Judge Mary McElrory of the District of Rhode Island dismissed a case brought by CVS stockholders against the pharmacy chain, which alleged that the company and its executives downplayed and hid its struggling long-term care business to ensure that CVS’s acquisition of Aetna would proceed smoothly. The judge specifically found that the plaintiffs failed to meet an elevated pleading standard mandated by the cause of action.
The claims arose from CVS’s acquisition of Omnicare, a “national distributor of pharmaceuticals with a leadership role in the skilled nursing facility arena.” The plaintiffs contended that CVS made false and misleading statements and omissions to hide difficulties in long-term care businesses, so as to preserve the upcoming deal with Aetna. The class is defined as those who held stock between the two acquisitions.
The plaintiff brought their claims under § 10(b) of the Exchange Act. The judge explained that claims brought under that section require the plaintiff to “allege sufficient and adequately detailed facts to show that the Defendants either ‘consciously intended to defraud’ or ‘acted with a high degree of recklessness.'” The judge then divided the purported misstatements into three categories; straightforward false statements, failures to disclose customer losses after the Omnicare transaction, and omissions from goodwill assessments attributed to the long-term care business.
The judge found that all three categories of statements did not meet the standard of review. The allegedly false statements were too vague or opinion-based in order to lead to liability. The failure to disclose customer loss was not misleading because CVS’s statements were vague; they did not imply that the sector was growing, which would have required a correction. Finally, turning to goodwill disclosures, the judge found that “no reasonable investor could have believed that the issues the Plaintiffs claim were omitted did not exist.”