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Grae v. Corrections Corporation of America

United States District Court, M.D. Tennessee, Nashville Division

December 18, 2017

NIKKI BOLLINGER GRAE, Individually and on Behalf of All Others Similarly Situated, Plaintiff,


          ALETA A. TRAUGER, United States District Judge

         Pending before the court is a Motion to Dismiss (Docket No. 60) filed by CoreCivic (formerly Corrections Corporation of America), Damon T. Hininger, David M. Garfinkle, Todd J. Mullenger, and Harley G. Lappin (“Individual Defendants”) (collectively, “CoreCivic”), to which Amalgamated Bank, as Trustee for the LongView Collective Investment Fund, (“Amalgamated”) has filed a Response (Docket No. 67), and CoreCivic has filed a Reply (Docket No. 73). For the reasons stated herein, CoreCivic's motion will be denied.


         CoreCivic is a publicly traded real estate investment trust (“REIT”) that owns and operates correctional, detention, and residential reentry facilities. (Docket No. 57 ¶ 2.) Due to the nature of its business, CoreCivic relies on federal, state, and local governments as clients. (Id. ¶ 34.) In the period from February 27, 2012, through August 17, 2016 (“Class Period”), CoreCivic's federal clients, including the Federal Bureau of Prisons (“BOP”) and Immigration and Customs Enforcement, accounted for between 43% and 51% of the company's annual revenue. (Id. ¶¶ 1, 34) In particular, CoreCivic's BOP contracts-which covered five facilities collectively housing approximately 8, 000 inmates-were responsible for between 11% and 13%[2]of CoreCivic's annual revenue. (Id. ¶¶ 2, 34.) The BOP is a subdivision of the United States Department of Justice (“DOJ”). See Mauldin v. United States, No. 3:07-0496, 2008 WL 821523, at *3 (M.D. Tenn. Mar. 27, 2008).

         Throughout the Class Period, Hininger was CoreCivic's chief executive officer, and Lappin was its chief corrections officer. Mullenger was its chief financial officer until his retirement from that position on May 1, 2014, after which that position was held by Garfinkle. Hininger, Mullenger, and Garfinkle respectively signed all or some of CoreCivic's Securities and Exchange Commission (“SEC”) filings. (Docket No. 57 ¶¶ 22-25.) Although Lappin is not alleged to have signed the filings, he did participate, with Hininger and Mullenger, in presentations to investors. (Id. ¶ 149.)

         Throughout the Class Period, Amalgamated purchased and held stock in CoreCivic. (Docket No. 40-2.) It has been appointed the lead plaintiff in this securities fraud litigation. (Docket No. 52.)

         A. CoreCivic's Relationship with the BOP

         The crux of this case is whether CoreCivic and its executives misled investors about its history of quality, savings, and compliance at BOP facilities, causing those investors to suffer losses when the truth about CoreCivic's operations came to light and the DOJ announced a decision to significantly curtail and eventually end the BOP's reliance on CoreCivic. In support of that theory, Amalgamated identifies a long-running series of deficiencies at CoreCivic's BOP facilities.

         1. Adams County Correctional Center

         The Adams County Correctional Center (“Adams”) is a CoreCivic-owned, low-security prison in Natchez, Mississippi. In April 2009, CoreCivic announced a contract to house BOP prisoners in the facility. That contract was set to expire in July 2017, with a two-year renewal option. As of April 7, 2016, Adams housed 1, 906 prisoners-mostly non-resident aliens convicted of non-violent federal offenses-with the median inmate spending 436 days at the facility. (Id. ¶ 43.) Although, as detailed below, CoreCivic's operation of Adams was troubled in many regards, the facility was most notable for a May 2012 riot that resulted in the death of a CoreCivic employee.

         On May 20, 2012, Adams inmates “initiated a disturbance” intended to highlight the prisoners' concerns about conditions at the facility. (Id. ¶ 44.) That disturbance developed into a riot lasting more than twelve hours and resulting in the death of an Adams correctional officer, significant injuries to other staff and inmates, and more than one million dollars of property damage. (Id.)

         Deborah Temple was a correctional officer at Adams at the time of the riot. In an affidavit dated July 17, 2014, Temple wrote:

Prior to the Riot, the Prison was short staffed and there were not enough Prison employees to adequately control the prisoners. My co-workers and I informed Prison officials on numerous occasions that there were not enough Prison employees to adequately control the prisoners and that insufficient staffing created a dangerous work environment for the Prison employees.
My co-workers and I were told not to worry about it and to “suck it up.” In fact, I was told to “put my big girl panties on and get back to work.” Prison officials ignored the fact that the Prison was short staffed and that the prison employees were in danger of physical harm due to the short staffing. Prison officials knew the Prison was short staffed. When the Bureau of Prisons would perform their audits at the Prison, Prison officials would call in all possible Prison employees so it would appear as though the Prison was adequately staffed, even though it was not.

(Id. ¶ 45.)

         Temple's affidavit provides a first-person account of the riot and the events leading up to the killing of her colleague, Catlin Carithers. According to Temple, Adams “officials had been told by the prisoners that something big was going to happen that day, ” and “the prisoners had made a hit list that included on it the names of Prison guards, ” including Temple and, reportedly, Carithers. (Id. ¶¶ 46-47.) Temple's affidavit states that Adams was “short staffed” at the time- with “probably” twenty or fewer prison employees on site-and the warden made the decision not to place the facility on lockdown despite having received the warning. (Id. ¶ 46.) When the riot erupted, Temple was ordered by a superior to go to the roof of one of the prison buildings:

I obtained the keys to the roof hatches and got on the roof of the building with my co-worker Smith. We observed about 1200 to 1500 prisoners gathered at the prison gates demanding to speak to the Warden. The prisoners at that time gave Prison officials a list of Prison employees who were on the hit list. My name was on the hit list as was the name of Catlin Carithers. Catlin joined us on the roof of the building.
We had been on the roof for about 1 hour when my co-worker Smith left Catlin and I alone on the roof. Catlin had been called in from his day off. He started laying out all the gas canisters and began explaining to me . . . how to use them.

(Id.) As Temple and Carithers remained on the roof, the prisoners were able to seize a maintenance ladder that would allow them to ascend the building:

I then heard an alert on the Prison radio that the prisoners had taken the ladder . . . , and that Catlin and I were then instructed to deploy the gas. That is when all hell broke loose. Carithers and I threw the gas into the crowd of prisoners as instructed, hoping they would [disperse]. Instead, the prisoners began throwing the canisters of gas back onto the roof where we were located. They were also throwing at us garbage cans and rocks and anything else they could find. Catlin was a short distance away from me and I saw him trying to dodge food trays that were also being thrown at us. I then saw a head come over the side of the roof of the building that we were on. Two prisoners then appeared and confronted us. They asked for my keys and my radio. I could see that other prisoners were coming up the ladder onto the roof. Before I could respond about my keys and radio a prisoner began beating me with a metal pan and a food tray. I blacked out and I remember next seeing Catlin lying motionless on the roof near me. I called out to him but he never verbally responded.


         After the riot was over, the BOP commissioned an “After-Action Report.” The report, which was dated July 27, 2012, stated that the riot could be “directly attributed to actions taken by the [Adams] administration, ” in particular with regard to prison officials' failure to “grasp the severity and degree of the . . . inmates' intent to orchestrate a meeting”-a failure that the report attributed in part to Adams' lack of Spanish-speaking staff. (Id. ¶ 48.) A Federal Bureau of Investigations review concluded that the riot was at least in part attributable to inmates' having become disgruntled at the quality of the food, medical conditions, and treatment by staff at Adams. (Id. ¶ 49.)

         Throughout the Class Period, the BOP sent CoreCivic a number of “Notices of Concern” related to its contractual compliance. On August 10, 2012, the BOP sent CoreCivic a Notice of Concern citing staffing shortages both before and after the riot:

The facility failed to maintain the [minimum staffing requirements] eleven months out of a total of sixteen months during the period of April 201[1] through July 2012. The referenced eleven months in which your facility failed to meet the minimum staffing requirements are as follow[s]: April 2011, May 2011, June 2011, July 2011, September 2011, October 2011, November 2011, April 2012, May 2012, June 2012 and July 2012.

(Id. ¶ 53.) Notices of Concern citing continued insufficient staffing levels were also sent on November 14, 2012, February 22, 2013, May 16, 2013, and June 9, 2014. (Id. ¶¶ 54-55, 57, 60.)

         In addition to the Notices of Concern about staffing levels, the BOP sent a Notice of Concern on September 19, 2012, stating that “[r]eview of the [riot] by the Bureau of Prisons revealed several significant incidents of nonconformance” with the terms and conditions of the Adams contract. The Notice of Concern specifically cited CoreCivic's failure to conform to contractual requirements regarding gathering and disseminating “[i]ntelligence information related to security concerns” as well as terms about maintaining an “adequate level of emergency readiness.” (Id. ¶ 49.)

         The BOP also sent CoreCivic a number of reports related to BOP on-site monitoring at Adams. On March 31, 2011, the BOP sent CoreCivic a report citing a number of deficiencies related to medical care and testing, including one “repeat repeat deficiency, ” meaning a deficiency that had been repeated twice. (Id. ¶ 51.) On April 6, 2012, the BOP sent CoreCivic a monitoring report noting four deficiencies in correctional programs, one deficiency in correctional services, one in education and recreational services, two in food service, one in inmate services, and nine in health services, including a repeat deficiency. (Id. ¶ 52.) A February 27, 2013 report noted one deficiency in correctional programs, two in correctional services, two in education, four in safety, and twenty in health services. (Id. ¶ 56.) A January 24, 2014 report noted three repeat deficiencies and eleven other deficiencies related to health services, one deficiency in correctional programs, and one in safety and environmental health. (Id. ¶ 59.) A March 13, 2015 report included a “significant finding”-the highest level of deficiency finding possible in such a report-related to health services. (Id. ¶ 61 & n.5.) That report specifically criticized, among other things, CoreCivic's handling of five cases that had resulted in prisoner deaths for causes including respiratory distress and improperly treated diabetes. (Id. ¶ 61)

         At certain times during the Class Period, the BOP made “Award Fee Determinations” regarding whether CoreCivic was entitled to “award fees” related to its performance. On May 23, 2013, the BOP sent a CoreCivic managing director an Award Fee Determination letter regarding Adams, stating:

I have reviewed the recommendation of the Performance Evaluation Board based upon the performance monitoring information and the self-assessment submitted by Corrections Corporation of America (CCA). After a thorough review of this information, an award fee has not been authorized for the aforementioned performance period.
Adams County Correctional Center received one repeat deficiency and twenty-one deficiencies during the February 2013 CFM Review. Additionally, six Notice of Concerns (NOC) were issued for contract noncompliance (failure to follow security procedures). Specifically, the NOC's were issued for CCA's failure to maintain staffing levels and failure to properly [redaction][3] in the Special Housing Unit (SHU). On May 20, 2012, Adams County experienced a large scale inmate disturbance resulting in substantial property loss, staff assaults and a staff fatality. Review of the incident by the Bureau of Prisons (BOP) revealed several instances of non-conformance. Correctional Services has had some issues with staff turnover, inmate accountability, and supervisors/correctional officers failing to properly follow policies and post orders within the SHU.
Deficiencies have increased with the contractor's quality control component. Additionally, the contractor provided limited information in their self-assessment on program weaknesses despite the government's observations during this performance period.

(Id. ¶ 58.) A June 1, 2015 Award Fee Determination Letter stated:

I have reviewed the recommendation of the Performance Evaluation Board (PEB) based upon the performance monitoring information and the self-assessment submitted by Corrections Corporation of America (CCA). After a thorough review of this information, it has been determined that the overall performance of the facility by the PEB is in the “Unsatisfactory” range for determining an award fee, and I concur with their assessment. Therefore, an award fee at this time is not warranted.
Adams County Correctional Center received a significant finding in Health Services. The finding was for inadequate controls in the area of clinical care which included a repeat deficiency. There were thirteen other deficiencies in various disciplines in addition to nine Notices of Concerns (NOCs), which several were repetitive. Two were for lack of [redaction] and two were for failing to restrain inmates in SHU before opening the cell door. Other various NOC's include: inadequate [redaction]; untimely processing of treaty transfers; not maintaining Health Services staffing levels; failing to address concerns over use of a spit guard/mask during a calculated use of force; and for staff with expired NACI clearances assessing Sentry.
Correctional Services continues to struggle with a high turnover rate for both correctional officers and supervisory correctional staff. The turnover rate and the high number of correctional staff with no prior corrections experience has been a challenge for the contractor.
Another major concern has been the lack of bilingual staff members. This continues to be a problematic issue considering the majority of the inmate population is comprised of Mexican nationals.

(Id. ¶ 62.)

         Before the close of the Class Period in August 2016, the DOJ's Office of Inspector General (“OIG”) initiated an audit of CoreCivic's compliance with the Adams contract. According to the OIG, “[d]uring this audit, we provided our staffing findings to both the BOP and [CoreCivic], ” and CoreCivic expressed objections to the OIG's staffing-related findings “in May 2016, ” also before the close of the Class Period. The final report of the OIG's audit, however, was not released until December 2016, after the Class Period had ended. (Id. ¶¶ 63- 64.) The audit found, among other things, that the low pay and limited options for advancement at Adams relative to BOP-managed facilities had resulted in less qualified staff and high turnover. (Id. ¶ 64.) It concluded that, although CoreCivic had been issued several Notices of Concern about staffing levels, those Notices of Concern had actually understated Adams' staffing shortfalls, because CoreCivic's original reports of staffing levels had been based on total head counts, not man-hours. (Id. ¶ 65.)

         2. Cibola County Correctional Center

         Cibola County Correctional Center (“Cibola”) is a facility in New Mexico that has been owned and operated by CoreCivic since 1994. CoreCivic operated Cibola as a BOP facility pursuant to a contract that had been set to expire on September 30, 2016. As of April 2015, Cibola housed 1, 178 inmates, most of whom were non-resident aliens, and was classified as a low-security facility. According to 2015 figures, 51% of the inmates at Cibola had been convicted of illegal entry or reentry to the United States, and 41.5% had been convicted of drug offenses. The median sentence at Cibola was 18 months, and the median inmate spent 113 days at the facility. (Id. ¶ 68.)

         Like Adams, Cibola was subject to a number of Notices of Concern before and throughout the Class Period. On March 25, 2011, for example, the BOP sent a Notice of Concern to CoreCivic focused on the facility's handling of an inmate with a cancer diagnosis who died while serving his sentence at Cibola. (Id. ¶ 70.) The BOP sent a Notice of Concern citing inadequate staffing levels on May 22, 2013 and sent further Notices of Concern based on inadequate staffing on August 6, 2013, October 3, 2013, January 2, 2014, April 8, 2014, July 7, 2014, September 23, 2014, and April 6, 2015. (Id. ¶¶ 74-75, 80.) A November 21, 2014 Notice of Concern noted a number of repeated deficiencies related to health services, including a “repeat repeat repeat repeat deficiency” regarding officials' failure to follow up with regard to inmates arriving at Cibola with positive tuberculosis skin tests. (Id. ¶ 78.)

         The BOP's facility monitoring reports for Cibola also showed a number of deficiencies, in particular with regard to health services. On May 5, 2014, the BOP sent CoreCivic a monitoring report identifying “one significant finding, one repeat repeat repeat deficiency, two repeat repeat deficiencies, and ten repeat deficiencies.” The “significant finding” was related to health services, under the category “Administration and Patient Care.” (Id. ¶ 76.)

         Cibola's health services deficiencies eventually led the BOP to send CoreCivic headquarters a “Cure Notice” related to Cibola. The Cure Notice referenced “numerous and repetitive items of critical non-conformance in the area of Health Services, specifically[] Patient Care, ” and stated that, “unless the conditions are cured by April 21, 2015[, ] the Government may terminate this contract.” (Id. ¶ 79.) Although the BOP did not ultimately pursue early termination of the contract, its concerns apparently continued: a June 2, 2015 facility monitoring report noted one repeat deficiency in health services and a number of additional health services deficiencies. (Id. ¶ 81.)

         On August 4, 2015, the BOP sent CoreCivic an Award Fee Determination letter regarding Cibola that stated:

I have reviewed the recommendation of the Performance Evaluation Board based upon the performance monitoring information and the self-assessment submitted by Corrections Corporation of America (CCA). After a thorough review of this information, CCA received an overall rating of unsatisfactory. Therefore, an award fee will not be authorized for the aforementioned performance period.

(Id. ΒΆ 84.) On July 29, 2016, the BOP notified CoreCivic that it had elected not to renew its Cibola ...

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