Case: 14-12838     Date Filed: 05/11/2015    Page: 1 of 31


                                                                [DO NOT PUBLISH]

                IN THE UNITED STATES COURT OF APPEALS

                         FOR THE ELEVENTH CIRCUIT
                           ________________________

                                 No. 14-12838
                           ________________________

                     D.C. Docket No. 2:12-cv-00046-JES-DNF


MIKLEN SAPSSOV,
Individually and on behalf of all others
similarly situated, et al.,

                                                                             Plaintiffs,

NORFOLK COUNTY RETIREMENT SYSTEM,
individually and on behalf of all others similarly situated,

                                                                  Plaintiff - Appellant,

NEW ENGLAND TEAMSTERS & TRUCKING INDUSTRY PENSION FUND,
OPERATING ENGINEERS TRUST FUNDS,

                                                                Movants – Appellants,

                                        versus

HEALTH MANAGEMENT ASSOCIATES, INC.,
GARY D. NEWSOME,
KELLY E. CURRY,
ROBERT E. FARNHAM,

                                                               Defendants - Appellees.
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                              ________________________

                     Appeal from the United States District Court
                         for the Middle District of Florida
                           ________________________

                                      (May 11, 2015)

Before MARTIN and FAY, Circuit Judges, and GOLDBERG,* Judge.

PER CURIAM:

       Plaintiffs-appellants, Norfolk County Retirement System, New England

Teamsters & Trucking Industry Pension Fund, Operating Engineers Trust Funds

(collectively, “plaintiffs-appellants”), appeal dismissal of their second-amended

complaint in this securities-fraud class action, alleging a scheme to defraud

Medicare by defendants-appellees, Health Management Associates, Inc. (“HMA”)

and its executives, Gary D. Newsome, Kelly E. Curry, and Robert E. Farnham.

We affirm.


              I. FACTUAL AND PROCEDURAL BACKGROUND

   HMA, a for-profit corporation incorporated in Delaware and headquartered in

Naples, Florida, operates acute-care hospitals and other healthcare facilities in non-

urban areas throughout the United States. The individual defendants-appellees are


___________________

*Honorable Richard W. Goldberg, United States Court of International Trade Judge, sitting by
designation.


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current or former directors or officers of HMA. 1 Medicare reimburses healthcare

providers for medical services provided to individuals covered by the program.


       Most hospitals, including those owned by HMA, derive a substantial portion

of their revenue from Medicare, which necessitates compliance with its

requirements to receive reimbursement. When a patient seeks treatment at a

hospital, physicians have three choices regarding that patient’s disposition: (1)

admit as an inpatient, (2) admit for observation, or (3) discharge after immediate

treatment. Both inpatient status and observation status place patients in a hospital

bed, which may involve one or more overnight stays.


       Inpatient care generally is reserved for patients requiring high-intensity

services, while observational care involves less-intensive services and consists of a

hospital stay of eight to forty-eight hours. Medicare reimbursement for inpatient

care is substantially greater than for observational care. Medicare will reimburse

hospitals for services and treatment that are “reasonable and necessary.” 42 U.S.C.

§ 1395y(a)(1)(A).




1
 Gary Newsome has served as HMA President and Chief Executive Officer since September 15,
2008, and also is a member of the HMA Board of Directors. Kelly Curry has served as HMA
Vice President and Chief Financial Officer since January 10, 2010. Robert Farnham was HMA
Senior Vice President and Chief Financial Officer from March 2001 through January 10, 2010;
he also served as HMA Senior Vice President of Finance.


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       Prior to the start of the class period, July 27, 2009, though January 9, 2012,

HMA was a highly leveraged company confronting declining hospital admissions.

After resignation of the former HMA Chief Operating Officer (“CEO”), the Board

of Directors selected Newsome as President and CEO in September 2008. To

improve revenue returns, Newsome told investors HMA would focus on three

operational initiatives to improve the company’s financial performance: (1) the

Emergency Department, (2) physician recruitment and development, and (3)

market-service development. Plaintiffs-appellants allege HMA devised a corporate

policy mandating unnecessary admission of Medicare patients to HMA hospitals to

boost its financial position and stock price. Consequently, HMA admitted patients

for observation, when they did not need to be admitted, and admitted inpatients,

who should have been admitted for observation. 2


       Effective at the end of 2009, HMA upgraded the Pro-MED software used in

the Emergency Departments of its hospitals. Pro-MED is a system to control

physicians and increase patient admissions by ordering an extensive series of tests,

many of which are unnecessary, when a patient enters an emergency room, thereby

generating hospital revenue. By allegedly manipulating the Pro-MED system,


2
 Plaintiffs-appellants obtained substantial information to support allegations in the second-
amended, class-action complaint by interviewing former HMA employees as confidential
witnesses at its various hospitals nationwide.


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HMA ensured physicians would enter data to enable the system to recommend the

emergency patient be admitted as an inpatient.


        HMA allegedly also pressed doctors to admit more Medicare patients,

whose costs were guaranteed. 3 It hired outside consultants to review case files and

to apply pressure on its physicians to increase admissions, regardless of medical

necessity. In addition to admitting improperly patients, who arrived through the

Emergency Department, HMA allegedly unnecessarily admitted patients, who

arrived at the hospital for scheduled visits, and coded them as inpatients.


       In May or June 2011, HMA hired Accretive Health, which provides services

to help healthcare providers generate sustainable improvements in their operating

margins and healthcare quality. HMA had Accretive Health review patient

information and pressure physicians to admit observation patients as inpatients.

Because the cost per review of a patient file by Accretive Health was

approximately $210, HMA determined only files of Medicare patients and possible

surgery patients not admitted as inpatients were sent to Accretive Health for

review.


3
 Physicians were pressured to admit patients improperly to meet admission quotas set by the
HMA corporate office. A confidential witness reported that HMA administrators were
concerned, when the admission rate was below 20-22% each day. HMA sent to every HMA
hospital daily reports, which contained patient-observation information, including the number of
patient observations versus inpatient admissions, patient account numbers, and billing rates.


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      HMA ignored reports of improper patient admissions, including reports

made by Paul Meyer, a former agent with the Federal Bureau of Investigation and

former HMA Director of Compliance, who was tasked with ascertaining whether

specific HMA hospitals complied with applicable federal and state laws as well as

internal policies. In January 2010, Meyer discovered serious compliance issues

involving Medicare billing practices at many HMA hospitals. In the first half of

2010, Meyer warned HMA that several of its hospitals had secured higher

government Medicare payments for elderly and disabled patients by fraudulently

billing Medicare for patients improperly admitted as inpatients. When Meyer’s

compliance concerns were unaddressed and uncorrected by HMA, he advised his

supervisor in August 2010 he was going to prepare a detailed memorandum

describing his observations for review by HMA top management and Board of

Directors. Meyer’s supervisor required him to submit his memorandum to in-

house counsel and to moderate it. Meyer was prohibited from listing CEO

Newsome as a recipient and instructed by HMA counsel to destroy his drafts of the

memorandum, which Meyer did not do.


      Meyer submitted his memorandum on August 19, 2010, to his supervisor,

Mat Tormey, HMA Vice President of Compliance and Security, who reported

directly to the Board of Directors and Newsome. Meyer additionally reported the

fraudulent billing practices to Newsome. Rather than addressing the concerns in

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Meyer’s memorandum, HMA removed Meyer’s oversight at hospitals identified in

his memorandum and changed his job responsibilities. Shortly thereafter, HMA

terminated his employment. On October 19, 2011, Meyer filed a whistleblower

action against HMA. Other HMA employees faced termination for complaining or

reporting on fraudulent billing practices.


      Plaintiffs-appellants allege the truth about the fraudulent practices for profit

of HMA was revealed in various disclosing or revealing events. The first

disclosure occurred on August 3, 2011, when HMA revealed it had received two

subpoenas from the United States Department of Health and Human Services,

Office of Inspector General (“OIG”). The subpoenas sought information related to

Emergency Department management and the use of Pro-MED software by HMA.

Following disclosure of the subpoenas, HMA stock declined in value and was

downgraded by Wall Street analysts; HMA common stock declined by 9.12%. On

October 25, 2011, HMA disclosed in its form 10-Q the subpoenas might be related

to violations of the Anti-Kickback Statute and False Claims Act and could have

resulted from a whistleblower complaint, the details of which HMA had withheld.


       On November 16, 2011, Richard W. Clayton III, Research Director at CtW

Investment Group, sent a letter to Kent P. Dauten, Chairman of the HMA Audit

Committee, and informed him HMA admissions rates far exceeded those that


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could be explained by patient acuity or hospital geography. CtW estimated the

excess admissions generated $40 million in excess Medicare billing in 2009, 25%

of the net income for that year. Following the revelation of Meyer’s lawsuit, CtW

sent a second letter on January 17, 2012, and noted Meyer’s allegations comported

with its findings.


       On January 9, 2012, equity analyst Sheryl Skolnick of CRT issued a report

(“2012 Skolnick Report”) informing the market of the wrongful termination

lawsuit filed by Meyer (the “Meyer action”). With this disclosure, the price of

HMA common stock declined more than 7% with an abnormal amount of shares

traded. The following day, HMA revealed Timothy R. Parry, Senior Vice

President, General Counsel, and Secretary had resigned effective immediately.

The same day, HMA stock fell an additional 13% with more than sixty-eight

million shares traded.


       On July 30, 2012, plaintiffs-appellants filed an amended complaint, alleging

HMA had violated the Exchange Act during the Class Period.4 They alleged HMA

concealed from investors it had engaged in a scheme to defraud Medicare by

improperly admitting and billing patients for unnecessary emergency treatment.

HMA moved to dismiss and argued the amended complaint failed to allege
4
 Plaintiff-appellant New England Teamsters & Trucking Industry Pension Fund was the court-
appointed lead plaintiff.


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sufficiently the requisite falsity, scienter, and loss causation elements of a § 10(b)

claim under the Exchange Act, as required by the Private Securities Litigation

Reform Act of 1995 (“PSLRA”).


      On December 2, 2012, CBS aired a 60 Minutes segment focusing on HMA

patient admissions and billing practices. After interviewing over a hundred current

and former employees, the program detailed how HMA pressured its physicians to

admit patients, who should not have been admitted, to generate higher Medicare

revenue, set admissions quotas that could not have been met in the absence of

fraud, and customized its Pro-MED computer to justify improper admission of

more patients. The segment linked the admissions procedures directly to

Newsome’s arrival through the testimony of a former HMA Executive Vice

President.


      The day after this 60 Minutes segment aired, December 3, 2012, the CRT

Capital Group LLC published a 161-page report, showing how HMA admission

rates changed dramatically after Newsome became CEO. The report compared

HMA hospitals during the 2006-to-2010 period to local competitors in the same

state and concluded HMA had a high number of short stays and a low observation

rate. The CRT report further determined the HMA troubling admission patterns

occurred after its management had changed.


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      While the HMA motion to dismiss the first-amended complaint was

pending, plaintiffs-appellants sought and received leave to file the subject second-

amended complaint. Filed on February 25, 2013, the second-amended complaint

included facts revealed during the 60 Minutes investigation of HMA patient

admissions and billing practices to increase its revenues. HMA again moved to

dismiss, based on failure to allege adequately falsity, scienter, and loss causation,

required by the PSLRA. In his May 21, 2014, opinion and order, the district judge

granted the HMA motion to dismiss plaintiffs-appellants’ second-amended, class-

action complaint, because plaintiffs-appellants had failed to plead loss causation

adequately. Plaintiffs-appellants timely appealed.




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                                          II. DISCUSSION

A. Statutory and Pleading Requirements


          In this class action, plaintiffs-appellants allege HMA and three of its

executives violated § 10(b) of the Exchange Act 5 and Rule 10b-56 by failing to

disclose the fraudulent scheme of HMA to increase its Medicare revenue. To state

a claim for securities fraud under § 10(b) and Rule 10b-5, a plaintiff must allege

adequately:


5
    Section 10(b) of the Exchange Act provides:

          It shall be unlawful for any person, directly or indirectly, . . . [t]o use or employ,
          in connection with the purchase or sale of any security . . . any manipulative or
          deceptive device or contrivance in contravention of such rules and regulations as
          the Commission may prescribe as necessary or appropriate in the public interest
          or for the protection of investors.

15 U.S.C. § 78j(b).
6
    Rule 10b–5, promulgated by the SEC pursuant to § 10(b), provides in relevant part:

          It shall be unlawful for any person, directly or indirectly, . . . [t]o make any untrue
          statement of a material fact or to omit to state a material fact necessary in order to
          make the statements made, in the light of the circumstances under which they
          were made, not misleading . . . .

17 C.F.R. § 240.10b–5(b).

        Plaintiffs-appellants also bring a control-person claim under § 20(a) of the Exchange Act.
Section 20(a) liability derives from liability under § 10(b); an examination of their § 20(a) claim
necessarily requires a finding of § 10(b) liability. See Thompson v. RelationServe Media, Inc.,

, 635–36 (11th Cir. 2010). Since there was no § 10(b) liability, there is no
derivative liability on which to base a § 20(a) claim, and we need not address it. See Laperriere
v. Vesta Ins. Grp., Inc., 

, 721 (11th Cir. 2008) (per curiam) (noting § 20(a)
“unambiguously imposes derivative liability on persons that control primary violators of the
Act”).


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      (1) a material misrepresentation or omission; (2) scienter—a wrongful
      state of mind; (3) a connection between the misrepresentation and the
      purchase or sale of a security; (4) reliance, “often referred to in cases
      involving public securities markets (fraud-on-the-market cases) as
      transaction causation”; (5) economic loss; and (6) “loss causation, i.e.,
      a causal connection between the material misrepresentation and the
      loss.”


Meyer v. Greene, 

, 1194 (11th Cir. 2013) (quoting Dura Pharms.,

Inc. v. Broudo, 

, 341-42, 

, 1631 (2005)).


      We review a district judge’s dismissal of a complaint de novo and accept all

well-pleaded facts as true, construing them most favorably to the nonmoving party.

World Holdings, LLC v. Fed. Republic of Germany, 

, 649 (11th Cir.

2012). Nonetheless, “[f]actual allegations that are merely consistent with a

defendant’s liability fall short of being facially plausible.” Chaparro v. Carnival

Corp., 

, 1337 (11th Cir. 2012) (citations and internal quotation

marks omitted). An action alleging securities fraud is subject to the heightened

pleading requirements of Federal Rule of Civil Procedure 9(b), which requires a

complaint “to state with particularity the circumstances constituting fraud.” Fed.

R. Civ. P. 9(b); Mizzaro v. Home Depot, Inc., 

, 1237 (11th Cir.

2008). “The particularity requirement of Rule 9(b) is satisfied if the complaint

alleges facts as to time, place, and substance of the defendant’s alleged fraud,

specifically the details of the defendants’ allegedly fraudulent acts, when they


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occurred, and who engaged in them.” United States ex rel. Matheny v. Medco

Health Solutions, Inc., 

, 1222 (11th Cir. 2012) (citations and internal

quotation marks omitted).


      In addition, the PSLRA provides for Rule 10b-5 claims predicated on

allegedly false or misleading statements or omissions: “the complaint shall specify

each statement alleged to have been misleading, the reason or reasons why the

statement is misleading, and, if an allegation regarding the statement or omission is

made on information and belief, the complaint shall state with particularity all facts

on which that belief is formed.” 15 U.S.C. § 78u-4(b)(1). “[F]or all private Rule

10b-5 actions requiring proof of scienter, ‘the complaint shall, with respect to each

act or omission alleged to violate this chapter, state with particularity facts giving

rise to a strong inference that the defendant acted with the required state of mind

[i.e., scienter].’” FindWhat Investor Grp. v. FindWhat.com, 

, 1296

(11th Cir. 2011) (quoting 15 U.S.C. § 78u-4(b)(2)) (first alteration added). The

complaint also must allege facts supporting a strong inference of scienter “for each

defendant with respect to each violation.” Phillips v. Scientific-Atlanta, Inc., 

, 1016 (11th Cir. 2004).


      The district judge found plaintiffs-appellants had satisfied the PSLRA

heightened pleading requirements, because “the factual allegations, when accepted


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as true, plausibly state with the requisite particularity the securities fraud claims.”

Order Dismissing Second Amended Complaint at 32. He also determined

plaintiffs-appellants had “sufficiently plead the false and misleading statements” to

show material misrepresentations, 

particularized allegations “HMA

led the peer group in admissions because of the fraudulent admission of Medicare

patients, not the success of the Emergency Department initiatives,” 

The

judge further concluded, “[b]ecause Newsome put the source of HMA’s success at

issue, the alleged failure to disclose the true source of this revenue could give rise

to liability under § 10(b),” evidencing plaintiffs-appellants “h[ad] sufficiently

alleged that defendants made false and misleading statements.” 

Noting

“allegations of the aggressive admission policies initiated by Newsom, the

individual defendants’ heavy involvement in daily operations, the upgrade of the

Pro-MED software, and the use of Accretive Health, the amount and widespread

nature of the fraud, the allegations in the Meyer [whistleblower] action, and the

investigation by the OIG,” the judge concluded these “allegations, when viewed

holistically, create a strong inference of scienter.” 

We agree with the

district judge’s analysis regarding the second-amended complaint as to

particularity, material misrepresentation, and scienter reflected in the purchase and

sale of HMA stock.




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       But the judge reasoned the OIG investigation, without disclosure of actual

wrongdoing, did not qualify as a corrective disclosure, in accordance with our

Meyer decision. The judge also determined the Meyer whistleblower case and the

2012 Skolnick Report, summarizing the facts of that lawsuit, could not qualify as

a corrective disclosure, because the Meyer case did not establish the falsity of any

prior statements, and the Skolnick Report was nothing more than a restatement of

information that already was public. Therefore, the determinative factor for the

district judge and before this court is whether plaintiffs-appellants’ adequately

alleged loss causation. 7




       7
          Plaintiffs-appellants reference the materialization-of-concealed-risk theory of loss
causation. This court “has never decided whether the materialization-of-concealed-risk theory
may be used to prove loss causation in a fraud-on-the-market case,” and we do not do so now,
because loss causation is sufficient to resolve this case. Hubbard v. BankAtlantic Bancorp, Inc.,

, 726 n.25 (11th Cir. 2012). In their complaint, plaintiffs-appellants allege HMA
created a risk that, absent its fraudulent conduct, revenues and admissions would decline. But
plaintiffs-appellants fail to allege adequately how this risk materialized and caused harm to
HMA shareholders.




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B. Fraud on the Market and Loss Causation

      “A ‘fraud on the market’ occurs when a material misrepresentation is

knowingly disseminated to an informationally efficient market.” 

(citing Basic Inc. v. Levinson, 

, 247, 

, 991-

92 (1988)). In a § 10(b) lawsuit, a plaintiff must show proof of reliance on the

alleged misrepresentation. Erica P. John Fund, Inc. v. Halliburton Co., 

, 2184 (2011). Fraud-on-the-market theory relies on the “efficient market

hypothesis, which provides . . . that ‘in an open and developed securities market,

the price of a company’s stock is determined by the available material information

regarding the company and its business.’” 

(quoting 

, 108 S. Ct. at 989). An efficient market transmits

information efficiently to prove reliance as well as to prove loss causation. 

. Fraud-on-the-market theory in class-action, securities-fraud

cases creates a rebuttable presumption of reliance, provided the misstatement was

material, and the market was informationally efficient. 

(citing 

, 

, 991-92). Plaintiffs-appellants

argue the efficient-market hypothesis to establish a presumption of reliance.

      Disclosure of information known by the market, confirmatory information,

will not cause a change in stock price, because that information already has been

assimilated by the market and incorporated in the stock price. 

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      If and when the misinformation is finally corrected by the release of
      truthful information (often called a “corrective disclosure”), the
      market will recalibrate the stock price to account for this change in
      information, eliminating whatever artificial value it had attributed to
      the price. That is, the inflation within the stock price will “dissipate.”

showing a security was purchased at a price that was artificially

inflated by a fraudulent misrepresentation is insufficient. Hubbard v. BankAtlantic

Bancorp, Inc., 

, 725 (11th Cir. 2012).

      “[I]n a fraud-on-the-market case, the plaintiff must prove not only that a

fraudulent misrepresentation artificially inflated the security’s value but also that

‘the fraud-induced inflation that was baked into the plaintiff’s purchase price was

subsequently removed from the stock’s price, thereby causing losses to the

plaintiff.’” 

658 F.3d at 1311). Consequently, § 10(b) “is

not a prophylaxis against the normal risks attendant to speculation and investment

in the financial markets” and only protects against loses attributable to a given

misrepresentation. 

.

      Plaintiffs frequently demonstrate loss causation in fraud-on-the-
      market cases circumstantially, by: (1) identifying a “corrective
      disclosure” (a release of information that reveals to the market the
      pertinent truth that was previously concealed or obscured by the
      company’s fraud); (2) showing that the stock price dropped soon after
      the corrective disclosure;      and (3) eliminating other possible
      explanations for this price drop, so that the factfinder can infer that it
      is more probable than not that it was the corrective disclosure—as
      opposed to other possible depressive factors—that caused at least a
      “substantial” amount of the price drop.

-12 (footnote omitted).
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       A corrective disclosure reveals the falsity of a previous representation to the

market. 

(citing Lentell v. Merrill Lynch & Co., 

, 175 n.4 (2d Cir. 2005)); see 

n.28. “To be

corrective, a disclosure need not precisely mirror the earlier misrepresentation, but

it must at least relate back to the misrepresentation and not to some negative

information about the company.” 

quotation marks, and

alteration omitted). A corrective disclosure can be established by a series of

cumulative, partial disclosures. Id.; see Lormand v. U.S. Unwired, Inc., 

, 261 (5th Cir. 2009). Plaintiffs-appellants allege the combination of two

partial disclosures—the OIG investigation and the 2012 Skolnick Report—

constitutes a corrective disclosure for the purpose of establishing loss causation.

C. Failure to Plead Loss Causation Adequately

       “‘[L]oss causation analysis in a fraud-on-the-market case focuses on the

following question: even if the plaintiffs paid an inflated price for the stock as a

result of the fraud, (i.e., even if the plaintiffs relied), did the relevant truth

eventually come out and thereby cause the plaintiffs to suffer losses?’” 

(quoting 

). The market may react

negatively to the disclosure of an investigation, because it “can be seen to portend

an added risk of future corrective action.” 

An adverse market

reaction, however, does not establish the disclosure of an investigation constitutes


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a corrective disclosure; further allegations are required to establish that previous

statements were “false or fraudulent.” 

is necessary to show

loss causation, because “the market price of shares traded on well-developed

markets reflects all publicly available information.” Basic 

,

108 S. Ct. at 991.

      “[B]ecause a corrective disclosure must reveal a previously concealed truth,

it obviously must disclose new information, and cannot be merely confirmatory.”

n.28. We held in Meyer that an SEC investigation,

like the OIG investigation in this case, “without more, is insufficient to constitute a

corrective disclosure for purposes of § 10(b).” 

.

Revelation of the OIG investigation, including issuance of subpoenas, does not

show any actual wrongdoing and cannot qualify as a corrective disclosure.


      Plaintiffs-appellants contend the subsequent 2012 Skolnick Report,

combined with the OIG investigation, together provided sufficient evidence of a

corrective disclosure to cause an adverse market response and satisfied the

requirements of Meyer. The Meyer whistleblower case, the basis of the 2012

Skolnick Report, was not proof of fraud, because a civil suit is not proof of

liability. Like the Einhorn Presentation in Meyer, the 2012 Skolnick Report

summarized facts from the Meyer case that had existed in publicly accessible court

dockets for three months before the Skolnick Report issued. While we may

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“countenance some lag” in the capacity of the market to digest publically available

information, the Meyer action was publicly available and the impetus for the 2012

Skolnick Report. 

n.9. Consequently, the information first revealed by

the Meyer action and summarized in the 2012 Skolnick Report was easily

obtainable, and the market was able to assimilate the information without the

assistance of the 2012 Skolnick Report. See Pub. Emps. Ret. Sys. of Miss. v.

Amedisys, Inc., 

, 323 (5th Cir. 2014) (noting “complex economic data

understandable only through expert analysis may not be readily digestible by the

marketplace” and analysis of that data may not be merely confirmatory); In re

Gilead Scis. Sec. Litig., 

, 1058 (9th Cir. 2008) (determining a three-

month delay between a disclosure and a price drop did not break the causal chain

for loss causation where physicians, but not the general public, would be

responsive to the content of a Federal Drug Administration warning letter, and the

market did not respond until financial disclosures were made).


      “[T]he mere repackaging of already-public information by an analyst or

short-seller is simply insufficient to constitute a corrective disclosure.” 

(citing cases holding opinions and analyses of publicly available

information are not corrective disclosures). The lack of new information in the

2012 Skolnick Report is “fatal to the [plaintiffs-appellants’] claim of loss

causation.” 

(citing 

n.28). If an analyst’s

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report, such as the 2012 Skolnick Report, “based on already-public information

could form the basis for a corrective disclosure, then every investor who suffers a

loss in the financial markets could sue under § 10(b) using an analyst’s negative

analysis of public filings as a corrective disclosure.” 

      Plaintiffs-appellants’ allegations show only there was an OIG investigation,

a whistleblower lawsuit the market disregarded, and a negative summary of

already public information. Taken independently or combined, they are inadequate

to establish the falsity of HMA disclosures. Neither the OIG investigation nor the

2012 Skolnick Report are corrective disclosures, establishing a causal link for

plaintiffs-appellants’ stock-value loss. After three attempts at drafting complaints,

the district judge correctly decided plaintiffs-appellants had failed to allege

adequately loss causation to establish their securities-fraud class action and

dismissed their case with prejudice.


      AFFIRMED.




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Martin, Circuit Judge, concurring in judgment only:

      I agree that we must affirm the District Court’s dismissal of the plaintiffs’

complaint for failure to plead loss causation. Under our binding precedent in

Meyer v. Greene, 

(11th Cir. 2013), plaintiffs must be armed with

proof of a misrepresentation in order to plead securities fraud. Applying that rule,

these plaintiffs cannot satisfy the loss causation pleading requirements by showing

that Health Management Associates’ stock price fell immediately after the

disclosure of a whistle-blower complaint alleging Medicare fraud and the

announcement of a government investigation into HMA’s Medicare billing

practices because neither the complaint nor the investigation revealed actual

wrongdoing. 

& n.13.

      I believe Meyer was wrongly decided. To require a conclusive finding of

fraud at the pleadings stage imposes a prohibitive burden on plaintiffs and

immunizes defendants who have successfully concealed their misconduct from the

government. In my view, fully embracing Meyer’s logic would extinguish the

ability of private actions to serve as an independent check on market integrity. Cf.

Tellabs, Inc. v. Makor Issues & Rights, Ltd., 

, 313, 

,

2504 (2007) (“This Court has long recognized that meritorious private actions to

enforce federal antifraud securities laws are an essential supplement to criminal

prosecutions and civil enforcement actions brought, respectively, by the


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Department of Justice and the Securities and Exchange Commission (SEC).”). I

write separately to explain why I believe that Meyer is contrary to Supreme Court

precedent.

                                                I.

       As the majority opinion sets out, in order to state a claim for securities fraud

under Section 10(b) of the Securities Exchange Act of 1934 and Securities and

Exchange Commission Rule 10(b)–5, plaintiffs must allege the following six

elements: (1) a material misrepresentation or omission; (2) scienter; (3) a

connection between the misrepresentation and the purchase or sale of a security;

(4) reliance; (5) economic loss; and (6) loss causation. 1 Dura Pharms., Inc. v.

Broudo, 

, 341–42, 

, 1631 (2005).

       Loss causation is similar to the concept of proximate cause in tort. It

requires that plaintiffs establish a causal link between a defendant’s misconduct

and the economic loss that they have suffered. The Supreme Court most recently

addressed the standards for both pleading and proving loss causation in Dura

Pharmaceuticals, Inc. v. Broudo. Specifically, the Supreme Court reversed the

Ninth Circuit’s holding that plaintiffs could satisfy the loss causation requirement


       1
        And as the majority opinion also makes clear, the pleading requirements for securities
fraud lawsuits are stringent. In order to survive a motion to dismiss, a claim brought under Rule
10b–5 must satisfy (1) the federal notice pleading requirements, (2) the special fraud pleading
requirements provided by Federal Rule of Civil Procedure 9(b), and (3) the additional pleading
requirements imposed by the Private Securities Litigation Reform Act (PSLRA).


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simply by alleging, and subsequently proving, that they had purchased a security at

an artificially inflated price. 

, 125 S. Ct. at 1631.

      The Supreme Court explained that the Ninth Circuit’s standard was both

illogical and inconsistent with the common-law roots of private securities fraud

actions: at the moment that an investor purchases a security at an artificially

inflated price, she has not yet suffered any loss. See 

the price of the

security later falls for a reason wholly unrelated to the defendant’s misconduct (for

example, a market-wide crash), the investor also cannot recover. 

125 S. Ct. at 1631–32. Instead, plaintiffs must “prove that the defendant’s

misrepresentation (or other fraudulent conduct) proximately caused [their]

economic loss.” 

125 S. Ct. at 1633.

      After explaining what was required as a matter of proof, the Supreme Court

next turned to the pleading requirements for loss causation. It first observed that,

consistent with Federal Rule of Civil Procedure 8(a)(2), a complaint need only

provide the defendant with “fair notice of what the plaintiff’s claim is and the

grounds upon which it rests.” 

125 S. Ct. at 1634 (quotation marks

omitted). Although the complaint in Dura was found to be insufficient because it

stated only that the plaintiffs had suffered a loss by purchasing securities at

artificially inflated prices, the Supreme Court suggested that the complaint would

have been adequate had it stated that Dura’s stock price fell after the alleged


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misrepresentations had been exposed. 

125 S. Ct. at 1634. The Supreme

Court ended its discussion by noting that the standard for pleading loss causation

was a “simple test” and that “it should not prove burdensome for a plaintiff who

has suffered an economic loss to provide a defendant with some indication of the

loss and the causal connection that the plaintiff has in mind.” 

125 S.

Ct. at 1634.

      Following Dura, we have held that plaintiffs can prove loss causation

circumstantially, by:

      (1) identifying a “corrective disclosure” (a release of information that
      reveals to the market the pertinent truth that was previously concealed
      or obscured by the company’s fraud); (2) showing that the stock price
      dropped soon after the corrective disclosure; and (3) eliminating other
      possible explanations for this price drop, so that the factfinder can
      infer that it is more probable than not that it was the corrective
      disclosure—as opposed to other possible depressive factors—that
      caused at least a “substantial” amount of the price drop.

FindWhat Investor Grp. v. FindWhat.com, 

, 1311–12 (11th Cir.

2011).

      Thus, the corrective disclosure mirrors the misrepresentation—just as the

misrepresentation artificially pushes the price of a stock up, the corrective

disclosure removes “the fraud-induced inflation that was baked into the plaintiff’s

purchase price, thereby causing losses to the plaintiff.” 

Although

Dura did not set forth any requirements about the quality, form, or precision of a

corrective disclosure, we have held that “a corrective disclosure can come from
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any source, and can take any form from which the market can absorb the

information and react.” 

n.28 (alterations adopted and quotation

omitted). Plaintiffs also do not need to prove that a single piece of information

precisely and conclusively refuted the defendant’s misrepresentations. Instead,

they may establish loss causation by showing that fraud was gradually revealed

through a series of “partial disclosures.” 

(quotation

omitted); see also 

, 125 S. Ct. at 1631 (observing that the

truth about a security’s value may “leak out” into the marketplace).

                                          II.

      With that background in mind, I turn to Meyer v. Greene, our Court’s most

recent attempt at defining loss causation’s pleading requirements. In Meyer, the

plaintiffs alleged that a developer misrepresented the value of its real estate

. Under their loss causation theory, the true value of

the developer’s stock was revealed through three partial disclosures, each of which

caused the security’s price to decline: (1) a hedge fund analyst’s presentation

which used previously available information to conclude that the developer’s

holdings were overvalued; (2) the developer’s disclosure of an informal SEC

investigation into whether the developer had complied with federal securities laws;

and (3) the developer’s disclosure of a formal SEC investigation into that same

subject matter. 

1201.


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       Relying primarily on past Eleventh Circuit precedent that discussed what

was needed to prove loss causation,2 the panel concluded that the plaintiffs had

failed to adequately plead loss causation. The panel rejected the argument that the

hedge fund analyst’s presentation qualified as a corrective disclosure because the

presentation simply “repackaged” already available data and therefore, did not

reveal anything that had been previously concealed. 

       It also reasoned that the announcements of the government investigation

could not serve as corrective disclosures—even though the investigation concerned

precisely the same subject matter as the alleged fraud and caused the developer’s

stock price to fall—because the SEC had not yet issued a finding of wrongdoing.

Thus, the investigation did not “reveal to the market that a company’s

previous statements were false or fraudulent.” 

left open the

possibility that the announcement of government investigations could potentially

form the basis for a corrective disclosure, but only if there were a later finding of

actual fraud. See 

may be possible, in a different case, for the

disclosure of an SEC investigation to qualify as a partial corrective disclosure for

purposes of opening the class period when the investigation is coupled with a later

finding of fraud or wrongdoing.”).
       2
          For example, in Hubbard v. BankAtlantic Bancorp, Inc., 

(11th Cir. 2012),
we considered an appeal following a motion for judgment as a matter of law following a jury
trial, and in FindWhat Investor Group v. FindWhat.com, 

(11th Cir. 2011), we
considered an appeal from the grant of a motion for summary judgment.


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      Meyer’s reasoning would have made good sense in evaluating whether the

plaintiffs had met their burden of proof. It is clear that plaintiffs must prove the

existence of a misrepresentation before their losses become compensable. But

holding plaintiffs to this standard at the pleadings stage is contrary to both

precedent and logic.

      Dura tells us that because pleading rules are “not meant to impose a great

burden,” a plaintiff need only provide defendants with “some indication of the loss

and the causal connection that the plaintiff has in 

, 125 S.

Ct. at 1634. Meyer requires far more. By holding that plaintiffs must possess a

conclusive finding of wrongdoing before even being able to plead securities fraud,

we now force inquiry into plaintiffs’ proof at the pleadings stage. Cf. Bell Atl.

Corp. v. Twombly, 

, 556, 

, 1965 (2007) (observing

that a well-pleaded complaint may proceed even if “recovery is very remote and

unlikely” (quotation marks omitted)).

      Beyond these problems, Meyer’s suggestion that the initial announcement of

an investigation could potentially serve as a corrective disclosure if coupled with a

later government finding of wrongdoing, 

& n.13, evinces a

fundamental misunderstanding of loss causation. The requirement for a corrective

disclosure serves the purpose of ensuring that plaintiffs meet the traditional

common-law requirement of proximate cause. 

, 125 S. Ct. at


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1634. Consistent with this purpose, we have reasoned that if the price of a security

falls soon after the release of new information, then courts can infer that this new

information proximately caused economic loss. See 

–

12. What is important, then, is the market’s reaction to a purported corrective

disclosure at the time that the disclosure was made. See Bricklayers & Trowel

Trades Int’l Pension Fund v. Credit Suisse Sec. (USA) LLC, 

, 86 (1st

Cir. 2014) (observing that an event study, which is a statistical analysis of the

change in a security’s value in response to new information, is the “preferred”

method for proving loss causation).

      However, Meyer implies that this causal chain is somehow affected by the

government’s later finding of actual fraud. This defies logic. A later finding

cannot change how the market reacted to an announcement at an earlier time. The

government’s finding of fraud goes instead to the plaintiff’s ability to prove

misrepresentation—an entirely different element of her claim.

      Finally, by evaluating each of the three disclosures individually, Meyer

failed to recognize that the plaintiffs in that case had pleaded a series of partial

corrective disclosures through which the truth “beg[an] to leak out.” 

, 125 S. Ct. at 1631. Surely even if each disclosure standing alone was

insufficient, the cumulative effect of the presentation and the announcements of the

government investigations—all of which provided information about the


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defendant’s allegedly fraudulent accounting practices and resulted in a decline in

the stock price—created a “plausible causal relationship” between the alleged

fraud and the plaintiffs’ economic loss. Lormand v. US Unwired, Inc., 

, 258 (5th Cir. 2009) (quotation marks omitted).

       “To preclude [a] suit on the basis that there has been no previous actual

disclosure of fraud . . . misses the mark.” In re Gentiva Sec. Litig., 

, 388 (E.D.N.Y. 2013). Recognizing the prohibitive burden that the Meyer rule

imposes, a number of other courts have rejected the argument that the

announcement of a government investigation into the same subject matter as the

alleged fraud cannot be pled as a corrective disclosure. See, e.g., Pub. Emps. Ret.

Sys. of Miss., 

, 324–25 (5th Cir. 2014) (“To require, in all

circumstances, a conclusive government finding of fraud merely to plead loss

causation would effectively reward defendants who are able to successfully

conceal their fraudulent activities by shielding them from civil suit.” (quotation

omitted)); 

(“After this review of the authorities,

ultimately, the Court rejects the idea that the disclosure of an investigation, absent

an actual revelation of fraud, is not a corrective disclosure.”); In re IMAX Sec.

Litig., 

, 485 (S.D.N.Y. 2008) (holding that the announcement

of an SEC investigation into the same subject matter as the alleged




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misrepresentations qualified as a corrective disclosure); Brumbaugh v. Wave Sys.

Corp., 

, 256 (D. Mass. 2006) (same).

                                         III.

      The plaintiffs in this case allege that HMA artificially inflated its stock price

by fraudulently overbilling Medicare. They have also alleged that they suffered

economic loss because HMA’s stock price fell precipitously after the disclosure of

a whistle-blower lawsuit describing Medicare fraud at HMA hospitals and a

government investigation into the company’s Medicare billing practices. Taken

together, these are precisely the allegations that Dura requires: the complaint

provides both “notice of what the relevant economic loss might be” and “what the

causal connection might be between that loss” and the alleged misrepresentations.

544 U.S. at 

. Although I recognize that my conclusion is

foreclosed by Meyer, I believe that plaintiffs have met their burden at this very

early stage.




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