Acadia Healthcare Co. Inc. and plaintiffs in a securities class action accusing the company of misleading investors about the strength of its United Kingdom operations have reached a settlement in principle, avoiding a trial that was set for later this month.
According to an order signed by U.S. District Judge William L. Campbell Jr. on Friday, the jury trial previously set for Nov. 18 has now been canceled, and all deadlines are vacated.
The plaintiffs plan to file a motion for preliminary approval of the settlement within 30 days, according to the settlement notice also filed on Friday.
Last month, Judge Campbell granted a partial summary judgment motion filed by investors that focused solely on the issue of reliance, or whether there was a causal connection between the defendants' alleged misrepresentation and the investors' injury. Shortly after, Acadia filed a motion to certify the order for immediate appeal and for a stay of the proceedings.
Acadia had also filed a cross-motion for summary judgment, arguing that the safe harbor provision of the Private Securities Litigation Reform Act bars the suit's claims related to projected earnings at Acadia's U.K. facilities in 2017 and that the suit lacks evidence of loss causation.
The litigation, which dates back to 2018, alleges that in an effort to support a flow of referrals that would fill beds at its inpatient and outpatient residential treatment facilities, "Acadia consistently and repeatedly represented to the public and investors that it provided high-quality patient care."
"In reality, and in stark contrast to defendants' public statements, Acadia's tactic of acquiring facilities and then systemically cutting staff generated alarming incidents of abuse, neglect and, on several occasions, death," the investors said.
The defendants argued that an outside investment adviser for the lead plaintiff, the Chicago Laborers' Pension Fund, knew of certain risks before purchasing Acadia stock during the class period, did not think the company was engaged in fraud after reviewing the alleged corrective disclosures, and did not sell its stock after related financial guidance was issued.
However, Judge Campbell said last month when granting partial summary judgment that the defendants do not explain "how the foregoing shows or supports an inference that the investment advisor would have bought or sold Acadia stock even if it had been aware that the stock's price was tainted by fraud. Nor can the court think of any reason."
On whether the defendants had actual knowledge that the challenged statements were false or misleading when made, the judge said circumstantial evidence in the suit including that the defendants made unreasonable performance expectations, ignored monthly results and forecasts, and sold millions of dollars' worth of Acadia stock months before lowering projected earnings guidance, is sufficient to raise a genuine dispute of fact concerning whether the defendants acted with scienter.
Representatives for the parties did not immediately respond to requests for comment Monday.
The investors are represented by Christopher M. Wood, Jerry E. Martin, Darren J. Robbins, Sam S. Sheldon, Darryl J. Alvarado, J. Marco Janoski Gray, Ting H. Liu and T. Alex B. Folkerth of Robbins Geller Rudman & Dowd LLP, Justin J. Lannoye of Dowd Bloch Bennett Cervone Auerbach & Yokich, and Michael Bauman of Pitta LLP.
The defendants are represented by Steven A. Riley, Milton S. McGee III and Elizabeth O. Gonser of Riley & Jacobson PLC, and David L. Balser, Jessica P. Corley, Lisa R. Bugni and Brandon R. Keel of King & Spalding LLP.
The case is St. Clair County Employees' Retirement System v. Acadia Healthcare Co. Inc. et al., case number 3:18-cv-00988, in the U.S. District Court for the Middle District of Tennessee.
Nov 10
Deal Summary
