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Norfolk County Retirement System v. Community Health Systems, Inc.

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

July 26, 2019

NORFOLK COUNTY RETIREMENT SYSTEM, individually and on behalf of others similarly situated, Plaintiff,
v.
COMMUNITY HEALTH SYSTEMS, INC., WAYNE T. SMITH, and LARRY CASH, Defendants.

          MEMORANDUM OPINION

          ELI RICHARDSON, UNITED STATES DISTRICT JUDGE

         Before the Court is Lead Plaintiff NYC Funds' Motion for Class Certification. (Doc. No. 270, “Class Certification Motion”.) Defendants Community Health Systems (“CHS”), Wayne T. Smith, and Larry Cash responded in opposition (Doc. No. 276), and Lead Plaintiff replied (Doc. No. 283). For the reasons discussed below, the motion will be granted.

         BACKGROUND

         This case is a securities class action brought on behalf of all persons or entities who purchased and/or sold the publicly traded securities of CHS from July 27, 2006 through October 26, 2011 (the “Proposed Class Period”) against CHS and its senior officers, namely CEO and Chairman of the Board Wayne T. Smith (“Smith”) and CFO and Director W. Larry Cash (“Cash”), for violations of Sections 10(b) and 20(a) of the Securities Exchange Act of 1934 (the “Exchange Act”), 15 U.S.C. §§ 78j(b) and 78t(a), and SEC Rule 10b-5. (Doc. No. 170 (First Amended Complaint, “FAC”) ¶ 2.) Lead Plaintiff seeks recovery of monetary damages exceeding $891 million plus prejudgment interest accruing from the filing of the initial class action on May 9, 2011. (Id.)

         The certification stage is not the appropriate time for the Court to “engage in free-ranging merits inquiries[.]” Amgen, Inc. v. Conn. Ret. Plans & Tr. Funds, 568 U.S. 455, 466 (2013). “Merits questions may be considered to the extent-but only to the extent-that they are relevant to determining whether the Rule 23 prerequisites for class certification are satisfied.” Id.

         Accordingly, on a motion to certify a class, the court generally must accept as true the allegations (at least those related to the merits) contained in the plaintiff's complaint. See, e.g., Porcell v. Lincoln Wood Prod., Inc., 713 F.Supp.2d 1305, 1309 (D.N.M. 2010); Moreno- Espinosa v. J & J Ag Prods., Inc., 247 F.R.D. 686, 691 (S.D. Fla.2007) (citing Heffner v. Blue Cross and Blue Shield of Ala., Inc., 443 F.3d 1330, 1337 (11th Cir. 2006)); Rankin v. Rots, 220 F.R.D. 511, 517 (E.D. Mich. 2004); Edwards v. McCormick, 196 F.R.D. 487, 490 (S.D. Ohio 2000). In addition, the Court may rely on affidavits or declarations submitted in support of the Class Certification Motion. See, e.g., Steward v. Janek, 315 F.R.D. 472, 477 (W.D. Tex. 2016) (declining to exclude declarations submitted in support of motion to certify class); Clay v. CytoSport, Inc., No. 3:15-CV-00165-L-AGS, 2017 WL 10592138 (S.D. Cal. Apr. 6, 2017). Cf. Frazier v. PJ Iowa, L.C., 337 F.Supp.3d 848, 865 (S.D. Iowa 2018) (quoting Stouder v. Turblex, Inc., No. 10-3069-CV-S-DW, 2010 WL 11619552, at *2 (W.D. Mo. Aug. 31, 2010)) (“Signed declarations or affidavits provide appropriate support for motions to conditionally certify a class” in a proposed collective action under the Fair Labor Standards Act.) Likewise, the Court can consider deposition testimony. See, e.g., Crutchfield v. Sewerage & Water Bd. of New Orleans, No. CIV.A. 13-4801, 2015 WL 3917657, at *5 (E.D. La. June 25, 2015) (declining to strike plaintiffs' deposition testimony submitted in support of motion for class certification even though unpersuasive and self-serving at best), aff'd and remanded, 829 F.3d 370 (5th Cir. 2016).

         “Resolution of the class certification may, however, require the court ‘to probe behind the pleadings before coming to rest on the certification question.'” Edwards, 196 F.R.D. at 490 (quoting Gen. Tel. Co. of the Southwest v. Falcon, 457 U.S. 147, 160 (1982)). And the Court “need not blindly rely on conclusory allegations which parrot Rule 23 requirements [and] may . . . consider the legal and factual issues presented by plaintiff's complaints.” J.B. ex rel. Hart v. Valdez, 186 F.3d 1280, 1290 n. 7 (10th Cir.1999). With respect to issues relating not to the merits but rather to the appropriateness of certifying the class under Rule 23, “if there are material factual disputes, the court must receive evidence and resolve the disputes before deciding whether to certify the class.” Priddy v. Health Care Serv. Corp., 870 F.3d 657, 660 (7th Cir. 2017) (citation, alterations, and internal quotation marks omitted). The factual issues related to the Rule 23-inquiry that the court must resolve may, to an extent, overlap with issues related to the merits, but the court is to resolve only the Rule 23 issues, and not the merits issues. See, e.g., In re Sanofi-Aventis Sec. Litig., 293 F.R.D. 449, 453 (S.D.N.Y. 2013) (citing Wal-Mart Stores v. Dukes, 564 U.S. 338 (2011) and Amgen). In deciding whether Rule 23's requirements for certification have been met, a district court may draw reasonable inferences from the facts before it. Rankin, 220 F.R.D. at 517 (citing Senter v. Gen. Motors Corp., 532 F.2d 511, 520 (6th Cir. 1976)).

         With these standards squarely in mind, the Court accepts as true for purposes of the Class Certification Motion the following alleged merits-based facts-taken from the FAC and the Declaration of Inga Van Eysden (Doc. No. 272-1. The Court, of course, is aware that these alleged facts are unproven and that a great many of them remain highly contested by Defendants.

         Lead Plaintiff, the proposed class representative, is a group of defined benefit pension funds established by the City of New York pursuant to municipal law and state statutes. (Doc. No. 271 at 14.) Collectively, Lead Plaintiff has more than $193.98 billion in assets, which are managed by outside investment managers. (Doc. No. 272-1 ¶¶ 6-7.) Lead Plaintiff serves more than 750, 000 active and retired New York City employees. (Id.) Lead Plaintiff acquired 825, 226 shares of CHS common stock during the Proposed Class Period. (Id. ¶ 5.)

         This proposed class action was precipitated by disclosures made publicly for the first time by Tenet Healthcare Corporation (“Tenet”) in a complaint against CHS filed on April 11, 2011. (FAC ¶ 3.) Tenet, a competitor hospital owner, revealed that CHS's successful track record of increasing revenues at other acquired hospitals was attributable to unsustainable Emergency Room (“ED” or “ER”) patient admissions practices that CHS employed to improperly drive up revenues. (Id.) Improperly boosting inpatient admissions generated more Medicare revenues for CHS than would have discharging patients or treating them in observation status. (Id.)

         These improper and concealed practices included an edict for “ZERO” observations for Medicare patients via employment of aggressive admission justifications known as the “Blue Book” and programming the “Pro-MED” software system used in CHS's ERs to prompt patient admissions to boost revenues. (Id. ¶ 4.) CHS implemented bonus programs, admission-rate quotas approaching fifty percent for Medicare patients, (corporate, apparently) messaging, and terminations to compel CHS personnel to adhere to CHS's aggressive admissions justifications. (Id.) Defendant Cash emphasized that hospitals must generate admission volume to meet analysts' earnings expectations and impact CHS's stock price favorably. (Id. ¶ 5.) Increasing CHS's market capitalization facilitated its growth-by-acquisition strategy by increasing the value of CHS's stock, thereby facilitating CHS's ability to issue higher levels of debt to support additional acquisitions. (Id.)

         Defendants Smith and Cash were repeatedly warned that CHS's use of the Blue Book and “no observation” policy created a substantial risk of a Medicare fraud enforcement action. (Id. ¶ 6.) CHS's long-time Medicare consultant concluded that the Blue Book criteria: (1) lacked specificity, allowing all cases to be classified as inpatient; (2) would likely be construed as statistically biased; (3) resulted in inpatient over-certification; and (4) could be construed as an avoidance of best practice. (Id.) Defendants were expressly told that these criteria, along with CHS's refusal to use observation status, presented a compliance risk. (Id. ¶ 7.) Defendants actively misled investors about the reasons for CHS's success. For example, Defendants touted the consistent execution of CHS's centralized and standardized operating strategies, its ED initiatives, and its hospital acquisition strategy as key factors in growing its business. (Id. ¶ 8.) However, as discussed above, these statements failed to disclose that the strategies depended in large part on utilizing aggressive non-industry admissions criteria that were a substantial Medicare compliance risk. (Id.) Also, Defendants' representations that CHS hospitals were in substantial compliance with regulations and standards (federal, state, and local) were materially false and misleading in failing to disclose long-standing potential Medicare violations at numerous hospitals. (Id. ¶ 10.)

         As previously mentioned, on April 11, 2011, Tenet filed an anti-takeover complaint revealing that CHS's successful acquisition track record was attributable to CHS's Blue Book. (Id. ¶¶ 3, 420.) When Tenet's lawsuit exposed CHS's practices and ongoing government investigations, CHS stock immediately plummeted $14.41, or nearly 36 percent. (Id. ¶ 12.) This decline involved a trading volume exceeding 44 million shares, reducing CHS's stock value by $1.3 billion in a single day. (Id.) While in the possession of material, non-public information concerning impending revisions to the Blue Book that they knew would reduce ED admission rates, Defendants Smith and Cash sold 980, 000 CHS shares through the exercise of vested options in 2009 and 2010, reaping millions in unlawful profits each year. (Id. ¶ 14.)

         Defendants made a series of misrepresentations that were intended to obscure the importance of the Blue Book to the Company's performance after the Tenet complaint. For example, Defendant Cash downplayed the Blue Book, saying that the “current version” of the Blue Book was “close” to the InterQual standard, (Id. ¶¶ 258, 454), and falsely assured analysts that the transition from the Blue Book to the widely accepted InterQual criteria would be completed by year-end without impacting financial results. (Id. ¶ 423.) However, past experience had shown precisely the opposite-a steep admission decline-when CHS sought to conform with the industry standard. (Id. ¶¶ 252-53.)

         On October 26, 2011, CHS disclosed that inpatient admissions for 3Q 2011 were down 7.0 percent from the prior year. Defendant Cash conceded the impact of phasing out the Blue Book: 75 percent of the hospitals that converted from Blue Book to InterQual criteria saw inpatient admissions decline. (FAC ¶¶ 16, 463-64.) Smith acknowledged that “there's no question we've had some adverse impact related to issues . . . around the Tenet lawsuit.” (Id. ¶ 465.) On October 27, 2011, CHS's stock price dropped $2.32 per share, or 11.4% percent to $17.96 from the prior day's closing price of $20.28. (Id. ¶ 467.)

         DEFENDANTS' ASSERTIONS RELEVANT TO RULE 23 ISSUES

         Defendants contend that more than six months before the filing of Tenet's complaint, Change to Win Investment Group (“CtW”), a union-backed shareholder advocacy organization that engages in corporate governance initiatives for pension funds, was aware of improprieties in CHS's admissions practices. (See Doc. No. 277-3 at 4-5.) On September 28, 2010, CtW allegedly sent CHS's Board of Directors a nine-page letter alleging improprieties in CHS's admissions practices. (See Doc. No. 277-1.) Defendants claim that CtW's letter previewed many of Tenet's later claims and analyses. For instance, according to Defendants, CtW alleged that CHS's affiliated hospitals were engaged in “aggressive and unsustainable” Medicare billing by admitting ER patients to obtain higher reimbursement than can be obtained from observation stays. (Doc. No. 277-1 at 1.) Its letter also accused CHS of an improper corporate strategy to increase ED admissions that had resulted in the admission of many patients who may not have required inpatient care. (Id. at 3-5.) In its letter, CtW premised its allegations against CHS on an analysis of publicly available Medicare data, which compared CHS's admission rates to nationally-based expectations. (Id. at 3, 6.) From that comparative analysis, CtW expressed its conclusion that the data was “alarming” and that “many CHS hospitals exceed their expected ED admissions.” (Id. at 6.) CtW thus accused CHS in the letter of promoting “Aggressive Emergency Room Admission Practices” and risking government intervention. (Id. at 6.) In its letter, CtW demanded that CHS's Board immediately appoint a special committee to investigate and “correct inadequate disclosure on this issue.” (Id. at 8.)

         Defendants assert that Lead Plaintiff was aware of this information from Michael Garland, who allegedly reviewed and assessed CtW's letter to CHS before he joined the New York City Comptroller's Office. From 2006 to 2010, according to Defendants, Michael Garland was the Director of Value Strategies at CtW, where he was responsible for leading shareowner initiatives for CtW and its affiliated union pension funds. (Doc. No. 277-3 at 4.)[1] Defendants claim that while still there and shortly before CtW sent its September 2010 letter to CHS, Garland reviewed a fairly final draft of the letter. (Id. at 7-9.) Garland allegedly understood that letter to raise questions about CHS's billing practices and disclosure. (Id. at 11.) According to Defendants, Garland believed that the allegations made by CtW's letter “could impact [CHS's] share price.” (Id. at 12.)

         On September 13, 2010, allegedly, Garland left CtW and joined the Office of the New York City Comptroller's Office as its Executive Director for Corporate Governance. (See Id. at 3, 6.) At least according to Lead Plaintiff's declarant, the New York City Comptroller's Office manages the Lead Plaintiff's investments. (Doc. No. 272-1 ¶¶ 7-8.) In his position at the Comptroller's Office, Garland allegedly leads Lead Plaintiff's program of “engaging portfolio companies”-including CHS-“on corporate governance and sustainability and responsible business practices.” (Doc. No. 277-3 at 13.) Allegedly, despite what Garland knew, the Lead Plaintiff proceeded to purchase nearly 450, 000 shares of CHS stock after he joined the Comptroller's Office but before Tenet revealed to the market what Garland allegedly knew. (See Doc. No. 277-6.) According to Defendants, those shares account for more than half of the CHS shares that Lead Plaintiff held when Tenet made its accusations. (Id.)

         PROCEDURAL BACKGROUND

         The procedural history of this case starts eight years ago. In May and June 2011, three different shareholders initially filed putative securities fraud class actions against CHS and certain of its officers and directors. On January 3, 2012, Judge John T. Nixon granted Lead Plaintiff's motion to consolidate cases, for appointment as lead plaintiff, and for approval of selection of lead counsel, thereby appointing Lead Plaintiff as lead plaintiff and Lead Plaintiff's counsel as lead counsel. (Doc. No. 64.) On July 13, 2012, Lead Plaintiff filed an Amended Complaint. (Doc. No. 68.) On September 11, 2012, Defendants filed a motion to dismiss the Amended Complaint (Doc. No. 73), which the parties briefed through the end of January 2013 and again from December 2013 through June 2014.

         On August 20, 2015, Magistrate Judge Joe Brown granted Lead Plaintiff's oral motion to file an amended complaint to take account of developments in the law, thereby mooting the pending motion to dismiss. (Doc. No. 159.) Lead Plaintiff, in turn, filed its First Amended and Consolidated Class Action Complaint, i.e., the FAC. (Doc. No. 170.) Defendants filed a motion to dismiss that complaint. (Doc. No. 177.)

         Judge Kevin Sharp granted Defendants' motion and dismissed the case with prejudice on June 16, 2016. (Doc. No. 249.) This order was appealed, and the Sixth Circuit reversed and remanded. (Doc. No. 253.) Defendants filed a petition for an en banc review, which was denied (see No. 16-6059, App. Dkt. No. 59-1 (6th Cir. Jan. 18, 2019)), as was Defendants' subsequent petition to the Supreme Court for a writ of certiorari. (Doc. No. 291.)

         Separately, on February 9, 2018, Defendants filed a renewed partial motion to dismiss. (Doc. No. 257.) Chief Judge Waverly Crenshaw denied the partial motion to dismiss on September 24, 2018. (Doc. No. 285.)

         On May 7, 2018, Lead Plaintiff filed a Motion to Certify Class-the subject of this memorandum opinion. (Doc. No. 270.) This case was transferred to the undersigned District Judge on October 19, 2018. (Doc. No. 292.)

         Lead Plaintiff now seeks certification of a class consisting of all persons and entities who purchased or otherwise acquired the publicly traded common stock of CHS from July 27, 2006 through October 26, 2011, inclusive, and who were damaged thereby. (Doc. No. 271 at 1 (citing FAC ¶ 481).) Excluded from the proposed Class are Defendants, the officers and directors of the Company, at all relevant times, members of their immediate families and their legal representatives, heirs, successors or assigns and any entity in which Defendants have or had a controlling interest. (Id.) Lead Plaintiff also seeks an order appointing Lead Plaintiff as Class Representative and Lowey Dannenberg, P.C. as Class Counsel.

         LEGAL STANDARD

         The principal purpose of class actions is to achieve efficiency and economy of litigation, both with respect to the parties and to the courts. Gen. Tel. Co. of the Southwest, 457 U.S. at 159. As an exception to the usual rule that litigation is conducted by and on behalf of individual named parties, “[c]lass relief is ‘peculiarly appropriate' when the ‘issues involved are common to the class as a whole' and when they ‘turn on questions of law applicable in the same manner to each member of the class.'” Id. at 155 (quoting Califano v. Yamasaki, 442 U.S. 682, 701 (1979)). Before certifying a class, district courts must conduct a “rigorous analysis” of the prerequisites of Rule 23 of the Federal Rules of Civil Procedure. Id. at 161. A class action may not be certified merely on the basis of its designation as such in the pleadings. See In re Am. Med. Sys., Inc., 75 F.3d 1069, 1079 (6th Cir. 1996). District courts have broad discretion in deciding whether to certify a class but must exercise that discretion within the framework of Rule 23. See Coleman v. Gen. Motors Acceptance Corp., 296 F.3d 443, 446 (6th Cir. 2002). However, “when in doubt as to whether to certify a class action, the district court should err in favor of allowing a class.” Rankin, 220 F.R.D. at 517 (citing Eisenberg v. Gagnon, 766 F.2d 770, 785 (3d Cir. 1985)).

         As touched on above, in evaluating whether class certification is appropriate, “it may be necessary for the court to probe behind the pleadings, ” as the issues concerning whether it is appropriate to certify a class are often “enmeshed” within the legal and factual considerations raised by the litigation. Gen. Tel. Co. of the Southwest, 457 U.S. at 160; see also In re Am. Med. Sys., 75 F.3d at 1079. Moreover, the party seeking class certification bears the burden of establishing that the prerequisites are met by a preponderance of the evidence. See Alkire v. Irving, 330 F.3d 802, 820 (6th Cir. 2003).

         A class action will be certified only if, after rigorous analysis, the court is satisfied that the prerequisites of Fed.R.Civ.P. 23(a) have been met and that the action falls within one of the categories prescribed in Fed.R.Civ.P. 23(b). Bridging Cmtys. Inc. v. Top Flite Fin. Inc., 843 F.3d 1119, 1124 (6th Cir. 2016). A party seeking to maintain a class action must be prepared to show that Rule 23(a)'s numerosity, commonality, typicality, and adequacy of representation requirements have been met. Comcast v. Behrend, 569 U.S. 27, 33 (2013). In addition, the party must satisfy, through evidentiary proof, at least one of Rule 23(b)'s provisions. Id. at 34.

         Where, as here, Plaintiff relies on Rule 23(b)(3), the court can certify a Rule 23(a)-compliant class if the court finds that the questions of law or fact common to class members predominate over any questions affecting only individual members and that a class action is superior to other available methods for fairly and efficiently adjudicating the controversy. The factors pertinent to these findings include: (A) the class members' interests in individually controlling the prosecution or defense of separate actions; (B) the extent and nature of any litigation concerning the controversy already begun by or against class members; (C) the desirability or undesirability of concentrating the litigation of the claims in the particular forum; and (D) the likely difficulties in managing a class action. Fed.R.Civ.P. 23(b)(3).

         DISCUSSION

         Although Lead Plaintiff retains the initial burden of demonstrating compliance with the provisions of Rule 23(a) and Rule 23(b)(3), Defendants challenge compliance with these rules only in two respects: whether the Lead Plaintiff has typical claims, and whether Lead Plaintiff is an adequate class representative. Accordingly, the Court will first consider Defendants' two objections and then, if necessary, consider whether Lead Plaintiff has carried its burden in all other respects.

         I. Typicality and Adequacy

         Rule 23(a)(3) requires Lead Plaintiff to show that its claims are typical of the claims of the proposed class. A plaintiff's claim is typical if it arises from the same event, practice, or course of conduct that gives rise to the claims of other class members and if it is based on the same legal theory. In re Am. Med. Sys., 75 F.3d at 1082. Lead Plaintiff's interests must be aligned with those of the putative class and, in pursuing its own claims, Lead Plaintiff must also advance the interests of the class members. Id.

         Rule 23(a)(4) requires the Court, before certifying the proposed class, to find that Lead Plaintiff will fairly and adequately protect the interests of the class. To satisfy the requirement of adequacy, “a class representative must be part of the class and possess the same interest and suffer the same injury as the class members.” Young v. Nationwide Ins. Co., 693 F.3d 532, 537 (6th Cir. 2012) (quoting Wal-Mart Stores, 564 U.S. at 348-49). In other words, Lead Plaintiff must have common interests with unnamed members of the class and must be able to vigorously prosecute the interests of the class through qualified counsel.

         Lead Plaintiff argues that it meets the typicality requirement because its theory of liability is the same as those of the proposed class members. Thus, Lead Plaintiff asserts that its interests are aligned with those of the proposed class and that, in pursuing its own claims, it will adequately advance the interests of the proposed class. Defendants, however, argue that Lead Plaintiff does not satisfy the typicality and adequacy requirements for class certification, because (according to Defendants) Lead Plaintiff is subject to a unique defense as to reliance.

         A. Whether the Unique Defense Asserted Against Lead Plaintiff Defeats Typicality and Adequacy

          1. Legal Landscape

         “Courts of appeals have held that unique defenses bear on both the typicality and adequacy of a class representative.” Beck v. Maximus, Inc., 457 F.3d 291, 296 (3d Cir. 2006). “The presence of even an arguable defense peculiar to the [proposed class representative] may destroy the required typicality of the class as well as bring into question the adequacy of the . . . representative.” Id. (quoting J.H. Cohn & Co. v. Am. Appraisal Assocs., Inc., 628 F.2d 994, 999 (7th Cir. 1980)). As to unique defenses, “the adequacy prong of Rule 23 overlaps with considerations of typicality.” O'Neil v. Appel, 165 F.R.D. 479, 493 (W.D. Mich. 1996). Thus, “to the extent that [a proposed representative's] claims are not typical, he also must be deemed an inadequate representative.” Id.

         Litigating a unique defense “can distract the named plaintiff to such an extent that its representation of the interests of the rest of the class will suffer.” Beach v. Healthways, Inc., No. 3:08-0569, 2009 WL 3245393, at *4 (M.D. Tenn. 2009). The facts and circumstances underlying the unique defense may “become the focus of cross-examination . . . at trial, ” Lapin v. Goldman Sachs & Co., 254 F.R.D. 168, 177 (S.D.N.Y. 2008) (citing In re NYSE Specialists Sec. Litig., 240 F.R.D. 128, 144 (S.D.N.Y. 2007)), and risk “focus[ing] the jury's attention away from the relevant class issues.” Richburg v. Palisades Collection LLC, 247 F.R.D. 457, 464 (E.D. Pa. 2008).

         Defendants do not have to prove a unique defense against the proposed class representatives to defeat certification. It is problem enough that the proposed representatives are “subject to such defenses, ” which “renders their claims atypical of other class members.” Shiring v. Tier Techs., Inc., 244 F.R.D. 307, 314 (E.D. Va. 2007). At the class-certification stage, therefore, the court has to make only “a preliminary determination of whether the [proposed representative] would be subject to unique defenses, not whether such defenses will ultimately be successful.” Beach, 2009 WL 3245393, at *4. However, at the same time, “a defendant must show some degree of likelihood a unique defense will play a significant role at trial. If a court determines an asserted unique defense has no merit, the defense will not preclude class certification.” Beck v. Maximus, Inc., 457 F.3d 291, 300 (3d Cir. 2006); see also Lapin, 254 F.R.D. at 179 (stating that a unique defense must be meritorious enough to require the plaintiff to devote considerable time to rebut).

         In securities class actions, unique defenses barring class certification most commonly concern reliance. See Fleck v. Cablevision VII, Inc., 763 F.Supp. 622, 627 (D.D.C. 1991) (“Several courts have denied class certification in securities actions when the proposed class representatives were subject to special reliance issues.”).[2] For example, in Beach, the court declined class certification because the proposed class representative's agent had met with the defendant company's officers before recommending to the proposed class representative that it buy stock, thereby subjecting the proposed class representative to unique defenses based on possibly learning non-public information about the defendant company before purchasing some of its stock. 2009 WL 3245393, at *5.

         2. Application

         Defendants argue that Lead Plaintiff is subject to a unique reliance defense because it bought over half its relevant CHS stock during a time in which Michael Garland, one of its investment manager's senior-most employees, knew of allegations concerning Defendants' supposed improper admissions scheme that had been concealed from the market. Defendants thereby contend that Garland's knowledge raises significant and unique triable issues of fact that make Lead Plaintiff's claims atypical and Lead Plaintiff an inadequate class representative. Referring to the set of asserted circumstances referenced above concerning Michael Garland's move from CtW to the New York City Comptroller's Office, Defendants advance the following alleged facts to support their argument:

• Shortly before joining the Comptroller's Office on September 13, 2010, Garland reviewed a “fairly final” draft of CtW's letter to CHS. (Doc. No. 277-3 at 8-9.)
• Basing its accusations on analyses of publicly available Medicare data, CtW claimed in its letter that “CHS had instituted a corporate policy that appears to have resulted in the admission of many patients who may not have required inpatient care” and that such higher-than-expected admissions rates seem to begin after CHS acquires a hospital and then continue to grow thereafter. (Doc. No. 277-1 at 2, 4-5.)
• Garland recalls understanding CtW's letter to allege the nub of the supposed admissions scheme about which, according to Lead Plaintiff, Defendant misled it for almost another seven months. (Doc. No. 277-3 at 9-10.) Garland further understood CtW's letter to raise concerns about “long-term sustainability or risk to shareholder value” that “could impact [CHS's] share price.” (Id. at 11-12.)

         For purposes of the Class Certification Motion, the Court will accept the truth of these asserted facts, as well as the other asserted facts ...


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