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In June 2016, AmSurg Corp. and Envision Healthcare Holdings, Inc. (Envision) announced they have signed a definitive merger agreement pursuant to which the companies will combine in an all-stock transaction. Upon completion of the merger, which is expected to be tax-free to the shareholders of both organizations, the combined company will be named Envision Healthcare Corporation and co-headquartered in Nashville, Tennessee and Greenwood Village, Colorado. The company's common stock is expected to trade on the New York Stock Exchange under the ticker symbol: EVHC. Bass, Berry & Sims served as lead counsel on the transaction, led by Jim Jenkins. Read more.

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Inside the FCA blogInside the FCA blog features ongoing updates related to the False Claims Act (FCA), including insight on the latest legal decisions, regulatory developments and FCA settlements. The blog provides timely updates for corporate boards, directors, compliance managers, general counsel and other parties interested in the organizational impact and legal developments stemming from issues potentially giving rise to FCA liability.

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Chris Lazarini Examines Scienter Standard in Section 10(b) Claim

Securities Litigation Commentator


June 22, 2016

Bass, Berry & Sims attorney Chris Lazarini examines a case in which the Sixth Circuit affirms the lower court's finding that class plaintiffs failed to set forth facts supporting the scienter element of their federal securities law claims.

Chris provided the analysis for Securities Litigation Commentator (SLC). The full text of the analysis is below and used with permission from the publication. If you would like to receive additional content from the SLC, please visit the SLC website to sign up for the newsletter.

Doshi & City of Livonia Employees' Retirement System vs. General Cable Corp., No. 15-5621 (6th Cir., 5/24/16) 

*The PSLRA requires plaintiffs to state with particularity facts giving rise to a strong inference that the defendant acted with the required state of mind in violating the securities laws.
**A strong inference of scienter must be more than merely plausible or reasonable; it must be convincing and at least as compelling as any opposing inference of non-fraudulent intent. 

In 2012, and again in 2013, General Cable announced that its 2008 through 2013 financial statements included material accounting errors and should no longer be relied upon. The errors resulted from a complex theft scheme and accounting and other reporting errors in its Brazilian operations. This class action, alleging violations of Securities Exchange Act §10(b) and Rule 10-5 thereunder, and §20(a) control person liability against the company and its CEO and CFO, soon followed. The district court dismissed the complaint, finding that Plaintiff's allegations of Defendants' recklessness in issuing the materially false statements failed to adequately plead scienter. The district court also dismissed Plaintiff's motion to file an amended complaint, finding the proposed amendments futile.

Conducting a de novo review, the Court affirms. To assess whether Plaintiff adequately pled scienter, the Court explains, the allegations must be viewed holistically. It finds some support for inferring scienter because the head of the company's Brazilian operations knew of the theft and accounting errors creating a divergence between internal reports and external statements about the company's financial standing. However, the employee's state of mind, even if reckless, is not imputed to the company because he made no public misstatements. Furthermore, the divergence between the company's internal reports and its external statements is diminished, because the reports on Brazilian operations were only a part of the company's firm-wide data.

Finally, the Court lists multiple other factors favoring rejection of a scienter inference. First, Plaintiff pleads no facts with sufficient particularity implicating suspicious insider trading or failure to disclose impending stock sales. Second, Plaintiff fails to allege that the financial misstatements and inflated stock price had any positive effect on the CEO's or CFO's compensation. Moreover, following its internal investigation, the company clawed back the incentive bonus that had been awarded to the head of its Brazilian operations and forced him to resign, actions counseling against a finding of scienter. Third, Plaintiff fails to allege bribery by a top official or quickly settled ancillary lawsuits. Fourth, the complaint lacks allegations that only highly-sophisticated persons could understand the negative implications of the misstatements. Fifth, the misstatements resulted from a theft scheme that, when coupled with the legitimate freedom of the Brazilian unit to report its financial data, led to the materially misstated public statements. Sixth, Plaintiff fails to connect the knowledge of the head of Brazilian operations to the CEO and CFO. Examining the allegations holistically, the Court concludes, the company and its officers were at most negligent in issuing or authorizing the misstated financial statements. The Court also examines the additional allegations in Plaintiff's proposed amended complaint and finds that they do nothing to alter this finding. 

The factors the Court considers are set out in Helwig v. Vencor, Inc., 251 F.3d 540 (6th Cir, 2001), abrogated on other grounds, Tellabs, Inc. v. Makor Issues & Rights, Ltd., 551 U.S. 308 (2007).

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