March 24, 2021
- Speculation over investor knowledge not enough to decertify.
- Reasonable jury could find materiality, required mental state.
Tivity Health Inc. investors can continue pursuing as a class their suit over a former customer’s transformation into a competitor after a federal judge in Tennessee rejected the company’s bids for decertification and an early win.
The health services company’s investors accused it of not telling them that one of its biggest clients, UnitedHealthcare, planned to offer new services that would directly compete with Tivity’s flagship program. The company hasn’t shown that investors already knew about the added competition, and there are still genuine disputes of material fact, the U.S. District Court for Middle District of Tennessee said.
. . .
The company provided additional evidence for its argument that investors knew or should have known even before UHC publicly announced its new program, Chief Judge Waverly D. Crenshaw Jr.’s opinion said. But much of that evidence “calls for speculation,” and isn’t enough to get the class decertified.
Tivity also argued that the case didn’t need to go to trial because there was no way the investors could prove the challenged statements were material and made with the required state of mind.
Alleged omissions about UHC’s new program “may not have been material based on Tivity’s numbers,” Crenshaw said. But the court can’t “say, as a matter of law, that Tivity’s failure to disclose UHC’s intended competition was immaterial,” because “other factors” suggest reasonable investors might have seen those details as “significantly altering” the total mix of available information.
“A mosaic of facts and inferences paint a picture of Tivity fully expecting that UHC’s announcements would dramatically affect the price of Tivity shares,” the opinion said. It’s “easy” to conclude that a reasonable jury could find the “omission material at trial.”
A reasonable jury could also determine that the company “knowingly withheld” the information about the competition threat “with a culpable state of mind,” Crenshaw said Tuesday.
Cohen Milstein Sellers & Toll PLLC represented the investors as lead counsel.
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