March 18, 2019

Fitness and wellness program provider Tivity Health lost a bid to kill a stock-drop suit on Monday when a Tennessee federal judge said allegations of "suspicious stock sales" by executives, including Tivity's chief legal officer, bolstered the case against the company.

In Monday's opinion, U.S. District Judge Waverly D. Crenshaw Jr. denied Tivity's request to dismiss the case, pointing in part to purported stock sales by Tivity's top attorney, Mary S. Flipse — who is not named as a defendant — and other company executives ahead of an announcement that a major competitor had entered Tivity's main market.

The judge said the alleged stock sales lend credence to investors' claims that Tivity hid the fact that a major competitor had entered its most important market. Once that fact was made public, Tivity's stock price crashed by 34 percent, court records show.

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The plaintiffs allege "that Tivity thought it important enough over the years to warn there would be an investment risk if one of its health-plan customers chose to develop its competing program, yet when one of its largest customers made that possibility a reality, Tivity actively concealed that information from its investors and suggested that the relationship with that customer was as good as it had been in the past," the judge said.

Judge Crenshaw also swept aside Tivity's citations of case law that the company claimed backed its position, saying the facts of those cases were different from the facts of Tivity's case. He also said the plaintiffs had adequately alleged that the statements in question weren't subject to "safe harbor" protections for forward-looking statements and that the plaintiffs had adequately shown Tivity knew its statements were false or misleading when it made them.

Plaintiffs' attorney Steven J. Toll of Cohen Milstein Sellers & Toll PLLC told Law360 his clients were "very pleased" with the judge's decision.

"We look forward to trying to move forward with discovery and pursue recovery for the shareholders who were misled," Toll said.

The complete article can be accessed here.