Opinion ID: 2976605
Heading Depth: 3
Heading Rank: 2

Heading: UAHC’s Statements in its SEC Filings

Text: Plaintiffs argue that the statements made by UAHC in its SEC filings constitute the type of material statements that required disclosure that the company had been making illegal payments to No. 07-1298 Zaluski, et al. v. United American Healthcare Corp., et al. Page 8 Ford. We conclude that the statements made were not material, as they were “loosely optimistic statements” that are not the type that are relied on by investors. City of Monroe, 399 F.3d at 671. Plaintiffs allege that UAHC made statements that obligated them to disclose the payments to Ford when they made standard disclosures, as required by the SEC, in the Form 10-Ks and 10-Qs filed with the SEC and made available to the public as required by law. In the SEC filings referenced by Plaintiffs, UAHC referred to the existence of the TennCare contract, the terms of the contract, and the length of the renewed contract, which was 42 months, to last from July 1, 2000 to December 31, 2003. These statements contained a paragraph that disclosed that the license with Tennessee was subject to “denial, limitation, suspension or revocation if there is a determination that the plans are” not complying with the contract or statutes, or failing to provide the care expected under the contract. The filings referred to the pending expansion into new areas of Tennessee and the resulting increase in subscribers for UAHC. While many of the statements also made reference to “future annual increases in average premiums to be determined by the State of Tennessee,” such statements were accompanied by the disclosure that “[s]uch increases are in lieu of the quarterly adverse selection payments previously made to compensate managed care organizations . . . .” Similarly, references to “increased capitation rates” were accompanied by statements that the change resulted from the elimination of “the practice of providing retroactive payments.” These statements are not the type of misleading statements that give rise to a duty to disclose; they are accurate portrayals of the status of the company and its operations inside Tennessee. Plaintiffs argue that UAHC’s failure to disclose the payments to Ford resulted in a breach because as a result of those payments, Tennessee could choose to sanction UAHC or terminate the CRA. However, as in In re Sofamor Danek, while the payment to Ford could arguably have been a piece of hard information that was subject to disclosure, the potential consequences of these payments are the type of predictions and soft information that do not give rise to a duty of disclosure. 123 F.3d at 402. Further, the evidence of internal investigations and reports that gave rise to a duty to disclose in Helwig and City of Monroe are not present here; there is no evidence that UAHC anticipated that the Ford payments would lead to a termination or modification of its contract with TennCare. See Helwig, 251 F.3d at 554-55 (release of statements that company was comfortable with profit predictions required disclosure of developed analysis showing that the company actually expected significantly lower levels of earnings); City of Monroe, 399 F.3d at 672 (release of statement of confidence in safety of tires required release of evidence in the company’s possession demonstrating lack of tire safety). In addition to the statements repeated throughout the Form 10-Ks and 10-Qs, some of the filings make reference to the viability of the UAHC brand, OmniCare-TN. For example, in UAHC’s October 15, 2002 10-K, the Company stated that: Fiscal 2002 was a year of significant changes for OmniCare-TN and the other [MCOs] having contracts with TennCare, a State of Tennessee program that provides medical benefits to Medicaid and working uninsured and uninsurable recipients. In a climate of continually rising medical costs, several of TennCare’s major MCOs ceased doing business in fiscal 2002. In contrast, TennCare has expressly regarded OmniCare-TN as one of TennCare’s viable MCOs. Compl. ¶ 78. This statement is most properly described as immaterial puffery, as thoroughly described by the City of Monroe Court. See 399 F.3d at 671. It is further distinguishable from the single statement that the City of Monroe Court found to be actionable because, unlike Firestone’s knowledge that companies and countries were beginning to doubt the safety of their tires, id. at 672, there is no evidence that UAHC was aware that OmniCare was not properly serving its client base. In addition, to the extent that some of these statements may have been made after the Company became aware that the payments to Ford were being investigated, such knowledge does not impute No. 07-1298 Zaluski, et al. v. United American Healthcare Corp., et al. Page 9 knowledge of the myriad of potential consequences that could occur as a result of the Ford investigation, and as explained above, UAHC had no duty to disclose what it had not yet discovered or concluded. Lastly, the August 25, 2004 10-K includes a statement of “Concentration of Risk,” which states that “[d]uring the years ended June 30, 2004, 2003 and 2002, approximately 100%, 87% and 91%, respectively, of the Company’s revenues were derived from a single customer, [TennCare]. . . .” Compl ¶ 96. This statement is not misleading, as it is an accurate statement of UAHC’s revenues. Further, as demonstrated above, the statement does not give rise to a duty to disclose the payments to Ford, as there is no evidence that UAHC internally thought that the contract with TennCare was subject to termination as a result of the payments to Ford.