Shutterstock_187661018Plaintiffs win a rare Fifth Circuit victory

If you represent a client who bought a stock that shed value more and more as bad news about the company trickled out, you can take courage from a rare pro-plaintiff decision by the Fifth Circuit. The court reversed the dismissal of a securities fraud class action on a tricky issue in such cases — the element of "loss causation".

The appeals court panel held that a class of investors in Amedysis — which "provides home health services to patients with chronic health problems" — could take their securities fraud case beyond the motion to dismiss stage. Public Employees' Retirement Sys. of Mississippi v. Amedisys, Inc., No. 13-30580 (5th Cir. Oct. 2, 2014).

Loss causation — huh?

The district court in Baton Rouge had thrown out the complaint on the ground that it failed to plead a plausible basis for the "loss causation" element of their claim.

Loss causation means, in essence, that false information about a company inflated the market price of a stock or other security and caused investors to overpay for the security. Proving it generally requires evidence showing that the post-purchase public airing of "corrective disclosures" about the company coincided with a drop in the market price of security.

Amedisys shareholders alleged that the company and company insiders hid the fact that it regularly engaged in fraudulently claiming reimbursement from Medicaid, grossly inflating its earnings beyond a sustainable amount. The district court thought that the public airing in dribs and drabs of the truth about Amedisys's crooked ways did not count as "corrective disclosure" of the true facts regarding those crooked ways.

Fifth Circuit decision

Citing the Supreme Court's ruling on loss causation in Dura Pharmaceuticals, Inc. v. Broudo, 544 U.S. 336 (2005), the court of appeals held:

According to the Complaint, Defendants made materially false and misleading statements about their compliance to artificially inflate the price of Amedisys securities throughout the Class Period. Once Amedisys was placed under the spotlight of government scrutiny for Medicare fraud, its earnings dropped significantly because its employees could no longer continue exploiting Medicare reimbursements. After each negative partial disclosure, Defendants attempted to mitigate the impact of those disclosures by making contemporaneous misstatements to the market and prevented the full truth from being revealed at once. As a result, PERSM and the other Class members purchased Amedisys securities at artificially inflated prices and suffered economic loss when the artificial inflation dissipated and the price of these securities declined in response to the series of partial disclosures revealing the true nature of Amedisys’s business practices.

Taking the above facts as true, the 2008 Citron Report, the Swartz and Graham resignations, the 2010 WSJ Article and the above governmental investigations, coupled with Amedisys’s second quarter 2010 earnings report, collectively constitute and culminate in a corrective disclosure that adequately pleads loss causation for purposes of a Rule 12(b)(6) analysis. This holding can best be understood by simply observing that the whole is greater than the sum of its parts. The district court erred in imposing an overly rigid rule that government investigations can never constitute a corrective disclosure in the absence of a discovery of actual fraud.4 5 “To require, in all circumstances, a conclusive government finding of fraud merely to plead loss causation would effectively reward defendants who are able to successfully conceal their fraudulent activities by shielding them from civil suit.” In re Questcor Sec. Litig., No. SA CV 12-01623[,] 2013 WL 5486762[,] at *22 (C.D. Cal Oct. 1, 2013). Indeed, “there is no requirement that a corrective disclosure take a particular form or be of a particular quality . . . It is the exposure of the fraudulent representation that is the critical component of loss causation.” In re Bristol Meyers Squibb Co. Sec. Litig., 586 F. Supp. 2d 148, 165 (S.D.N.Y. 2008) (citations and internal quotation marks omitted). Accordingly, when this series of events is viewed together and within the context of Amedisys's poor second quarter 2010 earnings, it is plausible that the market, which was once unaware of Amedisys's alleged Medicare fraud, had become aware of the fraud and incorporated that information into the price of Amedisys's stock.

A motion to dismiss challenges the adequacy of the initial pleading. To plead loss causation in a private securities action, the complaint need only allege facts that support an inference that the Defendants’ misstatements and omissions concealed the circumstances that bear upon the loss suffered such that Plaintiffs would have been spared all or an ascertainable portion of that loss absent the fraud. Lentell, 396 F.3d at 175. Whether the connection between Amedisys’s misleading statements and the alleged corrective disclosures may ultimately be found too attenuated at a later stage in litigation is a highly fact intensive inquiry that need not be reached at this point. The Complaint consists of over 200 pages of allegations regarding, among other things, Defendants’ fraudulent Medicare billing practices. Where the Complaint sets forth specific allegations of a series of partial corrective disclosures, joined with the subsequent fall in Amedisys stock value, and in the absence of any other contravening negative event, the plaintiffs have complied with Dura’s analysis of loss causation.

Id. at 16-19.


Amedisys teaches how to plead loss causation in cases where the truth comes out gradually and that plaintiffs should now despair a bit less about bringing securities fraud cases within the Louisiana-Mississippi-Texas area over which the Fifth Circuit presides.

Email this postShare this post on LinkedIn
Photo of Barry Barnett Barry Barnett

Clients and colleagues call Barry Barnett an “incredibly gifted lawyer” (Chambers and Partners) who is “magic in the courtroom” (Who’s Who Legal), “the top antitrust lawyer in Texas” (Chambers and Partners), and “a person of unquestioned integrity” (David J. Beck, founder of Beck…

Clients and colleagues call Barry Barnett an “incredibly gifted lawyer” (Chambers and Partners) who is “magic in the courtroom” (Who’s Who Legal), “the top antitrust lawyer in Texas” (Chambers and Partners), and “a person of unquestioned integrity” (David J. Beck, founder of Beck Redden).

Barnett is a Fellow in the American College of Trial Lawyers, and Lawdragon has named him one of the top 500 lawyers in the United States three years in a row. Best Lawyers in America has honored him as “Lawyer of the Year” for Bet-the-Company Litigation (2019 and 2017) and Patent Litigation (2020) in Houston. Based in Texas and New York, Barnett has tried complex business disputes across the United States.

Barnett’s background, training, and experience make him indispensable to his clients. The small-town son of a Texas roughneck and grandson of a Texas sharecropper, Barnett “developed an unusual common sense about people, their motivations, and their dilemmas,” according to former client Michael Lewis.

Barnett has been historically recognized for his effectiveness and judgment. His peers chose him, for example, to the American College of Trial Lawyers and American Law Institute. His decades of trial and appellate work representing both plaintiffs and defendants have made him a master strategist and nimble tactician in complex disputes.

Barnett focuses on enforcement of antitrust laws, the “Magna Carta of free enterprise,” in Supreme Court Justice Thurgood Marshall’s memorable phrase. “Barry is one of the nation’s outstanding antitrust lawyers,” according to Joseph Goldberg, a member of the Private Antitrust Enforcement Hall of Fame. Named among Texas’s top ten antitrust lawyers of 2023, Business Today calls Barnett a “trailblazer” among the “distinguished legal minds” who “dedicate their skill and expertise to the maintenance of healthy competition in various sectors” of the Lone Star State’s booming economy. Barnett is also adept in energy and intellectual property matters and has battled for clients against a Who’s Who list of corporate behemoths, including Abbott Labs, Alcoa, Apple, AT&T, BlackBerry, Broadcom, Comcast, Dow, JPMorgan Chase, Samsung, and Visa.

Barnett commands a courtroom with calm and credibility and “is the perfect lawyer for bet the company litigation,” said Scott Regan, General Counsel of former client Whiting Petroleum. His performance before the Supreme Court in Comcast Corp. v. Behrend prompted the Court to withdraw the question on which it had granted review. The judge in a trial involving mobile phone technology called Barnett “one of the best” and that his opening statement the finest he had ever seen. Another trial judge told Barnett minutes after a jury returned a favorable verdict against the county’s biggest employer that he was one of the two best trial lawyers he’d ever come across—adding that the other one was dead.

A versatile trial lawyer, Barnett knows how to handle a case all the way from strategic pre-suit planning to affirmance on appeal. He’s tried cases to verdict and then briefed and argued them when they went before appellate courts, including the Second, Third, Fifth, and Tenth Circuits, the Supreme Court of Louisiana, and (in the case of Comcast Corp. v. Behrend) the Supreme Court of the United States.

Barnett is a sought-after public speaker, often serving on panels and talking about topics like the trials of antitrust class actions and techniques for streamlining complex litigation. He also comments on trends in commercial litigation and the implications of major rulings for outlets such as NPR, Reuters, Law360, Corporate Counsel, and The Dallas Morning News. He’s even appeared in a Frontline program about underfunding of state pensions, authored chapters on “Fee Arrangements” and “Techniques for Expediting and Streamlining Litigation” (the latter with Steve Susman) in the ABA’s definitive treatise on Business and Commercial Litigation in Federal Courts, 5th, and commented on How Antitrust Enforcers Might Think Like Plaintiffs’ Lawyers.

Clients and other hard graders have praised Barnett for his courtroom skills and legal acumen.

A client in a $100 million oil and gas case, which Barnett’s team won at trial and held on appeal, said Barnett and his team “presented a rare combination of strong legal intellect, common sense about right and wrong, and credibility in the courtroom.” David McCombs at Haynes and Boone said Barnett “has a natural presence that goes over well with juries and judges.”

Even former adversaries give Barnett high marks. Lead opposing counsel in a decade-long antitrust slugfest said “Barry is a highly skilled advocate. He understands what really matters in telling a narrative and does so in a very compelling manner.”

Barnett relishes opportunities to collaborate with all kinds of people. At the Center for American and International Law (CAIL), founded by a former prosecutor at Nuremberg in 1947 and headquartered in the Dallas area, he has served on the Executive Committee, co-chaired the committee that produced CAIL’s first-ever strategic plan, supported CAIL’s Institute for Law Enforcement Administration and other development efforts, and proposed formation of a new Institute for Social Justice Law. CAIL’s former President David Beck said “Barry is extremely bright” and is “very well prepared in every lawsuit or professional task he undertakes.”

Barnett is also a Trustee of the New-York Historical Society, a Sterling Fellow at Yale, a member of the Yale University Art Gallery’s Governing Board, a winner of the Class Award for his work on behalf of his college class, and a proud contributor to the Yellow Ribbon Program at Harvard Law. Barnett’s pro bono work includes leading the trial team representing people who are at greatest risk of severe illness and death as a result of being exposed to the novel coronavirus SARS-CoV-2 while being detained in the Dallas County jail—work for which he received the NGAN Legal Advocacy Fund RBG Award.

At Susman Godfrey, Barnett has served on the firm’s Executive Committee, Employment Committee, and ad hoc committees on partner compensation, succession of leadership, and revision of the firm’s partnership agreement. He also twice chaired the Practice Development Committee.

Barnett understands that clients face many pressures. Managing the stress is important, especially in matters that take years to resolve. He encourages clients to call him whenever they have a question or concern and to keep the inevitable ups and downs in perspective. He wants them to know that he will do his level best to help them achieve their goals. He also strives to foster trust and to make working with him a pleasure.

Cyrus “Skip” Marter, the General Counsel of Bonanza Creek in Denver and a former Susman Godfrey partner and client, said Barnett is “excellent about communicating with clients in a full and honest manner” and can “negotiate for his clients from a position of strength, because he is not afraid to take a case through a full trial on the merits.” Stacey Doré, the President of Hunt Utility Services and a former client, said that Barnett is “an excellent trial lawyer and the person you want to hire for your bet-the-company cases. He is client focused, responsive, and uniquely savvy about trial and settlement strategy.” A New York colleague said, “Barry is a joy to work with as co-counsel. He tackles complex procedural and factual hurdles capably, efficiently, and without drama.”

Barnett’s wide-ranging experience and calm, down-to-earth approach enable him to connect with clients, judges, jurors, witnesses, and even opposing counsel. He grew up in Nacogdoches, Texas. He co-captained his high school varsity football team as an All-East Texas middle linebacker while also serving as the Editor of Key Club’s Texas-Oklahoma District, won the Best Typist award, took the History Team to glory, and sang in the East Texas All Region Choir. As Dan Kelly of client Vistra Corp. put it, Barnett is “a great person to be around.”

Barnett is steady and loyal. He has practiced at Susman Godfrey his entire career. He and his wife Nancy live in Dallas and enjoy spending time in Houston and New York. Their daughter works for H-E-B in Houston, and their son is a Haynes and Boone transactions lawyer in Dallas.

As a member of Ivy League championship football teams in his junior and senior years at Yale and a parent of two Yalies, Barnett has no trouble choosing sides for “The Game” in November. And he knows how important fighting all the way to the end is. On his last play from scrimmage, in the waning minutes of The Game on Nov. 22, 1980, he recovered a Crimson fumble.

Yale won, 14-0.