness centers. SilverSneakers is responsible for 82% of Tivity’s overall annual revenues.
Defendants also knew that such a competitive development by UHC would be a material consideration for the investing public, and thus indicated in Tivity’s SEC filings that two important risks facing its business were: (1) that health plan customers like UHC were responsible for a significant percentage of its revenues, with UHC alone responsible for more than 10% of revenues in FY16; and (2) that better-resourced entities, including its own health plan customers (although not specifically identifying UHC), might compete with its product offerings.
But these risk disclosures only told half the story—the full truth that was omitted from certain of Tivity’s public filings and statements during the class period was that Defendants knew UHC’s entry into the market had already happened. Indeed, the terms of UHC’s contracts with Tivity during the class period expressly permitted UHC to offer a competing product.
By late 2016, Defendants learned that the risk of UHC becoming a competitor had materialized, as UHC began to launch its Optum Fitness Advantage program, which competed directly with Tivity’s SilverSneakers program, in select states, including Washington and New Jersey. Despite learning of UHC’s launch of this competitive program in advance of the 2016 October open enrollment period, Defendants omitted to disclose and concealed this information from shareholders. Instead, in early 2017, Defendants touted the company’s relationship with UHC by highlighting the company’s purportedly successful contract renewal negotiations with UHC.
Instead of informing the investing public that one of Tivity’s most important customers was becoming a competitor, Defendants inserted new risk language into the company’s public filings stating that there was a chance that “health plan customers could attempt to offer services themselves that compete directly with our offerings or stop providing our offerings to their members.” What this omitted, and what was known to Defendants at the time this new risk disclosure was made, was that at least six months earlier, health plan customer UHC had already begun to offer competing services.
By presenting a historical, material fact about which Defendants had actual knowledge as a mere possibility, and by failing to disclose that historical fact, Defendants knowingly, or at least recklessly, misled the investing public. Then, even as Defendants learned later in the Class Period that UHC would be intensifying its competitive efforts by expanding its competing program beyond New Jersey and Washington to nine additional states, Defendants not only continued to withhold that information from the investing public, but continued to tout Tivity’s relationship with UHC in unqualifiedly positive terms.
On November 6, 2017, during the open enrollment period for 2018, UHC issued a press release announcing that beginning in January 2018, UHC’s Optum Fitness Advantage program would be available at no additional cost to customers enrolled in certain of UHC’s Medicare Advantage plans in 11 states. On this news, Defendants could no longer hide that UHC—one of Tivity’s most important customers—had become a direct competitor to its most important product SilverSneakers, and the facts and truth that Defendants had been concealing were revealed. As a result, Tivity’s stock price plummeted, declining $16.45, or nearly 34.24%, from a close of $48.05 per share on November 3, 2017, to a close of $31.60 per share on November 6, 2017, on extraordinarily high volume of 9,034,800 shares.
Lead plaintiff and members of the class seek recovery of damages sustained by them.
The case name is: Eric Weiner, et al. v. Tivity Health, Inc., et al., Case No. 3:17-cv-01469, U.S. District Court, Middle District of Tennessee, Nashville Division.