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Steve Endress and the Minneapolis v. Gentiva Health Services

November 2, 2011

STEVE ENDRESS AND THE MINNEAPOLIS POLICE RELIEF ASSOCIATION, ON BEHALF OF THEMSELVES AND ALL OTHERS SIMILARLY SITUATED, PLAINTIFFS,
v.
GENTIVA HEALTH SERVICES, INC., RONALD A. MALONE, ANTHONY H. STRANGE, AND JOHN R. POTAPCHUK, DEFENDANTS.
CEMENT MASONS & PLASTERERS JOINT PENSION TRUST, ON BEHALF OF THEMSELVES AND ALL OTHERS SIMILARLY SITUATED, PLAINTIFF,
v.
GENTIVA HEALTH SERVICES, INC., RONALD A. MALONE, ANTHONY H. STRANGE, AND JOHN R. POTAPCHUK, DEFENDANTS.
INTERNATIONAL UNION OF OPERATING ENGINEERS PENSION FUND OF EASTERN PENNSYLVANIA AND DELAWARE, ON BEHALF OF THEMSELVES AND ALL OTHERS SIMILARLY SITUATED, PLAINTIFF,
v.
GENTIVA HEALTH SERVICES, INC., RONALD A. MALONE, ANTHONY H. STRANGE, AND JOHN R. POTAPCHUK, DEFENDANTS. ARKANSAS TEACHER RETIREMENT SYSTEM, ON BEHALF OF THEMSELVES AND ALL OTHERS SIMILARLY SITUATED, PLAINTIFF,
v.
GENTIVA HEALTH SERVICES, INC., RONALD A. MALONE, ANTHONY H. STRANGE, JOHN R. POTAPCHUK, AND ERIK R. SLUSSER, DEFENDANTS. DOUGLAS DAHLGARD, ON BEHALF OF HIMSELF AND ALL OTHERS SIMILARLY SITUATED, PLAINTIFF,
v.
GENTIVA HEALTH SERVICES, INC., RONALD A. MALONE, AND ANTHONY H. STRANGE, DEFENDANTS.



The opinion of the court was delivered by: Spatt, District Judge:

MEMORANDUM OF DECISION AND ORDER

On November 2, 2010, Plaintiff Steve Endress filed a securities fraud class action on behalf of all persons who purchased the publicly traded common stock of Gentiva Health Services ("Gentiva") between July 31, 2008 and July 20, 2010. Four other federal class actions were subsequently filed by: Cement Masons & Plasterers Joint Pension Trust ("Cement Masons") on September 14, 2011; International Union of Operating Engineers Pension Fund of Eastern Pennsylvania and Delaware ("International Union") on October 11, 2011; Arkansas Teacher Retirement System ("Arkansas") on October 20, 2011; and Douglas Dahlgard ("Dahlgard") on October 25, 2011. All five actions are on behalf of the same class of investors who purchased Gentiva publicly traded securities during a similar class period, and based upon the same facts alleging violations of the same laws.

Presently before the Court is the issue of whether to consolidate these five similar pending actions: Endress v. Gentiva Health Services, No. 10--CV--5064; Cement Masons & Plasters Joint Pension Trust v. Gentiva Health Services, No. 11--CV--4433; Interanational Union of Operating Engineers Pension Fund of Eastern Pennsylvania & Delaware v. Gentiva Health Services, No. 11--CV--4906; Arkansas Teacher Retirment System v. Gentiva Health Services, No. 11-CV-5126, and Douglas Dahlgard v. Gentiva Health Services, No. 11-CV-5199. In addition, there is an outstanding motion by Plaintiff Steve Endress to withdraw as named plaintiff. Finally, it is necessary for the Court to determine the appropriate procedure to appoint a lead plaintiff if the five actions are consolidated.

I. BACKGROUND

As stated above, on November 2, 2010, Plaintiff Steve Endress filed the initial action, Endress v. Gentiva Health Services, against the Defendant Gentiva and three of its executives, the Defendants Ronald A. Malone, Anthony H. Strange, and John R. Potapchuk. Endress alleges that Gentiva, which is a publicly traded health care provider, artificially inflated its stock price through a scheme that involved ordering unnecessary medical care for clients, and then billed the federal government for these illegitimate expenses. Endress further alleges that when the scheme came to light, Gentiva's stock price dropped precipitously, and, as a person who had purchased Gentiva stock while its price was artificially inflated, he was harmed. Endress seeks relief on behalf of himself and all persons who purchased Gentiva stock during the period of the alleged fraud, which he identifies as being from July 31, 2008 to July 20, 2010 ("Class Period 1").

On January 21, 2011, the Minneapolis Police Relief Association ("MPRA") filed a motion to intervene as a plaintiff in the Endress action pursuant to Fed. R. Civ. P. 24(b)(1)(B). MPRA also requested to be named lead plaintiff pursuant to the Private Securities Litigation Reform Act, 15 U.S.C. §78u-4 et seq., ("PSLRA"). The MPRA is a public pension fund that purchased an undisclosed amount of Gentiva stock during Class Period 1. The Defendants did not oppose the MPRA's motion to intervene. However, they did oppose the MPRA's motion to be named as lead plaintiff, on the ground that the MPRA had not satisfied certain prerequisites for this designation that are set forth in the PSLRA. On July 19, 2011, the Court ordered that the MPRA's motion to intervene was granted but that its motion to be appointed lead plaintiff was denied without prejudice.

On July 25, 2011, Endress sought to withdraw as a named plaintiff and the MPRA renewed its motion to be appointed lead plaintiff, pursuant to the PSLRA. No objections were filed and the motion is currently still pending.

Thereafter, on September 14, 2011, Cement Masons filed an almost identical action, naming Gentiva and the same three executives, Ronald A. Malone, Anthony H. Strange, and John R. Potapchuk, as defendants. Cement Masons alleges that during the same Class Period, between July 31, 2008 and July 20, 2010, the Defendants issued materially false and misleading statements regarding the company's business and financial results, which thereby artificially inflated the stock price. Similarly, on October 11, 2011, International Union filed an action on behalf of the same class of investors who purchased Gentiva public traded securities with the same allegations against the same defendants. The only difference between the previous two actions and the International Union action is that the latter complaint alleges a Class Period between July 31, 2008 and September 30, 2011 ("Class Period 2").

On October 20, 2011, Arkansas filed another almost identical action as the above three, with the exception of adding one additional defendant, Eric R. Slusser, the company's CFO. Arkansas alleges that it suffered $1.29 million in losses during Class Period 2. Finally, on October 25, 2011, Dahlgard filed a fifth also almost identical action, against only Gentiva, Malone, and Strange, alleging $275,000 in losses between July 31, 2008 and October 4, 2011 ("Class Period 3").

Following the filing of all five actions, the Plaintiffs in each case wrote a letter to the Court articulating their support for consolidation. They all contend that the cases raise substantially similar questions of law and fact and that consolidation would save judicial and litigant resources. However, none of the parties have actually filed a motion for consolidation.

In addition, all five parties are requesting the Court to consider them as a suitable lead plaintiff in the proposed consolidated action. Cement Masons argues that it has suffered a meaningful $40,000 loss on its investment in 4,470 shares of Gentiva stock and, as an institutional investor with prior experience in a securities case, it is familiar with its fiduciary obligations to the class. International Union claims that it is the most appropriate lead plaintiff because its complaint adopts a longer and more inclusive class period, which is proper as it encompasses more potential class members. Arkansas claims that its $1.29 million in losses dwarfs those of any other plaintiff seeking appointment of lead plaintiff, and is presumptively the most qualified because of its extensive prior experience in serving as lead plaintiff. Finally, Dahlgard argues that he has incurred the greatest amount of losses and exhibits the adequacy and typicality to serve as lead plaintiff in this matter.

Both Cement Masons and International Union contend that MPRA should not be considered as lead plaintiff because (1) it purchased less shares and suffered smaller losses on its investment in Gentiva; and (2) under the PSLRA, the Court is required to appoint a lead plaintiff among class members who either filed the complaint or made a timely motion, neither of which condition MPRA has satisfied. In response, MPRA asserts that both Cement Masons and International Union waited more than ten weeks to file a complaint and essentially oppose MPRA's renewed motion, and that their requests are sudden and late considering MPRA first sought to be appointed lead plaintiff almost nine months ago. In addition, MPRA criticizes Dahlgard's qualifications to be appointed lead plaintiff.

Therefore, there are three issues presently before the Court. The first matter is the motion by Endress to withdraw as Named Plaintiff. The second question is whether the five Gentiva actions should be consolidated. As none of the parties have actually filed a motion in this respect, the Court will consider the issue of consolidation sua sponte. Third, the Court must resolve the dispute as to the ...


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